In a significant victory against the continued unscrupulous exploitation of debtors, the Western Cape High Court has found in favour of the Stellenbosch University Law Clinic, Summit Financial Partners and 10 of their clients on all counts in the long awaited “in duplum” judgement.
On August 8 2018, the Stellenbosch University Law Clinic, Summit Financial Partners, and 10 of their clients approached the Western Cape High Court to request judicial intervention relating to debt collection practices. The application relates to what the applicants identify as the unilateral, unregulated manner in which creditors and collection agents add costs, including legal fees, to debtors’ accounts both before and after judgement.
Section 103(5) of the National Credit Act 34 of 2005 prohibits the aggregate sum of charges that may accrue in terms of section 101(1) from exceeding the principal debt outstanding at time of the consumer’s default. No further charges than those listed in the section may lawfully be levied against the consumer’s account until such time that the consumer has purged his/her default.
One of the charges listed is collection costs. In the application, the applicants sought clarity from the court regarding the correct interpretation of these sections of the NCA and contended that the definition of “collection costs” should be interpreted to include legal fees (fees spent on attorneys, advocates and debt collectors), both before as well as after judgment.
Collection costs often form the bulk of what is eventually collected from the consumer, especially in relation to small short-term loans and other short-term credit.
In some instances, the amount of legal fees collected will substantially exceed the original loan amount many times over.
Further, these legal fees are charged and collected even though they are never taxed.
Effectively, the consumer is devoid of any protection, especially where an emolument attachment order is used as the mechanism to collect.
In the court’s finding, Acting Judge Bryan Hack held that “if the pursuit of profit results in the exploitation of the poor and the ever widening disparity of wealth, this gives meaning to the other rubric that the rich are getting richer and the poor are getting poorer. I am satisfied the legislature intervened in the national credit act to curb such exploitation resulting in the ever widening gap of wealth in this country.
“I accept that the result may be that certain of the wealthier institutions or enterprises in this country will have their profits reduced I am satisfied that the applicants have made a case for the declaratory orders.”
According to Stephan van der Merwe, senior attorney at the Stellenbosch University Law Clinic, “this is a victory for the poor, vulnerable and marginalised throughout the country. The judgment underscores our courts’ commitment, which was clearly displayed in the well-known emolument attachment order-cases in which the clinic was also involved, to disempower unscrupulous collection agents from employing unscrupulous collection methods and strategies.
“It reinforces the importance of protecting consumers’ basic human rights, including the right to human dignity and the right not to be arbitrarily deprived of one’s property.
“The judgment places South Africa at the forefront of consumer protection internationally.”
For more information, contact Professor Theo Broodryk at email@example.com or Stephan van der Merwe of the Stellenbosch University Law Clinic on firstname.lastname@example.org or 082 727 0123.