national credit act debt review proceedings; the ... - Cape Law Society

SEMINARNATIONAL CREDIT ACTDEBT REVIEWPROCEEDINGS; THEDECLARATOR AND OTHERRELATED RECENT CASES:Mr Graham BellairsBellairs & Solomons Attorneys8/25/2010

P a g e | 1The National Credit Act (hereinafter referred to as the “NCA”) has had a vast and radicaleffect on consumer law. It has replaced the Credit Agreement Act and Usury Act andintroduced a new procedure for enabling financially hard pressed consumers to obtainrelief from over indebtedness. Legal practitioners particularly those who practise in theMagistrate’s Courts have had to become acquainted with the new legislation andprocedures for enforcing of credit agreements and debt recovery by applying the Actand the case law which has developed since the promulgation of the Act. The processhas been made more difficult by virtue of the fact that the NCA is a product of theDepartment of Trade and Industry and is not written in the legal jargon which is utilisedby attorneys and in Court proceedings. Indeed, it has been the subject of criticism bythe Courts and in fact it necessitated the National Credit Regulator to apply to Court fora declaratory order to interpret certain sections of the Act to establish clarity andcertainty.The NCA is poorly drafted and complicated by the fact that a practitioner has to flip fromsection to section and chapter to chapter in order to find out whether the Act applies to aparticular agreement, to what extent it might do so and if so, what procedures are to befollowed in instituting litigation. It is also very wide and far ranging extending to some173 sections which are divided up into 9 chapters. This seminar could never do justiceto the entire ambit of the Act and its interpretation, but rather it is intended to focus ondebt review proceedings and one or two ancillary matters such as Section 129 noticesand which agreements fall within the ambit of the Act.I will commence the seminar by highlighting certain recent decisions relating to whetherthe Act applies to certain agreements and to the notice to be given in terms of Section129 (1) of the Act. Thereafter as an introduction to Yusria Cornelius’ presentation a briefresume of the declarator decision handed down by du Plessis J in the North GautengHigh Court in Pretoria in the matter between the National Credit Regulator, the fourmajor banks and other players in the credit industry. It is more formally known as theNational Credit Regulator vs Nedbank and others 2009 (6) SA 295 GNP. YusriaCornelius will be dealing with the more practical aspects of drafting and moving debtreview applications.I have already alluded to the confusion which has resulted as a consequence of theintroduction by the NCA of various concepts, one of which is the concept of an incidentalcredit agreement or transaction. It is not my purpose to delve into what is or what is notan incidental credit agreement, but on this subject I can refer you to an informativearticle in De Rebus entitled “Attorney accounts and the nature of an incidental credit” bySusan de Kock in the April 2010 edition of De Rebus at pages 26 to 28.There was for a while a view taken by attorneys that levies payable to Bodies Corporateunder Section 37 of the Sectional Titles Act constituted claims under incidental creditagreements as defined in Section 1 of the Act for the reason that interest or evenpenalties are chargeable by Bodies Corporate in the event of late payment of suchlevies.

