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Cape Town – A ruling by the Western Cape High Court which found in favour of the Stellenbosch University Law Clinic, Summit Financial Partners and 10 of their clients in relation to garnishee deductions has been hailed a victory for the poor.
The clinic, with consumer watchdog Summit Financial Partners and their clients, approached the high court in August last year, seeking a declaratory order to determine the interpretation of “collection costs” and what is called the statutory in duplum (double the amount) rule.
The applicants argued that consumers had been overcharged for years due to a lack of oversight and
enforcement of the law protecting consumers subject to garnishee deductions.
They cited the National Credit Regulator, the minister of justice, the minister of trade and industry and 46 other parties, including legal firms and credit providers like banks, as respondents in their application for a declaratory order regarding the interpretation of three aspects of the National Credit Act (NCA).
The application related to what the applicants described as the unilateral, unregulated manner in which creditors and collection agents add costs, including legal fees, to debtors’ accounts, both before and after judgment.
In his ruling, Acting Judge Bryan Hack said: “I accept that the result may be that certain of the wealthier institutions or enterprises in this country will have their profits reduced.
‘‘This is an acceptable result if the resulting consequence is that the poor will not be enslaved even further in spiralling debt.
“I am satisfied that the Credit Act must be interpreted to obtain this purpose.
‘‘Accordingly, I am satisfied that the applicants have made out a case for the declaratory orders.”
Judge Hack ruled in the applicants’ favour that collection costs as defined in the NCA must be read to include legal fees incurred to enforce the monetary obligation under the credit agreement, regardless of whether such fees were charged before, during or after litigation.
Judge Hack also ruled that the limitation in terms of the act that all amounts - for example interest, fees and collection costs, except the capital amount - cannot exceed the balance of the debt, and must apply at all times regardless of whether a judgment had been granted.
Judge Hack found that legal fees may not be claimed until these had been agreed upon or taxed.
Senior attorney at the Stellenbosch University Law Clinic, Stephan van der Merwe, said: “This is a victory for the poor and reinforces the importance of protecting consumers from unscrupulous collection methods and reckless lending that traps consumers and enriches creditors.”