Court decision opens the way for consumers to get billions in fees back

Judgment is damning for credit providers. Class action suit to follow.
Debt collection has become a thriving business for many law firms. This judgment could put some of them out of action. Image: Waldo Swiegers / Bloomberg

The Cape High Court on Friday delivered a damning judgment against credit providers for overcharging on legal fees and interest in contravention of the National Credit Act (NCA) which came into force in 2007.

The case was brought by Stellenbosch University’s Law Clinic and Summit Financial Partners on behalf of several customers of loan providers who ended up owing several times the initial sum borrowed after falling into default.

One of the applicants, Jenina Matthys, borrowed R5 600, repaid R13 000 and still owes R13 300.

Another applicant, Frans Saulus, borrowed R16 000, repaid R19 000 and still owes R37 000.

The majority of the applicants represented by the Law Clinic are poor, over-indebted and sinking deeper into financial distress.

The nearly 50 respondents in the case included credit providers Bayport, Finbond, Full House Retail and numerous law firms involved in debt collection.

Also cited as respondents were the country’s various law societies, which came out swinging on behalf of their members and their right to continue gouging the poor and those in financial distress.

Debt collection has become a thriving business for many law firms, and this judgment could put some of them out of action.

Declaratory order

The Law Clinic asked the Cape High Court for a declaratory order confirming the NCA’s so-called statutory in duplum (‘double’) rule – meaning a borrower may not be charged more than double the amount of the loan outstanding at the time of default – including all costs associated with the collection of the outstanding amount as well as legal fees.

For example, let’s say you borrow R500 and, once finance and other legally allowed costs of credit are added, you are required to repay R700 over a two-year period. You repay R400 of this and then default. The outstanding amount is R300. You can never be charged more than double this amount (R600) even after interest, admin and legal fees have been added, as long as you remain in default.

The Cape High Court has now confirmed this is the intent and the effect of the NCA.

Opt-out class action suit

Senior Law Clinic attorney Stephan van der Merwe says while he would not be surprised if the credit providers appeal the case, an opt-out class action suit is now being planned for early in the New Year to recover what could be billions of rands in overcharged interest and fees.

An opt-out class action suit means you are automatically included in the case (provided you have suffered from the abuses argued in this latest case) unless you specifically opt out.

Read: Landmark court case seeks to stop over-charging by creditors

Should the losers appeal the Cape High Court judgment, it will delay but not derail the class action suit.

“We are planning to institute a class action suit early in the New Year because we want to interrupt prescription [running out of time] on behalf of all borrowers across the country who have been prejudiced by the behaviour of unscrupulous credit providers,” says Van der Merwe.

The Prescription Act sets time limits for the legal claims related to loans. In the case of micro loans, credit card and overdrafts, it is three years. Any claim brought after this time period is generally invalid, unless there are exceptional circumstances.

Judge incensed

Acting Judge Bryan Hack of the Cape High Court was clearly incensed at the behaviour of credit providers who ran up interest as well as legal and admin fees, and loaded these onto the accounts of the borrowers to the point where they were repaying many multiples of the original amount borrowed.

Credit providers exploited what they claimed was loose wording of the NCA to add legal and other fees to the borrower’s outstanding amount.

This explains how Jenina Matthys ended up repaying R13 000 on a loan of R5 600 and was still being hounded for a further R13 300.

Credit providers and their lawyers relied on the previous common law interpretation of in duplum, which allowed them to load additional costs of debt collection onto the account of the borrower.

They tried to claim that once litigation had commenced, the credit agreement was cancelled and they were no longer limited in running up the costs of collection.

They argued that once judgment was issued against a borrower in default, a new “cause of action” had commenced and that legal fees accumulated thereafter were not collection charges as defined by the NCA.

The judge was buying none of this. The NCA was clear enough and there was no need to further develop the existing law.  

“It is contrived to try to distinguish legal fees which are part of collection costs and legal fees which are part of litigation costs … ,” reads the judgment. “It is a continuation of one cause of action and is simply a further procedural step to enforce the claim.”