P a g e | 2The matter was decided recently in the unreported case of TS Dlamini vs BodyCorporate of Frenoleen Case Number AR 611/09 in which the Court had regard to thedefinition in Section 1 of the NCA of an incidental credit agreement as “an agreement interms of which an account was tendered for goods or services that have been providedto the consumer or goods or services that are to be provided to a consumer over aperiod of time and either or both of the following conditions apply (a) a fee, charge orinterest became payable when payment of an amount charged in terms of that accountwas not made on or before a determined period or date; or (b) two prices were quotedfor settlement of the account, the lowest price being applicable if the account is paid onor before a determined date and the high price being applicable due to the account nothaving been paid by that date”. The Court in considering the matter found that leviescharged by a Body Corporate to its members are not so charged in terms of anincidental credit agreement because the levies do not constitute an account tendered forgoods or services provided by the Body Corporate to the consumer. Levies are notpayable by members of the Body Corporate in terms of an agreement as defined in theAct, but are payable by virtue of the provisions of the Sectional Titles Act No. 95 of1986.There is an article in the May 2010 De Rebus at page 61 by Lisa Mills on this decision.She is an attorney who appeared in this matter and persuaded the Court to grantjudgment for the above reasons.The question has arisen as to whether an acknowledgement of debt is a creditagreement covered by the NCA. In the decision of Carter Trading (Pty) Ltd vs Blignaut2010 (2) SA 46 ECP an acknowledgment of debt concluded between the Plaintiff andthe Defendant prior to the issue of summons and in terms of which the Defendantacknowledged liability to the Plaintiff for the purchase price of certain goods sold anddelivered and undertook to pay same together with interest on the purchase priceaccruing from time to time by way of instalments was held to fit the definition of a creditagreement envisaged by Section 8 (4) (f) of the NCA which provides that “an agreementconstitutes a credit transaction if it is any other agreement other than an credit facility ora credit guarantee in terms of which payment of an amount owed by one person toanother is deferred, and any charge, fee or interest is payable to the credit provider inrespect of the agreement or the amount that has been deferred”. The Court also foundthat the acknowledgment of debt had been based on a credit sale of goods and that itdid not novate that original agreement.As a consequence the Court suspended the proceedings as the Plaintiff had not giventhe Defendant a notice in terms of Section 129 (1) of the NCA and, fortunately for thePlaintiff, the Court invoked the provisions of Section 130 (4) of the NCA as aconsequence of which the proceedings were simply suspended rather than being setaside.This decision begs the question as to whether an acknowledgment of debt signed by ajudgment debtor after judgment has been given against him for an amount will thenconstitute an agreement in terms of Section 8 (4) (f) as it certainly is an agreement in

P a g e | 3terms of which payment of an amount owed by one person to another is deferred and acharge, fee or interest is payable in respect of the agreement for the amount that hasbeen deferred. I think it would fall within that definition and therefore practitionersshould be aware of this. Jenny Rossouw, an attorney, has written an article on theCarter Trading case in the August 2010 edition of De Rebus at page 45.The confusion referred to above created by the NCA is exemplified in respect of thegiving of notice in terms of Section 129 (1) of the NCA. We all know that before theinstitution of legal proceedings against a consumer in default under a credit agreement itis necessary for the credit provider to “draw the default to the notice of the consumer inwriting and propose that the consumer refer the credit agreement to a debt counsellor,alternative dispute resolution agent, consumer court or ombud with jurisdiction with theintent that the parties resolve any dispute under the agreement or develop and agree ona plan to bring the payments under the agreement up to date”. Although the beginningof that section is preceded with the word “may”, sections 129 (b) and 130 (1) precludethe credit provider from instituting legal proceedings until such time as a period of 10(ten) business days have elapsed since the credit provider has delivered the notice.However, neither of those two sections say how such notice is to be delivered. One isforced to traverse the Act from Section 65 to 168 and then back to Section 96 of theNCA. Section 65 is to be found in chapter 4 of the Act dealing with consumer creditpolicy and provides that every document that is required to be delivered to a consumerin terms of the Act must be delivered in the prescribed manner and if no method hasbeen prescribed for the delivery of a