Landmark court case seeks to stop over-charging by creditors

Stellenbosch University Law Clinic brought justice to victims of garnishee order abuse. Now it aims to stop over-charging by creditors.
A legal challenge has been mounted against creditors that prey on vulnerable clients, adding fees several times the original debt. Picture: Reuters

Court papers filed in the Western Cape High Court last week by University of Stellenbosch’s Law Clinic and Summit Financial Partners make for disturbing reading. They are asking the court to stop creditors from loading unlawful costs onto the accounts of distressed debtors, which they reckon has cost debtors R1 billion in unlawful fees.

The so-called in duplum (‘double’) rule was written into the National Credit Act (NCA) in 2007, and means that once a borrower is in default, the outstanding amount payable can never be more than double the outstanding debt at the time of default. If you borrow R1 000, repay R400 of this and then default, the outstanding amount is R600. Under law, you are not obliged to pay more than double this amount (ie. R1 200) no matter how much interest supposedly accumulates, as long as you remain in default.

Some creditors saw what looks like a loophole in the NCA, and added service, administration and legal fees, claiming these fell outside the Act.

Take the example of Edgar Arnolds of Somerset West, one of the applicants in the case. He borrowed R12 000 from Bayport Financial Services in April 2011 at an interest rate of 34.4% a year for 36 months. This meant he had to repay R745 for 36 months, coming to a total of R26 837.

He defaulted later in 2011 and Bayport secured an emolument attachment order (EAO), also known as a garnishee order, against his salary. Arnolds’ employer was ordered to deduct R732 a month until the outstanding debt of R11 685, plus costs, was extinguished. As an aside, the garnishee order was obtained in the Randburg Magistrates Court, in Johannesburg, even though Arnolds lives in the Cape. This is unlawful, as garnishee orders must be obtained in the jurisdiction in which the borrower lives or works.

Six years later, in 2017, Arnolds wondered why his employer was still deducting R732 a month from his salary. Bayport informed him that he still owed more than R7 400. Arnolds discovered that after six years of dutifully paying his monthly debit, he still owed more than half the original amount borrowed. He asked Bayport for a reckoning, which it duly supplied.

In addition to the interest charges of R21 019, Bayport had loaded services, legal and other charges of nearly R6 500 onto his account. Had he paid this outstanding amount, he would have forked out R33 000, nearly three times the amount he borrowed. Another applicant in the case ended up repaying R5 100 on an initial debt of R600.

This is when the Law Clinic and Summit Financial Partners decided to step in on behalf of Arnolds and nine other clients with similar stories. It wants the court to rule that the services, legal and other fees should form part of the in duplum definition – in other words, the defaulting client should never have to pay more than double the outstanding debt at the time of default, even after accounting for all costs.

“The problem that debtors are facing is one of inconsistent judgments around the interpretation of the National Credit Act,” says Stephan van der Merwe, senior attorney at the Law Clinic. “We are not asking for a change in the law. The law, in our view, is clear enough. You cannot load these unlawful charges onto a client’s account as a way of side-stepping the in duplum rule.

“We need a healthy credit industry in SA, and we support those who abide by the rules. This case is aimed at those who do not.”

Dr Theo Broodryk, head of the Law Clinic, adds: “The fact that 49 respondents, including all the main banks and major lending institutions, have been joined to the application, is indicative of the impact that this case could have on the South African credit market.”

This is not the first time the Law Clinic has taken on what it sees as abusive practices by lenders. In 2016 the University of Stellenbosch Law Clinic took on the micro-lenders on behalf of 15 low income clients whose salaries were being siphoned off by garnishee orders. The Western Cape High Court and Constitutional Court found in favour of the Law Clinic.

In that case, lenders were found to be skirting the law by having garnishee orders stamped by a clerk of the court, rather than a magistrate, and often in courts far away from where the borrower lived. These practices were declared unconstitutional.

“Two years on, the applicants have approached the court regarding what they identify as the unilateral, unregulated manner in which creditors and collection agents add costs, including legal fees, to debtors’ accounts both before and after judgment,” says the Law Clinic in a statement.

In an affidavit before the court, van der Merwe says section 103(5) of the NCA places a limit on the costs a creditor can claim in enforcing its agreement. “Consumers are no longer at the mercy of credit providers, who often have unlimited resources to pay legal fees to recover their debts which costs are the simply passed onto the consumer.”


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3 things the government can do:

1) make the maximum loan a person can take is 3 times their salary
2) instead of bailing out SOE, bail out the people by fixing their debt repayments to within an affordable range clause 1)
3) send bankers to jail and take the money they extorted for over exploited workers.

