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University of Stellenbosch’s Law Clinic & Summit Take On Section 103(5)

Back in 2016, Stellenbosch University’s Law Clinic and Summit Financial Partners helped a group of poor farm workers to get relief from their crushing EAOs (commonly called Garnishee orders). It was a landmark case that finally sparked change in how garnishee orders are handled. Subsequently, the Magistrates Court Act has actually been amended to make allowance for the refined processes suggested in that case.

‘Subsequently, the Magistrates Court Act has actually been amended to make allowance for the refined processes suggested in that case’

Now the same partnership are after credit providers and the courts to give clarity on the National Credit Act’s Section 103(5) and common law Induplum.

NCA Section 103(5) Induplum

The basic idea of Section 103(5) induplum is that when you owe someone money and default on payment, then this draws a line on how much they can recover from you in the future. The law says you only ever then have to pay double the defaulted amount. In the past, lawyers and credit providers really abused the old common law induplum rule and people ended up paying many, many times more than double what they originally owed due to the wording of the law.

Even now since the inception of the NCA some credit providers (and even courts) say that if you make a new arrangement to pay off a debt (like debt review) this ‘cures’ the default (even if you are paying a lot less than what you should). That then means they can carry on milking you for more and more payments and fees and interest as long as you pay something and don’t let the debt prescribe. This seems to defeat the fundamental purpose of the law.

EAO Abuse & Induplum

Over the years, consumers who have had “garnishee orders” (EAOs) have often ended up paying ridiculous amounts toward this debt and later find out after many years that they still owe more according to their creditors and greedy lawyers. This is because the lawyers try to say that the collections costs are not part of the induplum amount or they simply ignore the law on induplum.

In an example put forward by Summit and USLC, they shared how one Bayport client who borrowed R12 000 in 2011 (who planned to pay off the debt in 3 years) defaulted on payments. He then received a EAO against his salary of R732/month towards the remaining debt of R11 685.00

After 6 years of payments (+-R52 704.00) Bayport said that he still owned R7400. Why? because they had added interest charges of R21 019 and countless other legal and collection charges of around R6500 onto his debt).

They cite another case where a consumer with a EAO ended up paying over R5000 for a R600 debt.

Credit Providers Hate NCA Section 103(5)

While it may seem that these things are obviously immoral and illegal based on the law, many credit providers and their collections agents say that they are operating according to the limits of the law.

Credit providers collections & accounting units hate this law because it limits how much they can collect from debtors and thus their profit margins. If they ignore it or work around it they can make a lot more money than if they automatically institute it on their systems (as some good credit providers already have). Over the last 10 years, the NCRs and Debt Counsellors have been valiantly trying to get credit providers to abide by the requirements of NCA Section 103(5) to the benefit of consumers but many credit providers have successfully ducked and dived for over a decade.

This case should now force the issue into the public eye and help set absolute clarity on the involved consumer’s matters. This, in turn, should help when the matter arises in other courts across the country.