particular document the person required to deliverthat document must make it available through one or more of a list of mechanismsincluding in person at the business premises of the credit provider or by ordinary mail,by fax, by e-mail, principle webpage or delivery in a manner chosen by the consumerfrom the options referred to above. This section prima facie appears to be in conflictwith the provisions of Section 168 of the Act which finds itself in part C of chapter 8 andwhich deals with the enforcement of the Act. This section provides that “unlessotherwise provided in this Act a notice order or other document that must be served on aperson will have been properly served when it is has been either (a) delivered to thatperson or (b) sent by registered mail to the person’s last known address.It would therefore appear that the delivery of the Section 129 notice would morecorrectly be governed by the provisions of Section 168 of the NCA save for the fact thatthe introduction to that provision is governed by the phrase “unless otherwise provided”.This phrase refers one to the provisions of yet another section namely, that of Section96 of the NCA which bears the heading: “address for notice”. Section 96 is to be foundin part B of chapter 5 of the Act which deals with consumer credit agreements. Section96 provides that whenever a party to a credit agreement is required or wishes to givelegal notice to the other party for any purpose contemplated in the agreement this Act orany other law the party giving notice must deliver that notice to the other party at (a) theaddress of that party as set out in the agreement unless paragraph (b) applies; or (b) theaddress most recently provided by the recipient in accordance with sub-section (2).Sub-section (2) in turn provides that a party to a credit agreement may change their (sic)

P a g e | 4address by delivering to the other party a written notice of the new address by hand,registered mail or electronic mail if that other party has provided an e-mail address.I pause to note that if a credit provider is aware that a consumer who originally recordedan address for notice in an agreement and is no longer at that address either becausethe consumer has informed him of his change of address telephonically or he has beentraced to another address, in order to comply with the provisions of Section 96 the noticein terms of Section 129 (1) of the NCA must still be given to the address recorded in theagreement and not to that new address. This appears to be absurd, but nevertheless itis the applicable law.The question of delivery of the notice has been the subject of much litigation in recenttimes and judicial authority is divided as to whether the delivery requirement compelsthe credit provider to ensure that physical delivery of the notice is effected upon theconsumer or whether simply dispatching the notice by registered post to the addressreferred to in Section 96 of the NCA is sufficient. The former cases which require thatthe notice be received by the consumer are Absa Bank Ltd vs Prachaska t/a BiancaCarter Interiors 2009 (2) SA 512 D (Naidu, AJ) and Firstrand Bank Ltd vs Dlamini(unreported GNP Case number 50146/09) (Murphy, J). Cases deciding that delivery iseffected simply by dispatching the notice by registered post are Munien vs BMWFinancial Services SA (Pty) Ltd and another 2010 (1) SA 549 KZD (Wallace, J) followedin the cases of Rossouw, Mellot and Rockhill and then followed in the most recent caseon the subject namely that of Starita vs Absa Bank Ltd 2010 (3) SA 443 GSJ (AndreGautschi, AJ).Time does not allow for me to analyse each of these cases in depth, but I would submitthat the decision of Gautschi in the Starita case is the one which should be followed.After an in depth consideration of all of the aforementioned cases and in particular theview of Murphy, J Gautschi confirms that simply dispatching a notice by registered postis sufficient and that it need not actually be received by the consumer. For furtherreading there is an article in the July 2010 De Rebus by Simone Monty on Murphy’sdecision at page 41 and the Gautschi judgment is referred to in the law report section ofthe August 2010 De Rebus at page 27.Out of frustration and uncertainty as to whether or not the provisions of the NCA apply toa credit agreement or, if it does, in order to avoid these provisions, a practitioner may becompelled to advise his client in the appropriate circumstances to apply for thesequestration of the consumer. Please note that by applying for an order forsequestration of a consumer based on a debt arising from a credit agreement a creditprovider would not be seeking enforcement of a debt in which event the provisions of theNCA would apply, but rather to bring about the convergence of creditors to ensure thatthe consumer’s estate is wound up in an orderly fashion. Therefore compliance withSection 129 of the NCA is not a necessary prerequisite for a sequestration application.This view was held in the case of Investec Bank Limited vs Mutemeri and another 2010(1) SA 265 GSJ (Sachwell, J).

