A COMMENTARY ON SECTION 103(5) OF THE NATIONAL CREDIT ACT - DAWID MARAIS by
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A COMMENTARY ON SECTION
103(5) OF THE NATIONAL
CREDIT ACT
by
DAWID MARAIS
B Iuris LLB LLM
Advocate of the High CourtCONTENTS
INTRODUCTION .............................................................................................................. 2
THE RELEVANT PROVISIONS OF THE NATIONAL CREDIT ACT ......................... 3
THE RULES OF STATUTORY INTERPRETATION ..................................................... 6
THE CONSEQUENCE OF THE PURGING OF A DEFAULT...................................... 12
THE EFFECT OF SECTION 126(3) ON SECTION 103(5) ........................................... 16
INITIATION FEES, SERVICE FEES, INTEREST, INSURANCE PREMIUMS AND
DEFAULT ADMINISTRATION CHARGES ..................Error! Bookmark not defined.
COLLECTION COSTS .................................................................................................... 27
LEGAL (ATTORNEYS') COSTS .................................................................................... 29
PRE-LITIGATION (DEBT COLLECTORS') COLLECTION COSTS .......................... 32
ABOUT THE AUTHOR - DAWID MARAIS ................................................................. 41
ADRS Contact details ....................................................................................................... 44
EXTRACT FROM NEDBANK LTD AND OTHERS v NATIONAL CREDIT
REGULATOR AND ANOTHER 2011 (3) SA 581 (SCA) ............................................. 45
1INTRODUCTION
This is a commentary section 103(5) of the National Credit Act, against the
backdrop of:
1. the relevant provisions of the National Credit Act;
2. the rules of statutory interpretation;
3. the decision of the Supreme Court of Appeal in NEDBANK LTD
AND OTHERS v NATIONAL CREDIT REGULATOR AND
ANOTHER 2011 (3) SA 581 (SCA).
2THE RELEVANT PROVISIONS OF THE
NATIONAL CREDIT ACT
1. SECTION 103(5)
"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 of the
principal debt under that credit agreement as at the time that the default
occurs."
2. SECTION 101(1)
"(1) A credit agreement must not require payment by the consumer of any
money or other consideration, except-
(a) the principal debt, being the amount deferred in terms of the
agreement, plus the value of any item contemplated in section 102;
(b) an initiation fee, which-
(i) may not exceed the prescribed amount relative to the principal
debt; and
(ii) must not be applied unless the application results in the
establishment of a credit agreement with that consumer;
(c) a service fee, which-
(i) in the case of a credit facility, may be payable monthly, annually,
on a per transaction basis or on a combination of periodic and
transaction basis; or
(ii) in any other case, may be payable monthly or annually; and
(iii) must not exceed the prescribed amount relative to the principal
debt;
(d) interest, which-
(i) must be expressed in percentage terms as an annual rate
calculated in the prescribed manner; and
(ii) must not exceed the applicable maximum prescribed rate
determined in terms of section 105;
(e) cost of any credit insurance provided in accordance with section
106;
(f) default administration charges, which-
3(i) may not exceed the prescribed maximum for the category of credit
agreement concerned; and
(ii) may be imposed only if the consumer has defaulted on a payment
obligation under the credit agreement, and only to the extent permitted by
Part C of Chapter 6; and
(g) collection costs, which may not exceed the prescribed maximum for
the category of credit agreement concerned and may be imposed only to
the extent permitted by Part C of Chapter 6."
3. SECTION 102(1)
"(1) If a credit agreement is an instalment agreement, a mortgage
agreement, a secured loan or a lease, the credit provider may include in
the principal debt deferred under the agreement any of the following items
to the extent that they are applicable in respect of any goods that are the
subject of the agreement-
(a) an initiation fee as contemplated in section 101 (1) (b), if the
consumer has been offered and declined the option of paying that fee
separately;
(b) the cost of an extended warranty agreement;
(c) delivery, installation and initial fuelling charges;
(d) connection fees, levies or charges;
(e) taxes, licence or registration fees; or
(f) subject to section 106, the premiums of any credit insurance
payable in respect of that credit agreement."
4. SECTION 126(3)
"A credit provider must credit each payment made under a credit
agreement to the consumer as of the date of receipt of the payment, as
follows:
(a) Firstly, to satisfy any due or unpaid interest charges;
(b) secondly, to satisfy any due or unpaid fees or charges; and
(c) thirdly, to reduce the amount of the principal debt."
4PRESCRIBED RATE OF INTEREST
ACT55 OF 1975
1 Interest on a debt to be calculated at a prescribed rate in certain circumstances
(1) If a debt bears interest and the rate at which the interest is to be calculated is not
governed by any other law or by an agreement or a trade custom or in any other manner,
such interest shall be calculated at the rate prescribed under subsection (2) as at the time
when such interest begins to run, unless a court of law, on the ground of special
circumstances relating to that debt, orders otherwise.
(2) The Minister of Justice may from time to time prescribe a rate of interest for the
purposes of subsection (1) by notice in the Gazette.
(3) No rate of interest shall be prescribed under subsection (2) except after consultation
with the Minister of Finance.
5THE RULES OF STATUTORY
INTERPRETATION
1. There is a branch of the law dealing with the principles to be applied in
respect of the interpretation of statutes.
2. Consequently, the interpretation of statutes is not a matter of personal
preference, e.g. whether the interpreter is in favour of consumer
protection or in favour of the rights of credit providers. The same
principle would apply in respect of commentary on judgments of the
Courts - an approach based on legal principles is called for.
3. It has now become settled law that statutory interpretation should accord
with that which promotes the general legislative purpose underlying a
statutory provision. In ascertaining the purpose of the statutory provision,
wider contextual considerations may be invoked, even where the
language is unambiguous - the so-called 'purposive construction' of
6statutes. Applying a purposive construction to a statute does not,
however, imply a neglect of the language used. The words used must be
understood in their popular sense as used in ordinary parlance, yet
balanced by the context in which they are used, ie a 'context-based,
purposive approach'.