Choice quotes from the judgment

  • “The crucial purpose of the [NCA] is set out in the long title of the act in the words ‘to promote responsible credit granting’. The respondents have emphasised the obligation on consumers to be responsible and not seek credit when they know they cannot pay or there is a risk that they might not be able to pay. I am of the view that the credit providers are thereby attempting to shield themselves from the responsibility imposed on them by the credit act.”
  • “The question is whether in the seven years since the Sebola judgment [which argued that the credit market must be competitive and sustainable] credit providers have shown the responsibility called for to balance the respective rights and responsibilities of credit providers and consumers. The facts of this case suggest no. The escalation of indebtedness as a result of costs set out (by the applicants) suggest the credit providers are not even paying lip service to the need for fairness and equity.”
  • “I take judicial notice of the notorious fact that consumers are constantly being cajoled and encouraged [to apply] for credit.”

The judgment

The judgment declared that the NCA’s definition of collection costs included all fees, as well as legal costs. The total amount claimed from a defaulting borrower may not exceed double the outstanding amount at the time of default, even after accounting for collection costs.

The losers in the case were ordered to appoint an expert to determine how much the applicants were overcharged and to refund them.

The losers were ordered to pay the costs of the case.

This is another victory for over-indebted consumers, coming just weeks after the Grahamstown High Court ordered banks to bring their cases before magistrates’ courts rather than high courts. This will drastically lower the legal costs for those in financial distress, and will curb the appetite of banks and their highly paid legal teams to litigate rather than seek accommodation with customers.

Read: The days of banks suing you in the high court are over

Another aspect of the judgment that will bring relief to borrowers is that any legal costs associated with collection must be “taxed” (or agreed with the debtor).

“This is an important improvement as it will bring some oversight to creditors’ unilaterally loading debtors’ bills with their costs,” says Van der Merwe.

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This ruling is long overdue and is good news. It is about time the loan sharks and their lawyers are controlled a bit more.

We have an ample oversupply of loansharks, legal vultures and very shortsighted, self serving, often even corrupt politicians in Mzansi.
They are surely the scourge of the nation.

One of the most revolting TV ads ever, was that one that used to be aired during rugby matches, the Cambist “lady of leisure” one. This was the one in which a woman boasted that she could be a lady of leisure, because she’d “invested” in Cambist, which preyed on the poor by gouging them in exactly the fashion described in the piece above. Wonder what happened to the perpetrators, the notorious Aldums?

Go Gettum !!!!!!!!!!!!!!!!!!!!!!!!!!! Dr. Debt

The greed of businesspeople and the lies of politicians know no limits. All of them are disgusting.

business people is two words, also this is a very small sub-sect of credit collections so please don’t generalize. It’s not a great look.

Is loan shark one or two words?

What a pity there was no class action of this kind during the African Bank scenario which futher impoverished many poor lenders and enriched the African Bank heiracy, leaving the taxpaying clients of other banks to pick up part of the shortfalls. Too little too late in my opinion.

Good judgement, it was long overdue. My only concern is that in our quest to protect debtors, as the National Credit Act does, we once again get the balance wrong and that eventually credit law is skewed in favour of debtors. The ANC has, through its’ socialist policies, made it very difficult to be a landlord, hence the demise of buy to let, which is obviously detrimental to our once thriving property market. I hope the same does not happen to the credit industry….

I have stopped buying to rent years ago.

An unintended consequence, I suspect. But protection for renters is far stronger in places like France. What you find in places like this though, is an insurance industry that crops up to insure landlords against default. This does, unfortunately, then make renting signficantly more difficult as insurers then want all sorts of guarantees put in place – usually by 3rd parties such as parents, employers, blah blah …

The very laws put in place to protect – damage instead.

Take the squatters right laws……

25 years back we had no problem letting people rent small pieces of land from us at the farm for a cheap price, most of these people were down and out types that had no where else to go and would stay in a small carvan ect…..
Once the new laws came into place to protect these people from eviction when they didn’t pay the rentals ect……. The small little profit u made just wasn’t worth the risk
Of having poor people renting yr land…. Hence no landlord doing things like this anymore..
End up poor now days…. Well u stay on the street.

Disbar these “illegal” lawyers since have no honesty whatsoever.

Shame man, now those lawyers are going to go back to chasing ambulances, and we all know milking the RAF and accident victims will also come to an end soon. What will the pond scum do then? Become business rescue practitioners?

A potential, interested Lawyer was told before starting Law-School, on average 5 (Five) Lawyers chase one client. Lawyers are, have to be, prostitutes who do it for money & all it entails.