P a g e | 5The Munien case referred to above and followed by Gautschi held that the Section 129(1) notice need not be received by the consumer and that the credit provider dischargedits obligations by sending it to the postal address selected by the consumer. So long asit was delivered in the manner chosen by the consumer in such manner as one specifiedin Section 65 (2) (a) of the Act it was irrelevant whether the notice came to the attentionof the consumer. Wallis, J expressed the view that if the letter was delivered byregistered post instead of ordinary mail this did not constitute a material departure fromthe provisions of the section and the fact that a letter is registered makes it more notless likely to reach its destination. This decision was followed in an unreported casemore recent than the Starita judgment. It is Standard Bank of South Africa Limited vs DS Maharaj t/a Sanraw Transport Case number 2216/10 (Swain, J).Gautschi criticises the NCA as being a badly drafted act and refers to not only theabsurdity of a strict interpretation of the Act of giving notice in terms of Section 129 (1) ofthe Act as being the institution of legal proceedings which would of its own right precludea consumer from taking steps to apply for debt review in terms of Section 86 (2) of theAct, but he also refers to the liberal use of numerous expressions used in the Act withregard to giving notice and delivery which he describes as being used “indiscriminatelyand without precision”. (See page 452 (F) to (H).These interpretational difficulties in fact prompted the National Credit Regulatorestablished under Section 12 of the NCA to seek a number of declaratory orders aimedat clarifying interpretational difficulties that those who work with the Act experience inpractice. There were 15 applications for declarators considered and 14 orders weregranted in the judgment.In order to set the context of the issues raised in the declarator Du Plessis, Jcommences with an overview of Sections 83 to 87 of the NCA which I can summarise asfollows:1. A debt counsellor to whom application for debt review is made can react in threedifferent ways. (see Section 86 (7))2. If he reasonably concludes that the consumer is not over indebted he must rejectthe application to be declared over indebted. In such event the consumer mayapply directly to the Magistrate’s Court for an Order to the effect that one or moreof his credit agreements are reckless and or an Order that his obligations be rearranged.(see Section 86 (7) (a) and Section 86 (a))3. The debt counsellor may find that the consumer is not over indebted, but that he orshe is nevertheless experiencing or likely to experience difficulty in satisfyingtimeously all of his or her obligations under credit agreements and in such event adebt counsellor may recommend that the consumer and respective credit providersvoluntarily consider and agree on a plan of debt re-arrangement. This is referredto as a voluntary re-arrangement. (see Section 86 (7) (b))

P a g e | 64. The debt counsellor could find that the consumer is over indebted in which eventhe “may issue a proposal recommending that the Magistrate’s Court make either orboth of the following orders; namely, that one or more of the consumer creditagreements be declared to be reckless credit and/or that one or more of theconsumer’s obligations be re-arranged in one of the number of specified ways (thisis referred to as a re-arrangement by the Court). (see Section 86 (7) (c))5. Reverting to the issue of a voluntary re-arrangement where consensus is reachedthe re-arrangement must be recorded in a consent order and recorded by the Courtin terms of Section 138 of the Act. If consensus cannot be reached then the debtcounsellor must refer the matter to the Magistrate’s Court with the recommendationfor voluntary re-arrangement. In such event in terms of Section 87 (1) (a) theMagistrate must conduct a hearing and may reject the recommendation or makean Order declaring any credit agreement to be reckless and may in addition makean Order re-arranging the consumer’s obligations in the manner contemplated inSection 86 (7) (c) (ii). There are four possible options set out in Section 86 (7) (c)(ii); extending the period of the agreement and reducing the amount of eachpayment; alternatively postponing during a specified period the dates on whichpayments are due; alternatively, a combination of the above, or re-calculating theconsumer’s obligations because of contraventions of specified sections of theNCA.Against the background of this overview the Court decided the following issueswhich required clarification:(a)The first declaratory order sought was: On a proper interpretation of Section86 (b) (6), it applies to the circumstances contemplated in Section 86 (7) (c).To put it simply the declarator begs the question would the debt counsellormake a similar if not the same application in the case of a finding that thedebtor is in fact over indebted as it would in the case of a finding that thedebtor is not over indebted, but going to suffer difficulty and there is novoluntary rearrangement. The answer in terms of the judgment wasultimately the affirmative. In essence the problem is created by the poor andvague wording of the section which relates to a finding of over indebtednesswhich requires the debt counsellor in Section 86 (7) (c) “to issue a proposalfor the Magistrate’s Court to make an Order” whereas on the basis of hisfinding that the debtor is not over indebted, but experiencing difficulty andconsensus cannot be reached on a voluntary Order, then “the debt counsellormust refer the matter to the Magistrate’s Court with the recommendation”.(see Section 86 (8) (b))In other words and to put it differently in terms of Section 86 (8) (b) a debtcounsellor must refer his voluntary proposal to the Magistrate’s Court with arecommendation. Section 87 (1) empowers the Magistrate’s Court to whomthe proposal in Section 86 (8) (b) is referred to conduct a hearing and afterinvestigation to make an Order.

