Study Unit 10: Consumer’s liability, interest, charges and fees Flashcards
❖ Previously, financial protection was regulated by:
➢ Contractual aspects were regulated by Credit
Agreements Act and the
➢ Financial aspects were regulated by Usury Act
Whats the current position?
the NCA regulates both these aspects (Ss100-
105 and Reg39-48 (which are important when determing the financial protecetion afforded ito NCA)
❖ The NCA has extensive provisions regarding the
consumer’s duty to pay. what do these include?
➢ Principal debt (amount deferred in terms of
agreement);
➢ With interest, fees and charges
❖ During the currency of the credit agreement
❖ Main aim
❖ To protect consumers against exploitation by credit
provider
Provision regulating the 4 Step approach
❖ S100 of NCA:
❖ Legislature uses a 4 step approach in the NCA to afford
protection in relation to excessive interest, fees and
charges.
❖ In other words, to protect consumers against exploitation
by credit providers:
❖ STEP 1
❖ Limits interest rate payable by consumer
❖ S103(6) of NCA:
❖ Act enables Minister of trade and industry to prescribe method for calculating
maximum rate of interest.
❖ Regulation 42(Table A) provides an example:
e.g.mortgage: [(RR x 2.2) + 5%)]
❖ RR is the ruling SA Reserve Bank Repurchase Rate.
❖ This Repurchase rate prevents the charging of excessive
interest.
❖ Micro lenders are now curtailed with regard to their
practice of charging exorbitant rates.
❖ STEP 2:
❖ Restricts amount of principal debt
❖ Regulation 39:
Define the principle debt
* A cap is placed on the principal debt.
❖ STEP 3
❖ Provides the maximum amount recoverable from
consumer.
❖ A restriction is basically placed on the costs/amounts
that a consumer may be required to pay.
❖** S 101 of NCA**
❖ The following are the only amounts that the consumer
may have to pay:
➢ (a) principal debt
➢ (b) initiation fee
➢ (c) service fee
➢ (d) interest
➢ (e) cost of any credit insurance
➢ (f) default administration costs
➢ (g) collection costs
❖ STEP 4
❖ Places a cap on the different amounts forming part of the
maximum recoverable.
Regulation 39-48:
❖ A cap is placed on the amounts prescribed in S101
(principal debt, collection costs etc.)
❖ Legislature also prohibits credit provider from charging
consumer a higher price for any goods or services.
❖ Than the price charged for the same goods or services on
the basis of a cash transaction.
❖ Summary:
❖ Steps 1 and 2 are aimed at interest protection
❖ Steps 3 and 4 aim to protect in relation to other fees and costs.
❖ Furthermore, the NCA allows for variable interest rates,
provided variation is by fixed relationship to reference rate stipulated in agreement (when you apply for credit and before credit agreemtn is enetred into, you are asked if you want variable or fixed interest rate. Variable rate are allowed but must be by fixed relationship to a specific thing)
In duplum rule
❖ NCA rule is as follows:
❖ S103(5) of NCA
❖ Interest and fees and charges (“costs”) that accrue
during the time that a consumer is in default (for some or other reason cant pay) 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.
❖ Aim
❖ Restriction of interest and costs that accrue during period
during which consumer is in default.
❖ As soon as interest and costs reach outstanding balance
of principal debt, as it is at time consumer defaults, it
stops to accrue.
❖ Nedbank v The National Credit Regulator.
❖ Even if the consumer thereafter effects payments which
diminish the amount of interest and costs to an amount
below the outstanding principal debt, interest and costs
will not accrue again.
❖ The consumer will thus have to rectify the default by
paying the outstanding amount of the principal debt (as it
was on the day of default and the accrued costs).
❖** This is as a result of the Supreme Court of Appeal’s
interpretation of s 103(5).**
❖ Summary:
❖ During the entire period of consumer’s default, the
allowable interest and costs may not grow by more than
double the outstanding balance of the principal debt at
the date of default = [rule of double]
❖ Example:
❖ R4000 principal debt (initially)
❖ R2000 paid in instalments
❖ R2000 still outstanding (default occurs =interest and
costs can accrue to R2000)
❖ And then in duplum will kick in.
❖ This consumer will thus owe R4000
❖ Bayport Securitisation Ltd v University of Stellenbosch
Law Clinic:
❖ High Court:
❖ Held that “collection costs” as referred to in S101(1)(g),
read with S103(5), do not include legal costs.
❖ Collection costs are distinguishable from litigation
❖ costs.
❖ The two types of costs relate different processes.
❖ If the debt collector fails, the court’s assistance is
invoked.
❖ Legal costs commence with the issue of summons.
❖ SCA:
❖ Held that S103(5) does not apply to the cost of credit
referred to in section 101(1)(b) to (g) after judgment has
been granted
