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Debt-collecting law firms hit by NCA ruling

Towards the end of 2019, a ruling by the Western Cape High Court made headlines in various media. The ruling found in favour of the Stellenbosch University Law Clinic, Summit Financial Partners and 10 of their clients in relation to garnishee deductions, and has been hailed a victory for the poor.

Moneyweb reported that judgment was delivered against credit providers for overcharging on legal fees and interest in contravention of the National Credit Act (NCA) which came into force in 2007. Various examples were mentioned where clients ended up owing several times the sum they borrowed after falling into default:

One of the applicants, Jenina Matthys, borrowed R5 600, repaid R13 000 and still owes R13 300. The majority of the applicants represented by the Law Clinic are poor, over-indebted and sinking deeper into financial distress, Moneyweb shared.

As a result of the judgement, the declaratory order effectively limits a consumer’s total debt repayment to double the original debt.

Example: If a consumer defaulted on their debt, owing R5 000, the most they will ever have to repay, with interest and costs, is R10 000. Up to now, sections of the industry has interpreted Section 103(b) of the NCA as meaning that once a judgment was brought against a debt, it became a whole new debt agreement; a judgment debt. And they felt entitled to double the pre-judgment debt amount again, meaning the person could end up paying R20 000.

Summit Financial Partners CEO, Clark Gardner, told CapeTalk radio that the ruling basically means that all clients who had a debt judgment against them are owed a refund. “They will be due a refund of some sort either because they were charged legal fees which were not taxed or there was exaggerated interest and fees charged that exceeded two times capital being collected,” he mentioned in the radio interview.

Click here to listen to the radio interview.

Click here to access the judgement.

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