P a g e | 7However, no provision is made in Section 87 or anywhere else in the Act forthe referral to a Magistrate’s Court to conduct a hearing and make an Order inline with a proposal in terms of Section 87 (c) (i) and (ii) namely where aconsumer is found to be over indebted. Therefore and for this reason theCourt implied that the procedures envisaged in Section 86 (8) (b) (as readwith Section 87 (1) which gives effect to Section 86 (b)) must be incorporatedin the provisions of Section 86 (7) (c) as well. In effect then the same type ofapplication to Court should be made by the debt counsellor.(b)(c)The next declaratory order sought an answer to the question does aMagistrate fulfill an administrative as opposed to a judicial role? The Courtnoted that the provisions of Section 86 and 87 always refer to a Magistrate’sCourt and not to a Magistrate. The Court further noted that the functions ofCourts are judicial and not administrative in nature. Debt review may becontentious and require in each step a judicial process including the hearingof evidence and applying the law to the facts. Accordingly the Court declaredthat the Magistrate would fulfill a judicial and not an administrative role.A declarator was sought that in a case of a voluntary re-arrangement wherethere is lack of consensus as envisaged by Section 86 (8) (b) of the Act aMagistrate’s Court to whom the matter is allocated is obliged to conduct ahearing and make an Order in terms of Section 87 (1) (a) or (b) namely eitherreject the application or grant the Orders mentioned in Section 87 (1) (b).The Court held that the Magistrate’s Court being a creature of statute isbound to make a finding in terms of Section 87 and no other. That sectionalso refers to Section 83 which provides for the way a Magistrate should dealwith reckless credit. Section 87 also incorporates Section 86 (7) (c) (ii) whichsets out the way in which a Magistrate can rearrange the consumer’s debt.(d)(e)What procedure is to be followed when conducting a hearing in terms ofSection 87 of the NCA; is it the procedure in terms of Magistrate’s Court Actor a sui generis procedure? The answer given by the Court is that theMagistrate’s Court derives its powers from the Magistrate’s Court Act. It is acreature of statute. Court rules are promulgated to regulate the conduct ofproceedings in the Court in question and they describe the manner in whichmatters are brought to Court. On the other hand no other proceedings aredescribed in the NCA and therefore the Court held that the Magistrate’s CourtAct and its rules apply in determining the procedure; more specifically Rule55 of the Magistrate’s Court Act govern these procedures.A declarator sought was an Order to the effect that a recommendation by adebt counsellor in terms of Section 86 (8) (b) does not constitute anapplication for the purpose of the Magistrate’s Court Act and the debt

P a g e | 8counsellor is not required to comply with the Magistrate’s Court Act or rules.For the reasons previously referred to, this declarator was refused and anOrder made that a referral by a debt counsellor to a Magistrate’s Court underSection 86 (8) (b) and Section 86 (7) (c) of the NCA is an application withinthe meaning of the Magistrate’s Court Act and the rules of the Magistrate’sCourts and falls to be treated as such in terms of Rule 55 of the rules.(f)(g)(h)(i)(j)A declaratory order was sought that the rules relating to the costs and theprinciples which apply generally to the award of costs in applications do notapply to hearings conducted in terms of Section 87 of the Act and in particularthe general rule that costs followed the result does not apply to a debtcounsellor whose recommendation is rejected by a Magistrate’s Court. Herethe Court held that the normal rules do in fact apply, but a debt counsellor isnot an ordinary litigant; he simply fulfills a statutory obligation and is notordinarily ordered to pay costs unless he acts improperly or with mala fides.A declaratory order was sought that service of any recommendation or otherdocumentation contemplated in Sections 86 or 87 of the Act may with theagreement of the effected parties be by way of fax or e-mail. The Court ruledthat the rules of the Magistrate’s Court Act in particular Rule 9 apply and mustbe complied with. However, parties may agree on alternative service.A declaratory order was sought that a debt counsellor who refers a proposalto