VAN NIEKERK AND ANOTHER v FAVEL AND ANOTHER 2006 (4) SA 548
(W)
4. A further rule of interpretation is that a statutory provision should not be
interpreted so as to alter the common law more than is necessary unless
the intention to do so is clearly reflected in the enactment, whether
expressly or by necessary implication. It is a sound rule to construe a
statute in conformity with the common-law, save where and insofar as the
statute itself evidences a plain intention on the part of the Legislature to
alter the common-law.
NEDBANK LTD AND OTHERS v NATIONAL CREDIT REGULATOR AND
ANOTHER 2011 (3) SA 581 (SCA)
7THE OBJECTS OF THE NCA
The objects of the NCA include 'encouraging responsible borrowing,
avoidance of over-indebtedness and fulfilment of financial obligations by
consumers'. It seeks to promote equity in the credit market by 'balancing the
respective rights and responsibilities of credit providers and consumers', and
promotes responsibility in the credit market by providing for a consistent
system of debt restructuring, enforcement and judgment 'which places
priority on the eventual satisfaction of all responsible consumer obligations
under credit agreements'.
NATIONAL CREDIT REGULATOR AND ANOTHER 2011 (3) SA 581 (SCA)
In applying the purposive approach referred to above, these objects of the
NCA must be taken into account in interpreting section 103(5).
8RELEVANT ASPECTS OF THE
COMMON LAW IN DUPLUM RULE
AND THE JUDGMENT IN THE
NEDBANK-CASE
1. In terms of the common law rule, where the total amount of arrear and
unpaid interest has accrued to an amount equal to the outstanding capital
sum, interest ceases to run, but any payment made by the debtor
thereafter will lead to the amount of interest decreasing after which
interest again starts to accrue to an amount equal to the outstanding
capital amount.
2. Furthermore, the in duplum rule is suspended pendente lite (i.e pending
finalisation of legal action), and the action commences upon service of
the initial process, whereafter interest runs again.
93. In the Nedbank - case the following was held with regards to these
common law rules:
a. Section 100(1) of the NCA provides that all amounts charged
to a consumer in terms of a credit transaction must be
consistent with the NCA.
b. Section 103 of the NCA is a provision that defines what may
be charged in terms of a credit transaction and as such it
defines the rights and obligations of the parties. There is thus
no contractual entitlement to interest (or to the other charges)
except as allowed for by s 103.
c. Section 103(5) does not merely give rise to a 'moratorium' on
payments whilst the consumer is in default but indeed
determines the latter's obligations under the credit agreement.
It is not that a moratorium against payment is introduced by s
103(5): no amount in respect of the fees, costs and charges may
'accrue' any further. Put differently, no enforceable right to the
charges outlined in s 101(1)(b) – (g) thereafter arises.
10d. Payments during the time of default cannot revive obligations
that never 'accrued'. Any payment made during the time of
default which does not have the effect of ending the default
simply reduces the outstanding principal debt.
4. It will be noted that the Nedbank - case dealt with the high-level contrast
between the common law in duplum rule and the provisions of section
103(5).
5. There are a number of discussion points that arise from section 103(5)
which the Court was not called upon to deal with. I refer to them as
"discussion points" because they may not necessarily be points that are in
contention. I will attempt to identify and deal with those discussion
points herein below.
11THE CONSEQUENCE OF THE
PURGING OF A DEFAULT
1. Section 103(5) provides that 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 of the
principal debt under that credit agreement as at the time that the default
occurs.
2. In general the wording of the section seems clear, but an interpretation
problem may arise in the context of the situation where the consumer has
defaulted for a period, but purged his or her default. Two possible
interpretations of this section may arise in this context.
3. The first alternative construction is that there is a correlation between the
phrases used in the section, i.e "accrue during the time of default" and
"may not exceed the unpaid balance of the principal debt at the time the
default occurred". This interpretation places reliance on the reference by
the legislature to "default" in both phrases. It seems clear that "default"
refers to a specific event of default, which continues. Therefore, once a
12consumer has purged his default - by paying all the arrears (including all
amounts making up the duplum), the rule no longer applies. If a
consumer defaults again, the rule will start operating afresh, with the
unpaid amount of the principal debt as at the date of the second default
forming the yardstick and subsequent accruals making up the duplum. In
other words, amounts accrued during previous period of (purged) defaults
must not be taken into account in the calculation.
4. The second alternative interpretation is that even if the consumer purged
his default, record of the amounts that accrued during the first period of
default must be kept, and added to the amounts that accrue during the
second or subsequent periods of default.
5. I am of the view that the first interpretation is the one that must be
followed, for the following reasons:
a. The section does not deal with multiple acts of default, but
refers to a single period of default and a single commencement
date of such default. If the legislature wished to create rules for
multiple acts of default, something that would have been
13readily foreseeable as something that occur in the normal
course of events, it could have made rules for such eventuality,
which it did not do.
b. The second interpretation will lead to a conundrum with
regards to the "date of default". Would it mean the date of the
initial default or the date of the second or subsequent defaults?
If the date of original default is taken as the operative date, in
the normal course of events it will mean that the threshold
before the ceiling is reached will probably be much higher and
that in effect, the credit grantor will be entitled to recover more
than double the principal debt as at the time of the second or
subsequent default. Such interpretation may make the
consumer's obligations more onerous, something which was
clearly not intended by the legislature. On the other hand, if the
second or subsequent dates of default are taken as the operative
date for calculation of the principal debt (when the principal
debt will probably be lower) and amounts that legitimately
accrued during previous periods of default before the ceiling
was reached, is taken into account, it may mean that upon the
14occurence of the second or subsequent default, a creditor may,
so to speak, retrospectively fall foul of section 103(5), because
amounts that previously legitimately accrued during periods of
default are taken into account. This absurdity could never have
been intended.
