Loan defaulters could claim billions in legal fees, interest after landmark ruling

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Loan defaulters could soon claim billions of rand from credit providers following a landmark ruling by the Cape High Court on Friday.

The court granted a declaratory order stating that credit providers who overcharged defaulters more than double their outstanding amounts were in breach of the National Credit Act (NCA).

The Stellenbosch University’s Law Clinic and Summit Financial Partners brought the application on behalf of several defaulters, Moneyweb reports.

Debt collection, legal fees passed on to defaulters

They argued that their clients ended up paying several times the initial amount borrowed after defaulting because credit providers passed on exorbitant interest, debt collection and legal fees to them.

For instance, one of the clients, Frans Saulus, borrowed an initial amount of R16,000. Despite repaying R19,000, he still owes R37,000.

The court declared that in such instances, the credit providers are in contravention of the NCA’s statutory in duplum (‘double’) rule.

The rule means that a credit provider may not charge a defaulting borrower more than double the outstanding amount at the time of default, no matter what the debt collection or legal fees are.

Class action suit in New Year

For instance, if the outstanding amount is R1,000, the defaulter cannot be charged more than R2,000 regardless of the interest, admin, debt collection or legal fees.

Law Clinic attorney Stephan van der Merwe said the ruling opens the way for a class action suit against credit providers.

He said amounts involved could run into billions of rand because affected defaulters countrywide are automatically included in the suit unless they specifically opt out.

He said, “We are planning to institute a class action suit early in the New Year because we want to interrupt prescription [running out of time] on behalf of all borrowers across the country who have been prejudiced by the behaviour of unscrupulous credit providers.”

However, van der Merwe said he would not be surprised if the more than 50 respondents in the case appealed the ruling.

The respondents included credit providers as well as debt collection companies, including Bayport, Finbond and Full House Retail.

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