a Magistrate’s Court in terms of Section 86 (8) (b) is entitled to adduceevidence and advance argument in support of his or her recommendation inany hearing under Section 87. The Court ordered that a debt counsellor whorefers the matter to the Magistrate’s Court in terms of Sections 86 (7) (c) and86 (b) of the NCA has a duty to assist the Court and should be available andable to render such assistance by way of furnishing evidence or makingsubmissions as to his or her proposal or to answer any queries of the Court.Note that a debt counsellor also has locus standi to appear in the Magistrate’sCourt for the purpose of moving his debt review application.The declaratory order sought an answer to the question as to in whichMagistrate’s Court must the application be made. Generally proceedingsmust be instituted in the Court which has jurisdiction over the Respondent,but the consumer and his credit providers are Respondents and one Courtmay not have jurisdiction over all. The Court held that the Court withjurisdiction over the consumer is the one in which the proceedings must beinstituted. The essential purpose of the debt review is to protect theconsumer and to hold otherwise would defeat the purpose of the Act.A declaratory order was sought that there is no monetary limit upon thejurisdiction of the Magistrate’s Court to hear a referral under Section 87 of theNCA. The Court confirmed that there is no basis for holding that there is a

P a g e | 9monetary limit to the jurisdiction of the Magistrate’s Court and that to holdotherwise would defeat the purpose of the Act.(k)The National Credit Regulator requested an Order that in the event of theCourt finding that a credit agreement was reckless the Court would make anOrder in terms of Section 87 (1) (b) (i) read with Section 83 (2) (a) settingaside all or part of the consumer’s obligations under the credit agreement andmay in terms of such Order reduce the total amount payable under suchagreement. This was found not to be an exact restatement of what the setout in Section 83 of the Act and what was ordered by the Court was thedeclaratory order which the Respondents in a counter application sought andwhich, but for some typographical errors restated the precise provisions ofSection 83 with reference to the lack of compliance with Section 80. TheCourt held that the Magistrate’s Court as a creature of statute had no powerbeyond that provided in the Act and a Magistrate’s Court does not have ageneral power to interfere with the contractual obligations and rights of anyparty to a credit agreement. Look carefully at the provisions of Section 83,time does not allow me to go into them; just understand that a Magistrate islimited to those powers in that section when dealing with reckless credit.A question which arises out of this declaratory order is whether aMagistrate’s Court can reduce the interest rate charged in terms of a creditagreement which is found to be over indebted. The answer appears to be inthe negative and this view is succinctly argued by an attorney, David vanNiekerk in his article “Interpreting and opposing the debt review application”in the May 2010 De Rebus at page 59.(l)A declaratory order was sought that a Magistrate’s Court when making anOrder in terms of Section 87 may issue an Order contemplated in Section 65J of the Magistrate’s Court Act. The Court rejected this Order as there is noprovision in the NCA for the making of an Order in terms of Section 65 J ofthe Magistrate’s Court Act. The Court is limited to the provisions of Section87 (1) of the NCA.(m) An order was sought that if a debt counsellor makes a finding that aconsumer is not overindebted or that he is in fact over indebted this does notpreclude him from exercising the powers under Section 86 (8) which is eitherto try and solicit a consent order or if no consensus is reached then to referthe matter to the Magistrate’s Court in terms of Section 87 for determinationof his recommendation in that regard. The Court held that Section 86 of theNCA did not intend to extend to the debt counsellor a right to negotiate in themanner sought in the declaratory order. No negotiation is envisaged where adebtor is not found to be over indebted or where he is found to be overindebted. In the latter instance the debt counsellor must simply make hisrecommendation to Court in terms of Section 86 (7) (c). However, the Courtdid recognise the fact that a debt counsellor could of his own enter into such

