This article first appeared in Moneyweb.
An interesting battle between lenders and the University of Stellenbosch’s Law Clinic, joined by Summit Financial Partners and a number of clients, is about to get underway in the Western Cape High Court.
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 – an old Roman legal principle known as in duplum (‘double’).
For example, assume you borrow R1 000 and are expected to pay back R1 300 after interest, administration and other charges are added. You then default after repaying R600, leaving an outstanding debt of R700. The law says the lender may only recover double this amount, or R1 400, regardless of the amount of interest, administration and other fees accumulated from the time of default.
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 imprecise in wording, clearly intended to include legal and other fees as part of collection costs in the in duplumlimit.”
What’s really happening here is that lawyers are fighting for their lunch.
SA’s legal system feeds off the banks, to the point where anyone seeking legal representation against the banks is politely informed of the potential conflict of interest in representing anyone challenging the banks in court. To do so would kill the law firms’ meal ticket.
“Most of the cases you see coming before the courts each day involve the banks,” says King Sibiya, head of the Lungelo Lethu Human Rights Foundation (LLHRF), which fights unlawful evictions by banks around the country. “They keep the court system and the law firms financially afloat. They have captured the justice system.”