6. I am, therefore, of the view that the first interpretation is the only
plausible interpretation in the circumstances and that once a consumer
has paid all the arrears, which includes all amounts accrued during the
period of default, upon the occurence of a subsequent default, the
calculation starts on the date of default with a clean slate.
15THE EFFECT OF SECTION 126(3) ON
SECTION 103(5)
1. Section 126(3) of the NCA provides that a credit provider must credit
each payment made under a credit agreement to the consumer as of the
date of receipt of the payment, as follows:
(a) Firstly, to satisfy any due or unpaid interest charges;
(b) secondly, to satisfy any due or unpaid fees or charges; and
(c) thirdly, to reduce the amount of the principal debt.
2. In response to an argument that the effect of section 126(3) is that once
the duplum is reached and a payment is made, interest start running again
because the payment has to be allocated first to interest and fees and
charges, the SCA, in rejecting the argument, held in the Nedbank - case
(par 48) that the allocation of payments in terms of section 126(3) has no
effect on the limitation of the accrual of amounts in terms of section
103(5). It is respectfully submitted that this finding was correct.
163. However, the Court then made the following statement:
"Any payment made during the time of default which does not have the
effect of ending the default simply reduces the outstanding principal
debt."
4. The statement on face value is to the effect that as long as a consumer is
in default, all payments must be allocated to the principal debt.
5. It is respectfully submitted that this statement, read in isolation, cannot be
correct. The reason for this is that section 103(5) does not interfere with
the rights and obligations of the parties and with the accrual of amounts
in terms of a credit agreement, save to the extent that it limits the accrual
of amounts to a total amount equal to the principal debt during a period of
default. Until duplum is reached, section 103(5) has no effect. The quoted
statement is to the effect that payments must be allocated to the principal
debt during a period of default, which has the effect of reducing the
amount of interest that accrues before the statutory duplum becomes
operative. There is no basis for such a result in the NCA.
176. It is submitted that the statement must not be viewed in isolation, but in
the context of the rejected argument that was forwarded, namely that
where duplum was reached, a payment, if allocated to interest or costs,
reduces the accrued amount to less than duplum, and that interest and
costs start accruing again. All the learned judge intended to convey was
that when the duplum was reached (and the maximum amount has
accrued) the allocation of the payment to the accrued amount would not
cause further amounts to accrue, as was argued.
7. I have attempted to re-formulate the phrase, but regrettably nothing but a
complete re-formulation would suffice. Consequently, I am of the view
that the statement was made, with respect, per incuriam and that a Court
will not be bound by this statement in future.
8. Alternatively, the issue of the allocation of payments as such was not an
issue before the Court and the statement must, therefore, be regarded as
an obiter dictum - which means that the statement is not binding law.
189. The crux of the matter lies in the central issue before the Court, i.e. the
declaratory order made by the Court a quo. The relevant part of the
declaratory order, which was upheld by the SCA, read as follows:
"Once the total charges referred to in ss 101(1)(b) – (g) equal the amount of the
unpaid balance, payments made by a consumer thereafter during a period of default
do not have the effect of permitting the credit provider to charge further interest while
such default persists."
10. It is submitted that this is the binding part of the judgment.
11. I am, therefore, of the opinion that the following is the legal position:
a. Once the statutory duplum has been reached, no further
amounts mentioned in section 101 (1) (b) to (g) will accrue
until all the arrears have been paid.
b. During the period of default, the creditor has the right (or even
obligation) to allocate payments according to section 126(3),
i.e. first to interest, then to fees and charges and then to the
principal debt.
19c. Once duplum has been reached, payments and the allocation
thereof in accordance with section 126(3) does not have the
effect that any further amounts may accrue until the full arrears
have been paid.
d. If the consumer defaults again, section 103(5) will start
operating again as from the date of default.
20INITIATION FEE
From a legal and computer programming point of view, an initiation fee
charged upfront should be included in the principal debt (therefore it
forms part of the principal debt as at the date of default) and should be
excluded from the calculation of the duplum amounts, unless it is a
further initiation fee that accrues after date of default, an event which is
rather unlikely.
21SERVICE FEES
1. Service fees do not form part of the principal debt.
2. Therefore, it should be excluded from the calculation of the principal debt
as on the date of default.
3. Service fees may accrue during the period of default, but such service
fees are included in the duplum calculation and must also cease to accrue
once duplum is reached and will only start accruing again once all the
arrears have been paid.
22INTEREST
1. Interest may also accrue during the period of default, but also ceases to
accrue once duplum has been reached and until all arrears have been paid.
2. It is beyond the scope of this commentary to deal with the calculation of
interest in terms of the NCA in general.
3. Some argue that mora interest at the rate prescribed in the Presribed Rate
of Interest Act (i.e. 15.5%) should not be included in the duplum
calculation, because it is argued that this interest is imposed ex lege as
opposed to contractually.
4. This view totally loses sight of the provisions of section 1 of the
Prescribed Rate of Interest Act (quoted above), which is to the effct that
if a debt bears interest and the rate at which the interest is to be calculated
is not governed by any other law or by an agreement or a trade custom
or in any other manner, such interest shall be calculated at the rate
prescribed.
235. Credit agreements in terms of the NCA normally bears interest at an
agreed rate. Where the rate of interest is governed by the credit
agreement, the Prescribed Rate of Interest Act finds no application. Any
claim for interest on the principal debt would be governed by the
agreement. Section 103(5) of the NCA can certainly not be circumvented
by simply reducing the interest rate to 15.5% and calling it "mora
interest". Such "mora interest" is nothing but the contractually agreed
interest which should be included in the duplum calculation.
24INSURANCE PREMIUMS
1. Insurance premiums may be included in the principal debt in terms of
section 102(1) subject to the provisions of section 106.
2. In terms of the provisions of section 106, insurance premiums in respect
of small and intermediate credit agreements may only be charged
monthly and on large agreements yearly.
3. The effect of this is that insurance premiums can only be included in the
principal debt once the premium becomes due and is unpaid.
