In Duplum – How much do you owe?

Section 103(5) of the National Credit Act limits the amount that a creditor may recover for a credit agreement, by limiting the collection costs that may be charged if a consumer was to default on a credit agreement.

The maximum amount that can be collected is double the capital amount outstanding at the time a consumer defaulted, including any interest or collection costs. This provision is essentially an extension of the in duplum rule that is found in our common law and basically limits the interest and all other costs that a creditor may charge on an account that is in arrears. The limit on interest and costs that may be charged therefore protects debtors from exploitation by creditors.

For example, should the consumer borrow R10 000, end up owing interest and costs of another R11 000 and repay only R3 000 of the capital, the maximum amount that could be recovered would be the unpaid capital of R7 000 together with interest and costs up to a maximum of a further R7 000. If however, the interest and costs only add up to R4 000 then the maximum that could be claimed would be R7 000 plus R4 000.

Put differently, the following amounts, when added together, may not exceed the unpaid balance of the principal debt under a credit agreement as at the time that the default occurs:

• initiation fee
• service fee
• interest
• cost of credit insurance
• default administration charges
• collection costs

This is a departure from the past when collection attorneys and debt collectors could collect far more than was fair, by continuously adding fees and interest to an account. Often the fees and interest added could far exceed the initial amount borrowed.

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