Time to leave MW. The quality and content of articles and especially comments these days have deteriorated to Facebook and Twitter level. Mindless millennial type rubbish devoid of logic or reason.

Goodbaai then. Have a nice X-mas.

LuluAlert. So why are you still commenting of Moneyweb. 80% of the article appeal to me the rest to others. you cannot write an article that will appeal to everyone. You don’t like it move on. there is enough negativity in this country. try be positive for once.
Moneyweb please keep up the great work.

I assume the banks will shortly include a clause as part of the agreement that in case of default they will be “allowed” to claim a higher amount than the original amount borrowed.

I believe its pretty standard in mortgage bond agreements already (usually 20% more than the amount loaned).

This in their minds will then put the onus on the (desperate) borrower to accept or decline their “offer”.

And what’s wrong with that?
Do what u agreed to do….
After all when the bank lends u 100k, u get 100k, not 50k.

Notice how the only problem comes in when people have to honor what they agreed to in the first place.

If you borrow, the least you should do is honour your debts!

This is very true. If you can’t afford to buy something then don’t buy it.

No arguments against this statement, but personal situations change all the time. Lose your job, have a child, major repair or replacement of an expensive item, medical emergencies, etc. The same could happen to all of us, but just on a different scale to those that earn R3k a month.

The issue isn’t the fact that they are in default, the issue is against the exploitation that takes place once this happens.

On a side note, before we leap to judge irresponsible borrowing (and for certain their are those that are irresponsible) remember that unsecured loans are an essential lifeline to the poor. Can you imagine how complicated and expensive your life would be if you didn’t have a fridge to keep your food fresh? you can’t expect a low income earner to simply have the cash to replace a broken one.

Yes. But if you can afford to pay the loan back one can rather save up the money and buy cash. But we want instant gratification.
A lot of debt is mane for ‘wants’ and not ‘needs’.

I think loan sharks should be banned and/or very strongly regulated.

This ruling could not have come at a better time !

And equally, deliberately making a business out of lending to dubious “borrowers” who you fully intend to gouge when they default (see the loan paybacks of the given examples) likewise carries “consequences”.

Not one bit sorry for these “debt-collecting” scumbags!

Yep – I know one of them (2 partners), and he is holier-than-thou…they are stinking rich because I think they have been ripping people off over a lifetime!

I wonder how this will affect the RAF, seems like there is a whole underground industry around debt collection by overcharging a huge whack of money for legal fees. Not surprising but hopefully this punches a hole in that.

Will be interesting to see if the ruling not only applies to normal credit, like loans, credit facilities and hire-purchase, but to so-called incidental credit agreements, where interest is charged on an overdue account.

If so, suppliers of goods and services will start to insist on payment up front.

Borrowing is a choice. Even if pressured.
It must be understood by the borrower that the resultant debt and all this entails are the consequences.

Two wrongs don’t make a right!

Still waiting for the class action suite against the taxi industry. I guess consumers would rather be killed than taken advantage of by credit providers! Would like a lawyer’s view of how families of those killed by the negligent taxi industry can come together for such an action.

How do you expect someone who keeps on voting for the current guavamund to be financially literate as well? Of course they will keep on believing the cANCer politicians and keep on making debt. Welcome in Africa.

Hi

So if a person has a home loan but is currently under debt review will this ruling be in favor of them as well? Banks currently charge high interest values where the repayment amount is almost 3 times the initial loan amount. The debt counseling companies are not assisting these clients at all.

Thnx

No. The in duplum rule already applied to interest on home loans, car finance, etc.

The interest on the loan may never be more than the original capital sum.

Every debt counsellor should know this.

This new ruling says that the total interest as well as legal costs of debt collection may not be more the original capital sum.

Yep, once more we write a law an create a crime.

Maybe this is why bank shares so low recently?

All this “judgement” will result in is that those that need loans will not get them and they will, over time, starve. Thanks ANC and fellow socialists.

Let me have all the authority…. But none of the responsibility.

Want the money – just don’t want to pay for it.

How does this ruling affect legal fees charged in general for example in my case with my Property Levy Account.

I was owing R 1 500 on the levy Account and now charged R 5 800 in legal fees.

Please advise.

End of comments.

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