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Rising Interest Rates small 0

The National Credit Act came into operation on 1 June 2007

  • In Common Law the “in duplum rule” deems that “interest stops running when the unpaid interest equals the outstanding capital.”  
  • The “In Duplum Rule” is a common law rule that limits the interest, which a creditor can charge on an account that is in arrears.
  • It therefore provides protection against the exploitation of consumers who cannot service their debt commitments.

The NCA enacts the in duplum rule into legislation in Section 103(5) of the NCA and specifies not only that the interest stops running when the unpaid interest equals the outstanding capital, but also that :

  • initiation fees;
  • Service fees;
  • Credit insurance;
  • Default administration charges; and
  • collection costs

should be included, together with the interest in a total amount which should not be more than the principal debt.

This is a good example of how the NCA provides protection for debtors in the common law in duplum rule especially by including collection costs, such as the legal or debt collector’s costs incurred in collecting payment from the debtor.

This means in a long drawn out and costly collection matter, which could be the result of the debtor spoiling the collection process, the collecting parties will get less and less if and when the interest and legal costs exceed the principal debt.

 

What All This Means Is: Interest

a) The amount referred in sections101(1)(b) to (g) which accrues (grows by addition) while the consumer is in default may not exceed, in aggregate (includes all expenses), the unpaid balance of the principal debt when the default occurred;
b) Once the total charges referred to in section 101(1)(b) to (g) equal the amount of the unpaid balance, no further charges may be levied;
c) Once the total charges referred to in section 101(1)(b) to (g) equal the amount of the unpaid balance, payments made by a consumer thereafter during a period of default do not have the effect of permitting the credit provider to charge further interest while such default persists.

d) In duplum only applies to arrears interest and not interest charged as per the contractual agreement - interest is charged as per the contractual agreement

e) When you default, additional interest is charged on the arrears amount which credit providers call arrears interest. This arrears interest plus any collections charges, costs etc may not exceed the unpaid balance of the principal debt (the capital amount outstanding as at the time of default)