4. However, the effect of section 103(5) is that despite the fact that such
arrear insurance premiums can be included in the principal debt, all
insurance premiums that accrue during the period of default must also be
included in the duplum calculation and will cease to accrue once the
duplum is reached and until all arrears have been paid. The effect will be
that once duplum is reached insurance cover will cease.
25DEFAULT ADMINISTRATION
CHARGES
Default administration charges may also accrue during the period of default,
but also stops accruing once duplum has been reached and until all arrears
have been paid.
Default administration charges are limited to actions taken by the credit
provider itself and is limited to the cost of a registered letter in terms of the
Magvistrates' Courts Act.
26COLLECTION COSTS
1. Section 101(1)(g) provides that a credit agreement must not require
payment of collection costs beyond the prescribed maximum. It is
important to note that this section does not specify to whom the
collection costs must be paid, but prohibits in general the payement of
collection costs beyond the prescribed limit.
2. This provision deprives any argument that collection costs are payable
to debt collectors and / or attorneys (and not credit providers) and
therefore not hit by either section 101 or 103 of any validity. Such
arguments are in any event incorrect and fanciful, for a variety of
reasons.
3. The prescribed maximum is contained in Regulation 47, which reads
as follows:
"For all categories of credit agreement, collection costs may not
exceed the costs incurred by the credit provider in collecting the
debt-
(a) to the extent limited by Part C of Chapter 6 of the
Act, and
27(b) in terms of-
the Supreme Court Act, 1959,
the Magistrates' Court Act, 1944,
the Attorneys Act, 1979; or
the Debt Collector's Act, 1998,
which ever is applicable to the enforcement of the credit
agreement."
4. Although not phrased entirely clearly, regulation 47 is the prescribed
maximum collection costs as envisaged in terms of section 101(1)(g),
which regulates the collection costs recoverable by the credit provider
in terms of the credit agreement.
5. Two kinds of collection costs can be distinguished:
a. Costs incurred as a result of the use of services of debt
collectors registered in terms of the Debt Collectors Act, in
which case the limits prescribed in the Debt Collectors Act and
the Regulations thereto apply; and
b. Costs incurred as a result of the use of the services of attorneys,
in which case the amounts are regulated by the Attorneys Act,
the Supreme Court Act and the Magistrates' Courts Act.
28LEGAL (ATTORNEYS') COSTS
1. The general principle regarding legal costs is that a costs order (although
it relates to fees and expenses due by the client to the attorney) is an asset
in the judgment creditor’s patrimony and not an asset forming part of the
attorney’s estate.
KAYSER AND DE BEER v ESTATE LIEBENBERG 1926 AD 91 at
96
2. Therefore, if an attorney enforces a costs order against a consumer, the
attorney does so on behalf of his client, the credit provider.
3. Section 101(1)(g) is therefore entirely in accordance with the common
law.
4. The result is that section 103(5) and 101(1)(g) cannot be circumvented by
arguing that the costs are payable to the attorney (and not the credit
provider). The attorney is simply collecting the costs on behalf of the
credit provider. The fact that the credit provider may have agreed with
29the attorney that the attorney may collect the costs from the debtor for his
own account makes no difference to this.
5. An avenue which could be explored is the fact that section 101(1) deals
with amounts which may or may not be charged contractually, whereas
the entitlement to legal costs on the party and party scale is not an
entitlement which arises contractually, but rather by way of operation of
law (ex lege). For example: section 48(d) of the Magistrates' Courts Act
provides that a Court may in an action grant judgment for costs
(including attorney and client costs) as may be just. Therefore, costs in an
action are granted by virtue of the statute and not any agreement.
6. On this basis, it may be argued that legal costs at least on the party and
party scale fall outside the scope of the contractual provisions of section
101(1)(g) and also does not form part of the duplum calculation in terms
of section 103(5).
7. This will particularly be appropriate in cases where the debtor with no
defence enters an appearance to defend purely as a delaying tactic
(something which happens regularly) and increases the costs of litigation
30to astronomical figures. It would be absurd for the law to allow such a
debtor to hide behind the duplum rule when it comes to the payment of a
costs order.
8. This issue is by no means free of controversy, because if the debtor
agrees to pay costs on the attorney and client scale (which is the norm),
the costs over and above the party and party scale is then in essence
recovered in terms of the agreement and then that portion of the costs
may possibly again become part of the duplum.
9. This commentary is not the place for a full discussion of this topic and
should be explored in more detail as a separate topic.
31PRE-LITIGATION (DEBT
COLLECTORS') COLLECTION COSTS
1. There is in law a substantial difference between legal costs and pre-
litigation collection costs.
2. In terms of the common law collection costs (which means costs
incurred in collecting a debt other than after the granting of judgment)
was not claimable by a creditor from a debtor unless the debtor has
entered into an agreement to pay any collection charges incurred in
the event of his default.
SCOTFIN LTD v NGOMAHURU EX PARTE LAW SOCIETY OF
ZIMBABWE: IN RE SCOTFIN LTD v NGOMAHURU 1998 (3) SA
466 (ZH)
323. It is clear that in terms of the common law in the absence of an
agreement between the creditor and the debtor the creditor had to bear
the collection costs. However, where there was an agreement, the
creditor was entitled to recoup the collection costs incurred, which is
then regarded as a penalty stipulation.
D. & D. H. FRASER LTD V WALLER 1916 AD 494
MIDDE-VRYSTAATSE SUIWELKORPORASIE BPK v
BONDESIO 1971 (3) SA 110 (O)
4. It must be noted that there is no provision in the common law in terms
of which a debt colletor could for his own account recover any
collection charges from a debtor.
5. In terms of the Debt Collectors Act different categories of debt
collectors can be distinguished:
a. a person, other than an attorney or his or her employee or a
party to a factoring arrangement, who for reward collects debts
owed to another on the latter's behalf;
33b. a person who, other than a party to a factoring arrangement, in
the course of his or her regular business, for reward takes over
debts in order to collect them for his or her own benefit.
