The Banking Association South Africa (BASA) is seeking to appeal a judgment by the Full Bench which found that the in duplum rule continues to operate while consumers are under debt review.
The judgment affirms that a rearranged credit agreement (RCA) or rearranged credit order (RCO) does not suspend or negate the in duplum rule in section 103(5) of the National Credit Act (NCA).
Section 103(5) codified and strengthened the common law in duplum rule, which limits the amount of interest and related charges that can accrue on a debt once a consumer defaults. Specifically, it states:
“The amounts contemplated in section 101(1)(b) to (g) that accrue during the time that a consumer is in default under the credit agreement may not, in aggregate, exceed the unpaid balance of the principal debt under that credit agreement as at the time that the default occurs.”
The amounts referred to in section 101(1)(b) to (g) include interest charges, fees or other charges, costs of credit insurance, default administration charges, and collection costs.
For this reason, the section 103(5) is often referred to as the “super in duplum rule”: the common law rule restricts only unpaid interest, whereas section 103(5) caps the total of various charges (including interest, fees, and costs) that accrue during a default period under an NCA-regulated credit agreement.
There have been various interpretations of how section 103(5) should be applied since the introduction of the NCA in 2007. Creditor providers tend to hold that going into debt review resets or gets rid of consumers’ default on the original credit agreement, whereas debt counsellors disagree.
Arguments of the applicant and respondents
The applicant, Chantelle Scott, a debt counsellor, asserted that section 103(5) applies as long as a consumer remains in default of the original credit agreement, regardless of an RCA or RCO.
Scott sought a declaratory order from the High Court in Pretoria to clarify the application of section 103(5) during debt review. Her application requested the following specific declarations:
- That “default” in section 103(5) refers to the default under the original credit agreement, irrespective of whether the agreement is under debt review or subject to a re-arrangement.
- That neither an application for debt review nor a debt review order (RCO) purges or cures the default under the original credit agreement for the purposes of section 103(5).
- That the finance charges listed in section 101(1)(b) to (g) accruing during default cannot exceed the unpaid principal debt at the time of default, even when the credit agreement is under debt review or subject to an RCA or RCO.
Scott argued the in duplum rule persists throughout the debt review process because:
- The default under the original credit agreement remains in effect, even when an RCA or RCO is implemented.
- The NCA does not indicate that debt review eliminates the original default.
- Allowing interest and charges to exceed the principal debt during debt review would undermine the NCA’s consumer protection objectives.
- Consumers who opt for debt review should not face higher finance charges than those who do not, because this would penalise them for exercising their rights under the NCA.
The application cited nine respondents, but it was opposed by six of them: BASA and its members Standard Bank, Firstrand Bank, Nedbank, Absa Bank, and Capitec Bank.
BASA and the banks contended that debt review alters the application of the in duplum rule, arguing that:
- An RCA or RCO purges the original default, rendering section 103(5) inapplicable during debt review.
- The re-arrangement creates a “clean slate”, with any additional interest reflecting the cost of an extended repayment period rather than default-related charges.
- If a consumer defaults on the re-arranged terms, the original default may be reinstated, but while complying with the RCA or RCO, the consumer is not in default.
- Applying the in duplum rule during debt review would encourage consumers to default, undermining the NCA’s aim of promoting contractual responsibility.
Relationship between RCA/RCO and the original credit agreement
In May, the Full Bench ruled in favour of Scott, declaring that the in duplum rule continues to apply during debt review.
“An application for debt review and or a debt review order does not purge and or cure the default of the original credit agreement for the purposes contemplated in section 103(5) of the National Credit Act,” Acting Judge N Mazibuko wrote on behalf of the court.
The court clarified that an RCA or RCO does not replace or create a new credit agreement. Instead, it serves as a mechanism to reorganise payments under the existing agreement.
“The RCA does not replace the original credit agreement, nor is it an addendum to the original credit agreement. It is an arrangement or a plan to bring the payments under the original credit agreement up to date,” said Mazibuko AJ.
“The original credit agreement remains the same credit agreement with rearranged payment terms for defaulted or arrear amounts. There is one original credit agreement with one default.”
Persistence of default and application of section 103(5)
Under section 95 of the NCA, changes to an existing agreement – such as deferrals – do not constitute a new contract if made in accordance with the Act. Thus, the RCA or RCO modifies the repayment terms but preserves the original agreement’s framework.
The court determined that the default under the original credit agreement persists until all obligations (overdue amounts, default charges, and enforcement costs) are settled.
“The consumer is in default under the original credit agreement up until they pay to the credit provider all overdue amounts, together with the credit provider’s permitted default charges and reasonable costs of enforcing the agreement up to the time of reinstatement.”
Since the default remains, section 103(5) continues to limit finance charges to the principal debt amount at the time of default, even during debt review.
The court dismissed BASA’s argument that an RCA or RCO creates a “clean slate” for the consumer. It reasoned that debt review is sought because of an existing default, and the RCA or RCO aims to resolve this without litigation. The default’s persistence ensures that section 103(5) remains applicable.
Alignment with NCA’s objectives
The court linked its decision to the NCA’s purpose of preventing over-indebtedness and ensuring equitable treatment, noting: “The purpose of the RCA or RCO is to provide for debt-reorganisation in cases of over-indebtedness. Section 103(5) is to be read together with the overall purpose of the NCA, which, among others, is to discourage over-indebtedness and to treat all consumers the same, as provided in section 66.”
It added: “The consumer who exercised their right should not be disadvantaged and treated differently from those who have not exercised this right. The purpose of the NCA is to protect consumers from having to pay in excess of what they would have paid had they not entered debt review or rearrangement.”
BASA’s grounds for appeal
IOL reported that in BASA’s court papers seeking leave to appeal, the organisation contends that the court misunderstood two key points. First, it wrongly assumed that a default must exist for debt review to apply. Second, it failed to recognise how an RCA or RCO alters the original credit agreement.
BASA says that once an RCA or RCO modifies the repayment terms – by extending the repayment period and reducing instalments – the consumer is no longer in arrears. Therefore, they cannot simultaneously be in “default”. The court should have given full effect to these amendments and acknowledged that, prospectively, the consumer’s arrears are absorbed into the new schedule.
Further, BASA argues that the judgment misapplied the debt review regime and misidentified its central issue. The decision, it says, will not only affect the parties before the court but will also hinder consumers’ access to credit nationwide and produce “insensible and unbusinesslike” outcomes. For example, long-term repayment plans (such as those extending 60 months or more) could become unworkable. Credit providers might then insist that any rearrangement purge defaults immediately rather than spread repayments over an extended term.
