This was in response to our questions about Lewis’s application of section 103(5) of the NCA - commonly known as the statutory in duplum rule - and, more specifically, if and how it differs from the interpretation set out in the declaratory order handed down in 2009 and upheld by the SCA in 2011.
Alta Coetzee, the manager of debt recoveries at Lewis, says “there is no inconsistency between Lewis’s approach and the interpretation of section 103(5) as determined by our courts”. And Coetzee says there is no contradiction between her statement to Personal Finance and what she told debt counsellor Philip Nortje in an email sent in December last year, when Nortje challenged Lewis about how it applies the statutory in duplum rule.
Nortje questioned how default charges had resulted in his client still owing Lewis R7000 after she had already paid more than R10000 (while in default) towards a principal debt of R6169 (see “How a R6000 debt became a R18000 millstone”, above).
In response to Nortje, Coetzee said: “We are well aware of what section 103(5) provides and what the 2011 judgment stated. We are also presently actively engaged with the NCR and the Department of Trade and Industry in regard to what the correct interpretation of the section ought to be, particularly given the draft guidance note on the interpretation of section 103(5) that the NCR published last year for comment ... The NCR is aware of the position we take in this regard and the reasons therefor.”
The regulator ignored numerous requests from Personal Finance for comment this week.
The application of the statutory in duplum rule has been a bone of contention for credit providers for almost a decade. In August 2009, the NCR applied to the High Court for a declaratory order to clarify “interpretational difficulties with the practical application of aspects of the Act”, including section 103(5).
The case resulted in the court granting an order stating that once the charges on a default debt (charges, such as initiation fees, service fees, interest, credit insurance costs, default administration charges and collection costs, listed in section 101 of the Act) equal the amount of the unpaid balance at the time of default, no further charges may be levied, and any payments made by the consumer thereafter do not permit the credit provider to charge any further interest and fees while the default persists.
The matter went to the Supreme Court, but it upheld the ruling.
Nortje dealt first with Ismaeel Fakier, Lewis’s debt review manager, who told him that Lewis disagreed with his interpretation of how section 103(5) should be applied.
“It is not the total amount paid to date that gets assessed against the unpaid balance of the principal debt at the time of default, but the aggregate charges that accrue during the time of default. In this case, therefore, once the charges that accrue during the time of default add up to R6172, we may not charge any further interest, service fees, etc,” Fakier said.
He says that the consumer reached this limit in February last year and at that stage the unpaid balance of the principal debt was R8173. She had since made further payments, reducing the outstanding balance to R7173, he said.
Nortje says he does not understand how, even if the consumer’s debt was R6 172 when she defaulted, Lewis can collect more than double that amount.
This week, Lewis said that Personal Finance had assumed Nortje’s interpretation was correct and in line with the court judgment. “We do not believe this to be the case,” Lewis said, adding that the “disagreement in the industry” was the very reason that the NCR is seeking a declaratory order as to the interpretation of aspects of section 103(5) of the NCA.
“The statutory in duplum rule is more onerous on credit providers in that the ‘in duplum limit’ will be reached much sooner than the common law limit would have been reached,” Finn Elliot, an associate director in KPMG’s corporate law advisory practice, wrote in an article entitled “Correctly applying the in duplum rule”, published in 2013.
“Importantly, the common-law in duplum rule does not bar interest from accruing again once the outstanding interest has been reduced below the ‘in duplum limit’. In other words, if a payment is made and the amount outstanding is reduced below the outstanding principal debt, the in duplum rule will no longer apply and interest can start running until it reaches the ‘in duplum limit’ once again,” Elliot wrote.
“Whereas the statutory rule applies for the entire duration of the default, meaning that, as long as a consumer remains in default of his or her payment obligations, the credit provider is not entitled to levy any further charges, notwithstanding that a consumer may reduce the outstanding charges through repayments, which is in stark contrast to the common law rule. As a result of its wider ambit, the statutory rule provides greater consumer protection, whilst credit providers are left considerably worse off.”