6. In the first instance, the debt collector acts in a representative capacity
on behalf of his client and in the second instance he acts as a principal
on his own behalf.
7. I will deal herein only with the first situation.
8. However, the existence of the second category is important in the
interpretation of certain provisions of the Act, as indicated herein
below.
9. The Debt Collectors Act does not contain any provision regulating the
remuneration or commission payable by a client to a debt collector.
This is entirely a matter of agreement between the parties.
3410. Section 19 of the Debt Collectors Act deals with the recovery of
money and reads as follows:
―(1) A debt collector shall not recover from a debtor any amount
other than-
i. the capital amount of a debt due and interest legally due
and payable thereon for the period during which the
capital amount remains unpaid; and
ii. necessary expenses and fees prescribed by the Minister in
the Gazette after consultation with the Council.
(2) Upon request by a debtor and against payment of any
prescribed fee, the clerk of a magistrate's court or a costs
committee of a provincial law society may tax or assess any
account or statement of costs, interest and payments claimed to be
owed by a debtor to a debt collector or his or her client.
(3) The provisions of subsection (2) shall not be construed as
preventing the taxation or assessment of any further account or
statement of costs reflecting further amounts which become
payable by the debtor to the debt collector or his or her client and
which arise from the same cause of debt as that from which
amounts reflected in an already taxed or assessed account or
statement of costs arose.
(4) A debt collector shall deliver to a debtor, upon request and
against payment of a prescribed fee, a settlement account
containing a complete exposition of all debits and credits in
connection with a specific collection: Provided that a debtor shall
be entitled to request a settlement account free of charge once in
every six months.”
2. Importantly, section 19(1) does not distinguish between the situations
where the debt collector acts as an agent or where he acts as a
principal. As such it does not expressly define the capacity in which
the debt collector acts.
353. For present purposes, it is important to note that what section 19(1)
does not do is to generally provide that in recovering the amounts
mentioned in section 19(1)(a) and (b) the recovery is made by the debt
collector for his own account and that the potential recovery falls
within the patrimony of the debt collector. It could not do so, because
in terms of the common law where the collector acts as an agent the
collection of the collection costs is done on behalf of the client who
has agreed with the debtor that collection costs will be paid.
4. Section 19 contains a prohibition against the recovery by a debt
collector of amounts in excess of the stated amounts. In particular, in
terms of section 19(1)(b) the collection costs that may be recovered by
a debt collector are limited to the prescribed fees and expenses.
5. Notably, like in the case of section 19(1)(a), section 19(1)(b) also does
not provide that the prescribed fees and expenses can be recovered by
the Debt Collector for his own account. It will clearly depend on the
factual situation:
36a. If the debt collector acts as an agent, he will clearly be
recovering the prescribed fees and expenses on behalf of his
client; and
b. If the debt collector acts as a principal, he will recover the
prescribed fees and expenses on his own behalf.
6. This view is fortified by section 19(2) which provides that upon
request by a debtor and against payment of any prescribed fee, the
clerk of a magistrate's court or a costs committee of a provincial law
society may tax or assess any account or statement of costs, interest
and payments claimed to be owed by a debtor to a debt collector or his
or her client.
7. For present purposes, it is important to place emphasis on the fact that
section 19(2) provides that what can, inter alia, be taxed is a statement
of costs owed by debtor to a debt collector or his or her client.
8. The same goes for section 19(3) which provides that "the provisions
of subsection (2) shall not be construed as preventing the taxation or
37assessment of any further account or statement of costs reflecting
further amounts which become payable by the debtor to the debt
collector or his or her client . . . "
9. Nothing in the Act detracts from the common law which is to the
effect that should a contractual right to recover collection costs exist,
the right is in favour of the creditor. To the contrary, section 19 deals
with the recovery of the capital amount (which is clearly owing to the
creditor and not the debt collector) and the collection costs in exactly
the same way.
10. The primary intention of the legislature in enacting section 19 was
clearly to protect debtors from the recovery of exorbitant collection
costs, not to provide an additional source of income for debt
collectors, over and above the agreed remuneration. The logical effect
of the alternative view is that a debt collector who acts as an agent and
who has already received his full agreed remuneration from his client,
can additionally recover from the debtor the prescribed fees and
expenses for his own account. It also means that the fees and expenses
recovered by the debt collector (for his own account) need not be set
38off against the collection costs that the creditor may contractually
recover from the debtor. This absurd and exploitative result is one that
could never have been intended by the legislature.
11. Consequently, the alternative view, namely that in a situation where
the debt collector collects a debt on behalf of a client, the collection
costs form part of the patrimony of the debt collector, is in conflict
with the common law and the provisions of the Debt Collectors Act.
12. Therefore, the only logical conclusion is where a debt collector acts as
the agent of a creditor in collecting the debt, the debt collector may
recover the prescribed expenses and fees from the debtor on behalf of
the client.
13. This is in accordance with the general principle relating to legal costs,
namely that a costs order (although it relates to fees and expenses due
by the client to the attorney) is an asset in the judgment creditor’s
patrimony and not an asset forming part of the attorney’s estate.
3914. In the context of the in duplum rule, it is submitted that pre-litigation
collection costs will always be contractual in nature - if there is no
contract for payment of the costs, the costs may not be recovered as
there is no ex lege provision which permits (as opposed to limits) the
recovery of pre-litigation collection costs like legal costs.
15. Consequently, where pre-litigation costs may be recovered in terms of
an agreement, section 103(5), read with section 101(1)(g) will always
apply and such collection costs must be included in the duplum
calculation.
