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In Duplum and Section 129


On 28 March 2011, the Supreme Court of Appeal handed down the judgment in Nedbank v National Credit Regulator [2011] ZASCA 35. This was an appeal against various orders handed down by the North Gauteng High Court in National Credit Regulator v Nedbank Ltd. and Others 2009 (6) SA 295 (GNP).

SECTIONS 129 NOTICE (The start of legal action, if ignored)

This is extremely important for a consumer to know, who has arrear accounts. Always make sure that your creditors have your correct postal and physical address, you can also select your email address so you can receive any legal documentation. It is the legal right of a creditor to use the address you chose in your credit agreement with the creditor, if you did not change your address, when applicable, and he can get a judgment against you in your absence. You will not later be able to try and defend yourself, by claiming you did not receive the notice. So get and keep proof of any address change.

The Supreme Court of Appeal ruled that, on a proper interpretation of Section 86(2), a credit agreement is excluded from debt review, where the credit provider has given a section 129(1)(a) notice to a defaulting consumer, prior to that consumer applying for debt review.

If a creditor cannot proof that a Section 129 was delivered to a consumer, prior to applying for debt review, a creditor cannot refuse to include the account under debt review.

Practical implications

1. Credit agreements, in respect whereof a Section 129(1)(a) notice has been delivered to the
consumer, i.e. in a manner as provided for in Section 65 ((a) make the document available to the consumer through one or more of the following mechanisms- (i) in person at the business premises of the credit provider, or at any other location designated by the consumer but at the consumer’s expense, or ordinary mail;(ii) by fax;(iii) by email; or (iv) by printable web-page and b) deliver it to the consumer in the manner chosen by the consumer from the options made available in terms of paragraph (a).;) of the NCA, are to be excluded from debt review.

2. The debt counsellor can still institute voluntary negotiations with the credit provider in order to
resolve the matter.

One of the options provided in the Section 129 notice, is that a consumer has ten (10) days to contact a debt counsellor. If the consumer ignore this, it is the beginning of legal action and there is no obligation for a creditor to include an account under debt counselling any longer. The creditor can proceed to get a judgment, garnish your salary or sell your possessions.

SECTION 103(5) IN DUPLUM (Prevent creditors “to drain consumers dry”)

Always keep tabs on your accounts, to make sure the account has not reached In Duplum, and you are over-charged on accounts.

The court dealt with two rules in South African law, that governs the amount repayable by a defaulting consumer to a credit provider: The (1) common law In Duplum and the(2) provisions of Section 103(5) of the National Credit Act.

Both these rules have as its purpose the prevention of extensive recovery by a credit provider from a consumer that is in default.

Without the In Duplum Rule, the interest will continue to accrue indefinitely, as long as the consumer does not completely correct the default.

The SCA stated that “[t]he purpose of the rule is to ‘ensure that debtors are not endlessly consumed by charges and also to endure that debtors whose affairs are declining
should not be entirely drained dry’.”

The total amount repayable is therefore 200% of the outstanding balance at time of default, provided that enough time has elapsed whilst the consumer is in default to allow interest to accumulate to the maximum amount.

In terms of the common law rule ONLY interest were used in the calculation. Furthermore, in terms of the common law rule, when a consumer paid an amount that did not rectify the default, but reduced the maximum allowable repayment amount (i.e. interest had already been charged up to the maximum amount allowed), interest could be charged again until the maximum amount was reached again.

Example: The account has reached In Duplum. Now a payment is made, which reduces the In Duplum amount. The next month, the creditor can charge interest again, to where the account reaches In Duplum, a payment is made to reduce the In Duplum amount, and so a vicious circle carries on.

Section 103(5) reads 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 on the principal debt under that credit agreement as at the time that the default occurs.”

This section of the National Credit Act did not abolish the common law In Duplum Rule – the latter still applies to debts that are not credit agreements, subject to the provisions of the National Credit Act. Section 103(5) is “not a code and embodies no more than a specific rule applicable to specific circumstances, that is, to credit agreements subject to the NCA. It is thus a statutory provision with limited operation.”

Generally, the common law In Duplum will have bearing on credit agreements predating 1 June 2007 and all non-National Credit Act matters.

Section 103(5) will apply to post 1 June 2007 matters governed by the National Credit Act.

Section 103(5) is not the same as the common law In Duplum rule even though there are similarities between the common law and statutory rules – the latter incorporates only interest to calculate the maximum extent to which interest may be recovered by a creditor.

Section 103(5) takes all the amounts referred to in section 101(1)(b) to (g) into account in order to calculate the maximum amount that may be recovered by the credit provider from a consumer that has defaulted.

o Section 101(1)(b) to (g), refers to the following: (b) an initiation fee; (c) a service fee; (d) interest; (e) cost of any credit insurance; (f ) default administration charges; (e) collection costs.

o The sum of these amounts after the consumer has defaulted, whether they are paid or unpaid, may only be 100% of the outstanding amount as at default.

o Where the consumer repays an amount, but does not completely cover the total amount due within the original contract term, the credit provider cannot charge fees, costs, charges and interest up to the maximum amount repayable as was the case with the common law In Duplum.

Important differences between the common law In Duplum and Section 103(5) of the NCA:

Under the common law rule, arrear and unpaid interest must first reach the equivalent
sum of the outstanding capital amount ,before the accumulation of interest comes to an end.

Under the provisions of Section 103(5), paid and unpaid fees, costs, charges and interest as referred to in section 101(1)(b) to (g) may not accumulate to more than the amount of the outstanding principal debt under that credit agreement at the time of default.

In terms of the common law rule, payments by the debtor reduces the interest that has accumulated up to the maximum allowable amount, causing the amount owed by the debtor in respect of interest to be less than the maximum allowable amount. Creditors were therefore entitled to charge interest anew, until the maximum repayable amount was reached again.

The three main differences between common law In Duplum and Section 103 (5) are:

1. All costs of credit referred to in Section 101(1)(b) to (g) are included under the amounts that have limited accrual where the common law In Duplum only allowed for unpaid and arrear interest to accrue to the amount of the principal debt that was outstanding at time of default.

2. Section 103(5) does not allow for the credit provider to charge costs, fees or interest, where the consumer makes payment and reduces the maximum allowable amount that may be recovered, whilst the consumer is in default. This means that the credit provider may not charge interest, fees, costs and charges until the consumer has completely rectified the default.

Under the common law In Duplum the credit provider could charge interest as soon as the consumer paid an amount that decreased the maximum repayable amount.

3. Section 103(5) includes paid and unpaid amounts whilst the common law rule only includes unpaid amounts to make up the recoverable amount.

In terms of the common law rule, the amount repayable by a consumer that has defaulted on an agreement is the outstanding amount as at time of default plus interest equal to the amount of the outstanding amount at time of default.

The Supreme Court of Appeal decided that the amounts stated in section 101(1)(b) to (g) that make up the amount that must equal the outstanding principal debt at time of default, include paid and unpaid amounts.

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