P a g e | 10negotiations, but they were not prescribed by the Act, but are merelysettlement negotiations.In dealing with this particular order the Court issued a warning to debtcounsellors to establish in a case when negotiations are taking place in termsof Section 86 (8) that they do not run out of time before launching anapplication for debt review as should a credit provider who is not negotiatingin good faith achieve a delay of over 60 days then the credit provider may interms of Section 86 (10) of the Act withdraw from the review process andproceed with its claim.Note that Section 86 (10) has been interpreted to apply only to debt reviewbefore “referring it to Court” in terms of Section 87 (1) and that once theapplication to Court has been served, the credit provider cannot invoke thissection. See the unreported decision in SA Securitisation (Pty) Ltd vs GideonMatlala Case number 6359/10 Gauteng North High Court (Kathree –Setiloane AJ)(n)(o)A declaratory order was sought that the reference in Sections 86 (2) to thetaking of a step in terms of Section 129 to enforce a credit agreement is areference to the commencement of legal proceedings mentioned in Section129 (1) (b) and does not include steps taken in terms of Section 129 (1) (a)which, in effect is the notice in writing drawing the consumer’s attention to hisdefault. The Court refused to make an Order along these lines as althoughthe parties to the hearing were in agreement as to this interpretation, theCourt was not so convinced. Fortunately, Gautshci in the Starita caserecognised the absurdity which would result if such notice were deemed to bea step taken in enforcing a step to enforce the agreement.Section 101 (1) (b) to (g) refers to items making up the costs of credit andspecifies admissible components being an initiation fee, a service, interest,costs of insurance, default administration charges and collection costs. Adeclaratory order was sought to the effect that on a proper interpretation ofSection 103 (5) read with Section 101 (1) (b) to (g) of the NCA:the amounts contemplated in Section 101 (1) (b) to (g) which accrue whilethe consumer is in default may not exceed in aggregate the unpaidbalance of the principal debt when the default occurred;once the total charges referred to in Section 101 (1) (b) to (g) equal theamount of the unpaid balance no further charges may be levied;once the total charges referred to in Sections 101 (1) (b) to (g) equal theamount of the unpaid balance payments made by the consumer thereafterduring a period of default do not have the effect of permitting the creditprovider to charge further interest while such default persists.

P a g e | 11The majority of the Respondents (presumably the Banks) argued that Section103 (5) operates similar to the common law rule of in duplum which providesthat interest stops running when the unpaid interest equals the outstandingamount of capital. When the debtor repays a part of the interest the quantumof the outstanding interest reduces below the amount of the outstandingcapital and it runs again until it equals the capital amount. They arguedfurther that Section 103 (5) should create a moratorium on the payment of thecosts of credit while the consumer is in default, but it does not affect theunderlying obligation to make payment. The Court held that the Respondentsinterpretation of Section 103 (5) is incorrect as firstly the sub-section makes itplain that it applies despite any provision of the common law which includesthe in duplum rule. In the second place it is the amounts that accrue duringthe default that may not in aggregate exceed the unpaid balance. Thereforeduring the period of default no more than the stated maximum can accrue orput differently the consumer’s indebted in respect of costs of credit cannotgrow by more than the stated maximum.In summary once the total of the interest and other charges referred to inSection 101 (b) to (g) have equated to the unpaid capital amount at the timeof a default then no further interest can be charged when subsequentpayments reduce the amount of that total below the unpaid capital amount.This last declarator has been taken on appeal by Nedbank and StandardBank. The decision is awaited.That then is a summary of the findings of the Declarator. It now remains forYusria to deal with the practical aspects of debt review applications.