Previously we had commented on the in duplum rule and its connection to the NCA and also reported on the judgment of Judge du Plessis on the declaratory order brought by the National Credit Regulator which dealt with procedural and other legal issues relating to the debt rearrangement process, but also dealt with the issue of the so-called statutory “in duplum” in terms of Section 103(5) of the National Credit Act.

Now Maureen Marud, a Consumer Editor at Independent Newspapers, reports on IOL that:

“Two of the four major banks are challenging a Pretoria High Court judgment that was hailed as a “victory for consumers” when it was delivered last month.

Standard Bank and Nedbank are the first credit providers to apply for leave to appeal against a ruling by Judge Ben du Plessis, ordering creditors to limit the interest and other costs they have been charging under the common law in duplum rule when a debtor’s payments are in default.”

The report goes on to give some consumer attorneys’ opinions on the appeal which includes a comment by consumer attorney Stephen Logan who says:
“It is stupid to appeal a judgment in which the judge is just telling them what the law says. Standard Bank and Nedbank must go back to Parliament and say the law’s limitation on what can be charged is wrong. I think the new law is perfectly valid. It is there to say the old in duplum rule was not protecting consumers. The law is now saying credit providers can only recover double what was initially owed.”
The article then concludes that:
“‘Giving reasons for their application, the banks say the judge should have found that the section of the National Credit Act “operates as a moratorium against payments of the fees or costs or interest charges” while the consumer is in default, “but does not affect an underlying obligation to make a full payment in the future …”

They say the judge erred in declaring that the underlying obligation to pay the fees or costs or interest charges fell away entirely, and without regard to the liability of the consumer once the default was purged.’”

The relevant portion of Judge du Plessis’s judgment, which was a rubber stamping of the order sought by the NCR, was that the court interpreted Section 103(5) to mean:
“a) the amount contemplated in sections101(1)(b) to (g) which accrues while the consumer is in default may not exceed, in aggregate, the unpaid balance of the principal debt when the default occurred;
b) once the total charges referred to in section 101(1)(b) to (g) equal the amount of the unpaid balance, no further charges may be levied;
c) once the total charges referred to in section 101(1)(b) to (g) equal the amount of the unpaid balance, payments made by a consumer thereafter during a period of default do not have the effect of permitting the credit provider to charge further interest while such default persists.”
With due respect to my colleague Mr Logan, his comment above has, with his consumer-tinted glasses, grossly oversimplified the interpretation of the relevant section of the NCA.

The reasoning of Judge Du Plessis can at best be described as terse for his supporting of the granting of the order:
“Section 103(5) of the Act provides as follows: “Despite any provision of the common law or a credit agreement to the contrary, the amounts contemplated in section 101 (1) (b) to (g) that accrue during the time that a consumer is in default under the credit agreement may not, in aggregate, exceed the unpaid balance of the principal debt under that credit agreement as at the time that the default occurs.” It is unnecessary to quote sections 101(1)(b) to (g) that section 103(5) refers to. Section 101 deals with “cost of credit” and in subsection 1(b) to (g) lists
the admissible components of such costs, being an initiation fee, a service fee,  interest, cost of credit insurance, default administration charges and collection costs.

For the respondents…..it was argued that section 103(5) operates similar to the common law rule of in duplum. “The effect of the in duplum rule is that interest stops running when the unpaid interest equals the outstanding capital. When the debtor repays a part of the interest the quantum of the outstanding interest reduces below the amount of the outstanding capital. Interest again runs until it equals the capital amount.”  The respondents contend that if section 103(5) is interpreted in conformity to the common law, then the effect of section 103(5) is only to create a moratorium on the payment of the cost of credit while the consumer is in default. They further contend that the subsection does not affect the underlying obligation to make payment. Once he or she purges the default, all the costs of credit may be levied again….

In my view the respondents’ contention flies in the face of the clear wording of section 103(5). First, the subsection makes it plain that it applies despite “any provision of the common law” which includes the in duplum rule. In the second place it is the amounts “that accrue” during the default that “may not,
in aggregate, exceed the unpaid balance”. During the period of default no more than the stated maximum can accrue. Put differently, the consumer’s indebtedness in respect of cost of credit cannot grow by more than the stated maximum.

An order in terms of the applicant’s prayer 1.10 must therefore be made.”

The writer is not as legally astute as the counsel for the NCR or the learned judge but to my mind the order does not fully clarify the interpretation of Section 103(5). The judgment seems to suggest that the section is sui generis (it has a legal classification independent of the in duplum doctrine) but then it does not explain exactly how this new creature is meant to operate.

Surely it does not mean that once a NCA consumer is in default, that no more interest than an amount equivalent to the principal debt can be charged at all? The effect of this would be to prefer defaulting consumers above consumers who honour their commitments. Take for example a consumer who honours their payments on their mortgage bond over a 20 year period – they will most certainly end up paying more in interest than the principal debt and will not have the benefits that are being suggested a defaulting consumer will enjoy in terms of Section 103(5).

What does the term “while such default persists” in the court order really mean?

Hopefully these issues and others surrounding Section 103(5) will be answered by the Supreme Court of Appeal.