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Proposed Guidelines for “Statutory in Duplum” Interest & Charges Cap

2 February 2015 No Comment

With consumer debtor’s under pressure the government seems to focusing on the interest that they are being charged. The Department of Trade and Industry has published a PROPOSED GUIDELINES FOR THE INTERPRETATION AND APPLICATION OF SECTION 103(5) OF THE NATIONAL CREDIT ACT 34 OF 2005 (GOVERNMENT GAZETTE No. 38419 , 30 JANUARY 2015). This as a result of “uncertainty in the credit industry regarding the implementation of Section 103(5) of the National Credit Act. The National Credit Regulator therefore publishes these proposed guidelines for information and comment by the public and other interested stakeholders. Interested parties are required to submit their written comments to Lesiba Mashapa at Imashapa@ncr.org.za by 27 February 2015.”

Section 103(5) caps the maximum amount of interest and other costs that can accrue while a debtor is in default, going further than our common law in Duplum which caps only the interest at the amount of the capital but allows payments to firstly be attributed to interest and costs before they are attributed to capital, thereby allowing interest to well exceed capital. The Section 103(5) cap, as explained in Nedbank Ltd and others v National Credit Regulator and Another (2011) 3 SA 581 (SCA), does not require payments to be apportioned first to interest but includes the aggregate total of these costs and interest during the period of default that cannot exceed the capital.

The Guideline hopes to give greater clarity to credit providers, debt collectors, debt counsellors and
payment distribution agents in the application of this aspect of the law.
The Proposed Guidelines are:
“4.1. The consumer cannot waive his or her right to the protection of section 103(5) at
anytime by agreement with the credit provider or debt collector.
4.2. Once the consumer has purged the default by paying all the arrears in relation to the
section 101(1)(b)-(g) charges, section 103(5) no longer applies. If the consumer defaults
again, section 103(5) becomes operative and the amounts that accrued during the first
period of default should be added to the amounts that accrue during the second period
of default and any subsequent periods of default to determine the amount of the
section 101(1)(b)-(g) charges that should not exceed the balance of the unpaid principal
debt. The balance of the unpaid principal debt that should be used in these
circumstances is as at the second period of default and any subsequent periods of
default.
4.3. The legal position under the common law in dupium rule is that unpaid arrear interest
ceases to run when it reaches the unpaid capital amount. When, due to payment,
unpaid interest drops below the outstanding capital amount, interest again begins to
run until it once again equals the amount of the outstanding capital amount.
The position in terms of section 103(5) as outlined by the Supreme Court of Appeal
in Nedbank Ltd and others v National Credit Regulator and Another (2011) 3 SA 581
(SCA) is that once the total charges in sections 101(1)(b)-(g) equal the amount of the
unpaid balance of the principal debt, no further charges may be levied and payments
made by a consumer thereafter during the period of default do not have the effect of
permitting the credit provider to charge further charges while such default persists. It
therefore means that after the section 101(1)(b)-(g) charges had reached the balance of
the unpaid principal debt, the credit provider or debt collector should not levy further
charges. Where the consumer had made payments while in default, the section 101(1)
(b)-(g) charges will not accrue again until they reach the balance of the unpaid principal
debt and the credit provider and debt collector can no longer charge these amounts
in these circumstances.
4.4. Collection costs are defined in section 1 of the NCA as an amount that may be charged
by a credit provider in respect of the enforcement of the consumer’s monetary
obligations under the credit agreement. The fees charged by and payable to attorneys,
advocates, and debt collectors are incurred by the credit providers when collecting the
debt and accordingly form part of collection costs. These fees are therefore covered by
section 103(5) as collection costs and should be included as part of the calculation of
the total charges in terms of section 101(1)(b)-(g) for the purposes of section 103(5).
4.5. The operation of section 103(5) is not affected by the commencement of legal
proceedings by the credit provider or debt collector against the consumer. If during the
course of the legal proceedings, the section 101(b)-(g) charges accrues to equal the
balance of the unpaid principal debt, section 103(5) will prevent these charges from
exceeding the balance of the unpaid principal debt. The credit provider or debt collector
should not levy further charges anymore once the charges have accrued to equal the
balance of the unpaid principal debt. This principle also applies to applications to
the court or National Consumer Tribunal in terms of section 86 of the NCA to restructure.”

We will post our comments on these guidelines in due course.

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