Court ruling on debt review offers protection for consumers

KEY protections for South Africans who are in debt review to ensure they are neither unfairly advantaged by more favourable payment terms nor can they be charged excessive interest on what they owe hang in the balance due to ongoing court cases.

- NICOLA MAWSON

In a highly contested legal matter, the Banking Association South Africa (BASA) and five major banksStandard Bank, FirstRand (which owns FNB), Nedbank, Absa, and Capitechave launched an appeal against a ruling that offered more certainty and protection for credit-active South Africans who have fallen behind on their payments and turned to debt rescue for help.

The dispute began when Chantelle Scott, a registered debt counsellor, approached the North Gauteng High Court seeking clarity on the definition of "default" and whether the National Credit Act (NCA) limits this to the original credit agreements or extends it to debt review arrangements.

Scott also requested confirmation that while a consumer is in default, they cannot be charged interest, fees, and other costs that exceed the unpaid amount owed at the time the default occurredeven if the debt is being repaid under debt review. This is known as the in-duplum rule, which caps interest and other payments to the same amount as the principal or initial loan when someone is in default on a credit agreement.

The court ruled that a missed payment leading to default on a loan is not wiped clean simply because someone enters debt review. That default remains tied to the original agreement. Debt review changes how and when payments are made, it explained.

Importantly, the ruling confirmed that the in-duplum rule applies to people under debt review. Benay Sager, executive head of DebtBusters, explains that this means debt cannot spiral out of control, especially since it limits unfair collection practices.