Lenders and the University of Stellenbosch’s Law Clinic, joined by Summit Financial Partners and a number of clients, are to lock horns in the Western Cape High Court in the middle of the year. A Moneyweb report says the case will decide what charges lenders are allowed to load onto the accounts of defaulting borrowers.

The National Credit Act (NCA) says lenders cannot recover more than double the outstanding debt at the time of default – the in duplum principle.

The banks, represented by the Banking Association of SA (Basa), have come out swinging, arguing that they are within their rights to charge administration, service and legal fees, even when these costs far exceed the in duplum limit.

Not so, says the Law Clinic’s Stephan van der Merwe.

‘We argue that the intention of the NCA is to provide protection against unscrupulous collection practices for borrowers, especially the poor. The NCA, however, is imprecise in its wording, clearly intended to include legal and other fees as part of collection costs in the in duplum limit.’

Basa argues that the Law Clinic’s interpretation of the NCA – counting legal costs as part of ‘collection fees’ – curtails the banks’ ability to recover loans and limits the courts’ discretion to award cost orders against defaulters.

It also inhibits the banks from approaching the courts for recovery of loans.

The Law Clinic replies that the banks are attempting to change common law to suit their arguments, and to continue sidestepping the NCA.

Full Moneyweb report