Yes understand this will bring a sudden haul to the Debt and Banking industry, it will also affect GDP by 50%.

At some stage we need to push the Reset Button.

This is why I respect Bitcoin because you cannot have Negative Bitcoin. You have what you have.

2 things –
1. The workers who are most “exploited” are those without jobs. The acts of extortion by militant labour unions is a major cause of unemployment. The workers who do have jobs are very privileged, they are certainly not exploited. They know this. That is why they have to intimidate and kill those exploited people who do not have jobs, when they want to work during strikes. These “exploited” union members are fighting to retain their position of “exploitation”. South Africa has the most influential labour unions on earth. That is why we also have the highest levels of unemployment.

2. The investors who bought Bitcoin at the end of 2017 now have negative Bitcoin to the amount of $12 000 per Bitcoin.

I agree with your points 1 and 2.

If you got Bitcoin yesterday then you would have been about 9% better than off today. It’s not only the rand that is going to tank it’s the dollar as well.

As for the exploitation of workers, most of them have been brainwashed by unions and political propaganda to not think any thing else but what they have been told. The workers generally give in too easily and allow the exploitation to take place.

I agree with you it’s not just the one who do not have jobs, it’s everyone!

If you’ve never shared an article with your FB friends, this is the time to start. Click the link on the left of the screen.

Its terrible how these people are being exploited. I tried to help my worker by settling the amount and charging her no interest – but they wanted to roll up all future interest and fees!

I’m going to check the original debt now (even that’s not easy to establish!) and when it hits the 2x limit – the garnishee is stopping.

34.4% interest is simply mind boggling!!!

The ANC and the financial industry has one critical thing in common – their survival is dependant on keeping the masses uneducated

It should be illegal.

These unsecured loan businesses must all be shut down. They are the scum of the earth.

Can not agree more.

People find that laws protecting people against drug dealers/pushers are acceptable and loansharks pushing constantly unsecured dept to poor people must outlawed thesame!! never mind the exploits when they have them hooked.

There are many small operators but between the intellectual yet idiots it is perfectly acceptable to invest in a company like Capitec.

Shines hippocrasy, lack of logic, ethics!

Long term solution = EDUCATION.
Short term answer = EMPLOYMENT.

Agreed, but you need to add to the immediate answer: “SERIOUS CRACKDOWN ON UNSCRUPULOUS DEBT COLLECTORS too.

Pity this was not enforced at the time of the African Bank collapse . Borrowers were charged three times more than the original loan with no recourse and still the bank collapsed with the bigwigs walking away from the collapse with millions in assets and the taxpayer picking up the pieces. Still disgusted by this incident – talk about getting away with daylight robbery. It’s about time the rules changed.

Nice trick if you have somebody you want to help and still use a cheque book.

A cheque is a contract.
Write on front ‘in full and final settlement of all amounts owing by Joe Bloggs ID nr xxx to Loanshark Scum Inc etc etc’ for an amount you regard as fair.

Their mail room deposits the cheque, they are dead in the water.

Sorry, but that’s just not so.

If you continue to send statements showing a balance it would be enough to indicate that it was not accepted in full and final settlement.

You might be right in cases where the debtor/creditor relationship was more “one on one” and/or the amount was disputed – in the case where the debtors book has thousands of almost nameless account holders, it’s simply not that easy to fool the system..


Sorry no, a cheque is actually a contract. They cash it they accepted it. I’ve done it twice for workers.

We all care for uneducated and indebted masses, but do they care about us?

An event of cataclysmic scale is about to impact on our personal finances. The extent to which government exploits us, dwarfs the exploitation by micro-lenders in comparison. Denel is about to default on its debt. This will trigger the default of all the other SOE’s, as well as government. Government will issue new guarantees, but who will fund those guarantees? This will push us over the cliff to junk status, and the lenders will scramble for the exit.

A government defaults by means of the devaluation of the currency. They repay bonds with printed money. The effect of this will be felt not by “interest rates” of 34% per year, but through price increases of 34% per month(yes, monthly).

The real exploiters are the ANC supporters. The impact of their actions upon us, will be much more destructive than the effect micro lenders have on their clients.

With EWC looming for me I could not agree more Sensei. Basically I think you are saying “Vote for the NAC and you will get what you deserve, don’t cry”.

I’m betting not one of these “poor people” or the “university” law clinics etc, essentially funded by my taxes, will raise a finger to contest EWC when they come for my property. In fact they are promoting the ideas of EWC, “stolen land” etc. Cry me a river.

Excellent comment Sensei. Couldn’t agree more

A related question. Is the SABC exempt from he NCA? The way they behave suggests it is. Alternatively they have not heard of the “in duplum” rule.

End of comments.




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