40ABOUT THE AUTHOR - DAWID
MARAIS
1. Obtained the degrees B Iuris and LLB at RAU (UJ);
2. Obtained the degree LLM (Mercantile Law - with specialisation in
Company Law, Insolvency Law and Credit Security) at UNISA;
3. Served as a Public Prosecutor at the Johannesburg Magistrates' Court
while completing his LLB;
4. Did articles of clerkship at Dyason Attorneys and was admitted as an
attorney of the High Court in 1991;
5. Served as a Civil Magistrate in the Johannesburg Magistrates' Court from
1991 to 1996, dealing with a variety of matters , including large volumes
of matters where consumer protection legislation was involved;
416. Was admitted as an Advocate of the High Court in 1996 and joined the
Johannesburg Bar as a practising advocate in June 1996;
7. Practiced as an advocate at the Johannesburg Bar from 1996 to 2010;
8. Appeared as an advocate in numerous matters, including matters in the
Constitutional Court, the Supreme Court of Appeal, the High Court and
the Magistrates' Court;
9. Career at the Bar focussed mainly on commercial matters in the field of
commercial and consumer finance, credit security, contractual disputes,
insurance disputes, liquidations and sequestrations, delictual claims
against the SAPS and civil asset forfeiture. A number of constitutional
matters were also handled.
10. Formed part of the oral examination panel of the Johannesburg Bar,
conducting oral examinations of pupil advocates on the Magistrates'
Court paper.
4211. In 2010 resigned from the Johannesburg Bar pursue to business
interests.
12. Currently the Managing Director of ADVANCED DEBT
RECOVERY SOLUTIONS (PTY) LTD (ADRS), a debt collection
management company specialising in early stage debt collection and
debtors' book management consulting.
13. Also acts as a legal consultant for clients in the consumer credit
industry, focussing on legal compliance in business model structuring,
business processes and legal documentation.
43ADRS Contact details
Head Office: 300 Kent Avenue, Randburg
Tel: 011 021 2861
Cell: 083 266 7461
E-mail: dm@adrs.co.za
44EXTRACT FROM NEDBANK LTD AND
OTHERS v NATIONAL CREDIT
REGULATOR AND ANOTHER 2011 (3)
SA 581 (SCA)
The following is an extract of the relevant part of the judgment:
"[33] The banks and other respondents appealed against order 11 which concerns s 103(5). The declarator
reads as follows:
11. On a proper interpretation of s 103(5) read with ss 101(1)(b) – (g) of the National Credit Act, 2005:
(a) the amounts contemplated in sections 101(1)(b) – (g)which accrue while the consumer is in default
may not exceed, in aggregate, the unpaid balance of the principal debt when the default occurred;
(b) once the total charges referred to in ss 101(1)(b) – (g) equal the amount of the unpaid balance, no
further charges may be levied;
(c) once the total charges referred to in ss 101(1)(b) – (g) equal the amount of the unpaid balance,
payments made by a consumer thereafter during a period of default do not have the effect of permitting the
credit provider to charge further interest while such default persists.'
[34] In the court a quo, Du Plessis J disposed of the contentions of the banks with the following remark:
'First, the subsection makes it plain that it applies despite any provision of the common-law, which
includes the in duplum rule. In the second place it is the amounts that accrue during the default that may
not, in aggregate, exceed the unpaid balance. During the period of default no more than the stated
maximum can accrue. Put differently, the consumer's indebtedness in respect of cost of credit cannot grow
by more than the stated maximum.' 69
[35] Section 103(5) is controversial. Section 103 is headed 'Interest' and s 103(5) provides 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 of the principal debt under that credit
agreement as at the time that the default occurs.'
Section 101 deals with the 'cost of credit' and prohibits a credit agreement to require the payment of money
or other consideration by the consumer except '(a) the principal debt, being the amount deferred in terms of
the agreement, plus the value of any item contemplated in section 102'; (b) an initiation fee; (c) a service
fee; (d) interest, which — '(i) must be expressed in percentage terms as an annual rate calculated in the
prescribed manner; and (ii) must not exceed the applicable maximum prescribed rate determined in terms
of section 105'; (e) the cost of any credit insurance; (f) default administration charges; and (g) collection
costs.
[36] In its founding papers the Credit Regulator complained of the fact that banks sometimes interpreted s
103(5) as if it were a codification of the in duplum rule enabling them to levy interest as soon as the
consumer made a further payment thereby reducing the outstanding interest. The Regulator contended that
the effect of the subsection was that once the total charges referred to in s 102 were equal to the unpaid
balance no further charges could be levied. The in duplum rule originated in Roman law, underwent
development in later centuries and was consistently applied in South African courts from as early as 1830.
70
[37] The following two aspects of the common-law in duplum rule are relevant: first, where the total
amount of arrear and unpaid interest has accrued to an amount equal to the outstanding capital sum, interest
45ceases to run, but any payment made by the debtor thereafter will lead to the amount of interest decreasing
after which interest again starts to accrue to an amount equal to the outstanding capital amount. 71 The
purpose of the rule is to 'ensure that debtors are not endlessly consumed by charges and also to ensure that
debtors whose affairs are declining should not be entirely drained dry'. 72 Secondly, the in duplum rule is
suspended pendente lite, and the lis is said to commence upon service of the initial process, whereafter
interest runs again. 73 The common-law rule thus effectively limits the interest recoverable by preventing
interest from accruing further once it reaches the unpaid capital amount. .
Payment is appropriated to interest first, then to capital. 74 Interest, whether capitalised or not, remains
interest. 75
[38] In LTA Construction Bpk v Administrateur, Transvaal76 Joubert JA remarked:
'Rente is die lewensbloed van die handelsverkeer. Die afskaffing van die renteverbod in duplum is in die
huidige omstandighede nie die funksie van hierdie Hof nie. Hierdie Hof het geen bevoegheid om 'n nuttige,
geldende, gemeenregtelike regsreël af te skaf nie. Dit is 'n aangeleentheid vir die Wetgewer.'
