Q&A: Is there a cap on the cost of default?
How are the fees and charges regulated in the recovery of arrear levies?
Q: I received a summons for the payment of R17,000 to my body corporate. In October 2018 my insurance paid R5,150 for my arrear levies. My bill shows I was charged interest of R5,247, legal costs of R4,343 and assessment costs of R1,345. When I contended that the collection costs cannot be more than double the capital amount outstanding, I was told this applies to agreements under the National Credit Act (NCA), and only the interest rate provision is applicable to my bill. Is this correct? Can I open a case against the debt collectors for violations of the act? — Ncedisa Gongxeka
A: Avitha Nofal, a senior legal adviser at the office of the credit ombudsman, responds.
In terms of the NCA, the in duplum rule sets out that insofar as the interest calculation is concerned, the collective of the interest, initiation fee, service fees, credit insurance, default administration charges and collections costs which accrue during the time of a consumer’s default may not exceed the unpaid balance of the principal debt at the time of default.
During December 2019, judgment was granted in the case of Stellenbosch University Law Clinic, Summit Financial Partners & 10 clients. The case sought clarity on the interpretation of the in duplum rule and what charges can accrue to a debtor’s account. We understand that the application for leave to appeal has been filed by one or more of the 49 respondents, which include the department of trade & industry, the national credit regulator, all the banks and the council for debt collectors.
The rules, powers and functions of a body corporate as well as the liability to pay levies are set out in the Sectional Title Schemes Management Act. The body corporate may appoint debt collectors to collect on outstanding levies.
While the initial request for payment would have been based on the body corporate resolutions/rules as read with the Sectional Title Schemes Management Act, the handing over of the debt would fall within the ambit of the NCA as an “incidental credit agreement”.
In terms of the NCA the prescribed interest rate is 2% a month, which accumulates to 24% a year, which can be charged on default payments within an incidental credit agreement.
In terms of the National Debt Collection Act, which regulates the debt collection process, debt collectors can charge certain fees, as determined by the council for debt collectors.
Provided that the debt collector is a member of the credit ombud, we would be in a position to assist the consumer relating to a dispute about credit information held by the credit bureaus. This would include the accuracy of the information reflected; enforcement action, such as handed over or legal action; and if the consumer was not given 20 business days’ written notice before listing.
Also, in respect of nonbank credit disputes such as collection costs, fees, interest charges and costs, in the event that the debt collectors are not members of the credit ombud, the consumer may approach the council for debt collectors to look at the costs. and the in duplum rule will apply.
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