Groundbreaking victory for the poor as judge rules in debt collection case

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Cape Town – The Western Cape High Court has ruled in favour of the Stellenbosch University Law Clinic and Summit Financial Partners in a case relating to debt collection practices.

In August 2018, the Stellenbosch University Law Clinic, Summit Financial Partners, and 10 of their clients approached the Western Cape High Court to request judicial intervention relating to debt collection practices. The application relates to what the applicants identify as the unilateral, unregulated manner in which creditors and collection agents add costs, including legal fees, to debtors’ accounts both before and after judgement.

The purpose of the application was to clarify Section 103(5) of the National Credit Act 34 of 2005, which prohibits the total charges that may accrue in terms of section 101(1) from exceeding the principal debt outstanding at time of the consumer’s default. Legally, only the charges listed in the section may lawfully be levied against the consumer’s account until such time that the consumer has paid the default amount. This includes collection costs levied by companies contracted to recover outstanding debt on behalf of the creditor.

In the case of short-term credit agreements or short-term loans, the collection costs as well as the fees spent on legal services often form the bulk of the amount the defaulting consumer is eventually expected to pay and in some instances exceed the initial amount that the consumer borrowed.

“If the pursuit of profit results in the exploitation of the poor and the ever widening disparity of wealth, this gives meaning to the other rubric that the rich are getting richer and the poor are getting poorer. I am satisfied the legislature intervened in the national credit act to curb such exploitation resulting in the ever widening gap of wealth in this country. I accept that the result may be that certain of the wealthier institutions or enterprises in this country will have their profits reduced…I am satisfied that the applicants have made our a case for the declaratory orders,” said acting Judge Bryan Hack.

According to Stephan van der Merwe, senior attorney at the Stellenbosch University Law Clinic, “This is a victory for the poor, vulnerable and marginalised throughout the country. The judgment underscores our courts’ commitment, which was clearly displayed in the well-known emolument attachment order-cases in which the Clinic was also involved, to disempower unscrupulous collection agents from employing unscrupulous collection methods and strategies.”

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