These were prophetic words. Has the legislature by enacting s 103(5) effectively abolished the common-
law in duplum rule insofar as it concerns credit agreements within the ambit of the NCA? Section 103(5)
has been referred to in the literature as 'a codification' of the in duplum rule. 77 Section 103(5) is not a code
78 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. 79 It seeks not only
to amend the common-law in duplum rule but also to extend it. It deals with the same subject-matter as the
common-law rule but this does not mean that it incorporates all or any of the aspects of the common-law
rule. It is a self-standing provision and must be construed as such. (NB) The rule of interpretation is that a
statutory provision should not be interpreted so as to alter the common law more than is necessary unless
the intention to do so is clearly reflected in the enactment, whether expressly or by necessary implication:
'[I]t is a sound rule to construe a statute in conformity with the common-law, save where and insofar as the
statute itself evidences a plain intention on the part of the Legislature to alter the common-law. In the latter
case the presumption is that the Legislature did not intend to modify the common-law to any extent greater
than is provided in express terms or is a necessary inference from the provisions of the enactment.' 80
Steyn 81 cautioned that ''n (d)oelbewuste afwyking moet nie verwring word om in die vorms van die
gemene reg te kan inpas nie'. Section 103(5), it seems, signifies such an intention by providing in the
introductory words '(d)espite any provision of the common-law or a credit agreement to the contrary'. The
NCA is not an act consolidating the law as it existed at the time of its enactment. It replaces legislation that
governed consumer credit for more than a quarter of a century, recasting the whole body of law. The
introduction of debt review procedures and innovations such as the power of courts to rearrange consumer
obligations demonstrate dramatic departures from the previous state of the law. 82 The subsection must be
construed against this background.
[39] Section 103(5) was intended to provide some redress for borrowers of expensive credit. 83 It includes
within its ambit not only interest but also the other costs of credit which are set out in s 101(1)(b) – (g).
Kelly-Louw 84 correctly summarised one of the differences brought about by its introduction:
'From this exposition it is apparent that the vital difference between the common-law and the statutory in
duplum rules lies in the fact that under the common-law rule it is only interest (contractual and default) that
ceases to run if it equals the outstanding capital amount. By contrast, under the statutory rule, all the
amounts — such as the initiation fees, service fees, interest (contractual and default), costs of any credit
insurance, default administration charges, and collection costs — cease to run if they combine to exceed the
outstanding principal debt.
Clearly the statutory in duplum rule offers better consumer protection than its common-law counterpart.
However, the statutory rule has worsened the position of credit providers.'
[40] The court a quo granted the declarator sought by the Credit Regulator. Each of the appellants advanced
a different construction of s 103(5) and suggested variations of the declarator made. The variations are
mainly directed at preserving the common-law rule that payments of arrear and unpaid interest decrease the
amount of interest owing and allow interest to run again up to the amount of the capital. They, however,
require words to be read into the section that are simply not there. Nedbank emphasised the words 'accrue .
. . in aggregate', submitting that the section was intended to clarify and codify the in duplum rule. It
amended the rule by including the costs of credit in calculating the double and by setting the limit as the
unpaid balance of the principal debt 'as at the time that the default occurs'. Nedbank appears to have
conceded that the suspension of the rule pendente lite was done away with by s 103(5). Relying on Margo
and Another v Gardner and Another; Gardner and Another v Margo and Another85 where the common-
law rule was said to entail 'prevent[ing] unpaid interest from accruing further once it reache[d] the unpaid
46capital amount', it argued that no further charges will accrue for as long as the accumulated charges
equalled the unpaid capital. If payment is thereafter made, the credit provider must appropriate it in terms
of s 126(3) and should this result in the aggregate being less than the unpaid capital interest will accrue
again. Had the legislature intended to depart radically from the common law it would, so the argument
went, have used clearer language. On behalf of Nedbank a reformulation of the declarator was suggested to
read as follows:
'On a proper interpretation of s 103(5) . . . the amounts referred to in ss 101(1)(b) to (g) which
accrue during the period of default cease to accrue further when but only for as long as the total of the
unpaid amounts which have so accrued equal the unpaid balance of the principal debt under the credit
agreement in question as at the time the default occurred.'
[41] On behalf of FirstRand reliance was also placed on s 126(3). It was submitted that this section makes
no difference between payments made during the time of default and the time when the consumer is not in
default. Thus, so the argument proceeded, the credit provider may again charge interest until the double is
reached. Referring to the presumption that the legislature did not intend to modify the common law to a
greater extent than is provided in express terms or is a necessary inference, a recasting of the declarator in
the following terms was sought:
'1.1 once the costs of credit referred to in Section 101(1)(b) to (g) equal the outstanding principal debt
as at the date of default, such costs may once again accrue to an amount not exceeding the outstanding
principal debt at the date of default in circumstances where a defaulting consumer during a period of
default makes payments on his account, thereby reducing the costs of credit to below the proscribed
threshold;
1.2 its operation is suspended pendente lite upon service of the initiating process and that once judgment
has been granted, the costs of credit referred to in Section 101(1)(b) to (g) may run until it reaches the
double of the capital amount in terms of the judgment.'
[42 On behalf of Standard Bank it was argued that the word 'accrue' in s 103(5) should be given the narrow
meaning of 'due and payable' and not the wider one of 'entitled to'. In developing this argument reference
was made to Cactus Investments (Pty) Ltd v Commissioner for Inland Revenue 86 where the meaning of
the word 'accrued to' for the purposes of s 5(1) of the Income Tax Act 58 of 1962 was considered. The
court in that case accepted that it meant 'has become entitled to'. 87 The court held that at common law,
unless the parties otherwise agree, a lender of money became entitled to interest, payable at a future date,
the moment he advances the funds to the borrower although the interest is only payable on a future date.
Gross income includes not only income actually received but also rights of a non-capital nature, such as the
interest under consideration, which accrued during the tax year and are capable of being valued in money.
88 It was submitted on behalf of Standard Bank that s 103(5) operated as a moratorium on the payment of
the costs of credit listed in s 101(1), whilst the consumer was in default but that it did not affect the
underlying obligation (ie the credit agreement) to make full payment in future. It sought a declaration in the
following terms:
'The proper interpretation of section 103(5) of the NCA, read with sub-sections 101(1)(b) to (g), is that
the section operates as a moratorium against payments whilst the consumer is in default, but does not affect
an underlying obligation to make full payment in the future of the underlying obligation once the consumer
is no longer in default.'
