NCA 103(5) InDuplum Case Begins
This week a very important case is happening in the High Court between consumers and the banks. The case is set to give some more clarity on the National Credit Act Section 103(5)
This section of the NCA expanded on the old common law in duplum rule which had been part of SA law since the 1800s. In Duplum is a way for consumers to be protected from run away arrears interest. The basic idea was that the consumer would never have to pay more than double what they owed due to run away interest if they fell behind on there debt repayments.
When the National Credit Act was introduced the law was expanded in South Africa to include things like collections fees and attorneys costs which are commonly added to a consumer bill once they miss payments.
Interpretation over the section differs however and many credit providers and their rather collections agents (who relay on fees to earn a living) would like to see consumers being forced to pay much more than double so that they can keep on adding costs to the consumers’ account.
Consumers Fight Back
The Stellenbosch University Clinic and Summit Financial Partners are helping 10 consumers to fight back against the banks over this matter. These consumers have been hit with collections bills and even “garnishee orders” (EAOs) that have taken much more than double what they owed when they missed a payment. In one of the matters, a R16 000 loan has supposedly ramped up to R68 500 due to all the bills that credit provider Bayport has sent. They say that they are allowed to charge the consumer this much because it is not just interest charges but also collection charges, admin fees, tracing costs and more that exceed the double up figure.
The Banking Association of South Africa (BASA) along with other interested parties such as the National Credit Regulator, SA Human Rights Commission, Finbond Group, The Debt Collectors Council, Foschini, Edcon, Lewis Group, several law societies and legal firms and Bayport themselves are all going to be involved in this case. Each will want to chip in and make submissions and the case is set to take a long time to be resolved.
Does Debt Review Cure In Duplum?
Part of the confusion about In Duplum is that the old form of in duplum could sort of be somewhat reset. If a consumer started paying again then the debt could once again begin to accrue new interest fees and the figure could swell once again if payments stopped. This meant that over time the debt could creep up again to that figure and if the consumer wanted to sort out the debt they had a lot to pay still. They could end up paying much more than double if they didn’t pay lots, fast enough.
With the new Section 103(5) the double up figure is set in stone once the consumer defaults. The banks don’t like this and argue that in duplum only applies while the consumer is in default and once they start paying again and sort out the default arrears the debt goes back to normal and that the 103(5) in duplum figure can be forgotten. They treat it like they used to treat prescription of debt before clarity was given in that regard. So how does this interact with debt review?
Did The NCT Say Debt Review Resets In Duplum?
A recent ruling by the National Consumer Tribunal discussed (but did not rule on in duplum) and if debt review gets rid of a consumers default on their debts (if so, they would not be over indebted any longer and ironically could potentially qualify for more credit). Some at the NCT feel that this may be the case but no ruling on the matter was given (rather just a sort of opinion during the case). Some credit providers feel that this is what happens (though they still won’t grant the consumer more credit since they think they are too risky and they still track the original contract obligations to fall back on if the review fails). This sort of double standard is not uncommon in the banking world, unfortunately.
Con Court Here We Come
It is hoped that this big case will bring additional clarity to the matter one way or another even if only temporarily. It is likely that all involved will want to appeal and query the results whatever they are since this will have serious financial ramifications. In all likelihood, this case will ultimately set the stage for a massive constitutional battle over the topic in the future.