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SA credit companies are using a loophole to make you pay back more than double your original loan

| Economic factors

An application was recently brought to the Western Cape High Court, where the Stellenbosch University Law Clinic, Summit Financial Partners, and 10 other applicants asked to prohibit creditors from adding unlawful costs onto their accounts.

According to Rachelle Bricout of VDMA Attorneys, the application was centred on the so-called in duplum rule, which was written into the National Credit Act in 2007.

The in duplum rule means, literally translated, ‘double the amount’, she said.

“It specifies that interest on a debt will cease to run when the total amount of arrear interest has accrued to an amount equal to the outstanding principal debt.

“By way of an illustrated example, the in duplum rule means that if you borrow R10,000, repay R5,000 of the initial debt and then default on the remainder of the initial debt, you should not be liable to pay more than double the amount of the initial debt based on interest accrued (i.e. not more than R10,000 in this example), no matter how much interest has accumulated over such period.”

However, Bricout noted that credit providers have found a loophole to side-step the in duplum rule and began charging ‘fees’, which fell outside of the scope of the NCA.

By adding such fees to the outstanding amount – for example, administration and legal fees (as opposed to excessive interest) – the result is that the person in default ends up having to pay more than double of the amount of the initial debt, she said.

Bricout cited a recent case where a man loaned R12,000 in April 2011 at an interest rate of 34.4% per annum payable over 36 months.

This meant he had to repay R745 per month in interest for 36 months, totalling R26,837.

In 2011 the man defaulted and the creditor secured an emolument attachment order against his salary. The effect of this was that the man’s employer was ordered to deduct R732 a month until the outstanding debt of R11,685, plus costs, was extinguished.

In 2017, six years later, the man wondered why his employer was still deducting R732 a month from his salary.

The creditor informed him that he still owed more than R7,400. He then discovered that after six years of dutifully paying his monthly debt, he still owed more than half the original amount borrowed.

In addition to the interest charges of R21,019, the creditor had loaded services, legal and other charges of nearly R6,500 onto his account.

“Had he paid this outstanding amount, he would have paid a total of R33,000, almost three times the initial loan. South Africa still awaits judgement in this matter,” Bricout said.

“Thus, the courts need to provide clarity to determine what the in duplum rule consist of and what is excluded,” she said.

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