This interpretation, it was suggested, would give a consistent meaning to the different charges that may be
recovered by the credit provider under s 101(1) and effect to the intention of the legislature, that all
responsible consumer obligations be satisfied eventually: s 103(5) does not affect the underlying obligation
to make payment of the different charges. What is affected is the time they fall due and the time is extended
for the benefit of the consumer. 'Accrue', it was submitted, could not have the wider meaning of 'has
become entitled to' because the right to receive interest accrues prior to the default.
[43] On behalf of Absa s 126(3) was invoked and it was argued that payments made during default would
prevent the aggregate amount of the costs of credit from reaching the unpaid balance of the principal debt
with the result that arrear interest and other charges could accumulate from time to time. It was argued that
s 103(5) must be construed in conformity with the common law. Following this approach it was submitted
that a declarator in the following form should have been made —
'(b) once the total charges referred to in section 101(1)(b) to (g), less any payment made by the
consumer while in default, equal the amount of the unpaid balance of the principal debt as at the time that
the default occurred, no further charges may be levied while such default persists.
(c) Once the total charges referred to in section 101(1)(b) to (g), less any payment made by the
consumer while in default, equal the amount of the unpaid balance of the principal debt as at the time that
47the default occurred, payments made by the consumer thereafter during the period of default do not have
the effect of permitting the credit provider to charge further interest while such default persists.'
[44] The appeal by Onecor follows very much the same approach by considering the extent to which s
103(5) departed from the common law. The argument distinguished between two or more 'notional
accounts' to which payments had to be allocated. The word 'aggregate', it was suggested, meant no more
than that for in duplum purposes the credit provider must debit all of the different items in s 101(1)(b) – (g)
to the notional interest account. The submission was made that the legislature had not expressed an
intention 'clearly, unambiguously and beyond reasonable doubt' to encroach on further rights of the credit
providers whose rights were already curtailed by the common-law rule. It was submitted that, on a
linguistic interpretation, s 103(5) left unaffected the common-law rule that once interest is paid it runs
again up to the amount of the outstanding capital. Nor did the section abolish the common-law rule that the
running of interest is suspended pendente lite.
[45] The objects of the NCA include 'encouraging responsible borrowing, avoidance of over-indebtedness
and fulfilment of financial obligations by consumers'. 89 It seeks to promote equity in the credit market by
'balancing the respective rights and responsibilities of credit providers and consumers', 90 and promotes
responsibility in the credit market by providing for a consistent system of debt restructuring, enforcement
and judgment 'which places priority on the eventual satisfaction of all responsible consumer obligations
under credit agreements'. 91
[46] Accepting these objects, the question to be asked is what the 'responsible consumer obligations' are.
Section 100(1) provides that a credit provider must not charge an amount to, or impose a monetary liability
on, a consumer in respect of —
''(a) a credit fee or charge prohibited by this Act;
(b) an amount of a fee or charge exceeding the amount that may be charged consistent with this Act;
(c) an interest charge under a credit agreement exceeding the amount that may be charged consistent
with this Act; or
(d) any fee, charge, commission, expense or other amount payable by the credit provider to any third
party in respect of a credit agreement, except as contemplated in section 102 or elsewhere in this Act.'
[47] The interest that may be charged under a credit agreement must therefore be 'consistent' with the Act.
Section 103 contains the provisions relating to interest. It follows that any interest charged must be
'consistent' with s 103. Section 103 thus expressly forms part of the credit agreement and defines the
obligations of the parties. The 'responsible consumer obligations' must, it follows, be construed with
reference to s 103. Section 103(5), in accordance with this approach, specifically provides '[d]espite any
provision of the common-law or a credit agreement to the contrary'. (My emphasis.) There is thus no
contractual entitlement to interest (or to the other charges) except as allowed for by s 103. The intention of
the legislature could not have been expressed in clearer terms. Section 103(5) does not merely give rise to a
'moratorium' on payments whilst the consumer is in default but indeed determines the latter's obligations
under the credit agreement.
[48] Section 126(3) provides for the appropriation of payments: first, to due or unpaid interest charges;
secondly, to due or unpaid fees or charges; and thirdly to the principal debt. This provision takes the matter
no further. While it is correct that this section makes no distinction between payments before and after
default it cannot affect the question whether a particular charge has 'accrued'. Payments during the time of
default cannot revive obligations that never 'accrued'. Any payment made during the time of default which
does not have the effect of ending the default simply reduces the outstanding principal debt.
[49] Much has been said about the word 'accrue', which is a word often encountered in the context of the
common-law in duplum rule where reference is made to the accumulation of arrear and unpaid interest. 92
But the word must be construed in the context of the statute under consideration. 93 The word 'accrue'
would not usually be used in the context of a fee such as the 'initiation fee' in s 101(1)(b) or a 'service fee' in
s 101(1)(c) or the 'cost of any credit insurance' in s 101(1)(e) or 'default administration charges' in s
101(1)(f) or 'collection costs' in s 101(1)(g). One would rather refer to a fee that is earned or costs that are
incurred or charges that are levied. However, s 103(5) does not provide that the fees, costs and charges
'accrue', but that the 'amounts contemplated in section 101(1)(b) to (g)', that is the amounts in respect of the
fees, costs and charges, may not 'accrue' in aggregate to more than the stated limit, viz the amount of the
principal debt at the time of default. This is really the point in issue: these amounts 'accrue' whether they
are paid or not. Section 103(5) makes no distinction between paid and unpaid charges. These amounts will
only 'accrue' if the credit provider has a contractual right to them. Once the amounts referred to in s
101(1)(b) – (g) that accrue during the period of default, whether or not they are paid, equal in aggregate the
unpaid balance of the principal debt at the time the default occurs, no further charges may be levied. It is
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