In the majority of credit agreements, a person, as a credit consumer (“receiver of credit”), binds himself to the obligation that should he default in his monthly payments to the credit provider, the credit provider shall be entitled to demand the full payment of the principal debt by means of legal proceedings, accompanied by the costs associated with the collection thereof. These costs include, but are not limited to: interest on the capital amount, legal fees and collection commission and / or costs e.g.
In the case of University of Stellenbosch Law Clinic and Others v National Credit Regulator and Others, the Applicants sought a declaratory order to determine the interpretation of the term “collection costs” in section 1 and 101 (1) of the National Credit Act, 34 of 2005 ( hereinafter referred to as the “credit act”).
Section 1 of the Credit Act defines “collection costs” in the following terms (own paraphrasing): “means an amount that may be charged by a credit provider in respect of enforcement of a consumer`s monetary obligations under a credit agreement, but does not include a default administration charge.”
Whereas Section 101 (1) of the Credit Act states that a credit agreement must not require payment by the consumer of any money, except:
- the principal debt;
- an initiation fee which may not exceed the prescribed amount relative to the principal debt;
- a service fee which may be payable monthly, annually or on a per transaction basis;
- interest expressed in percentage terms, calculated as an annual rate;
- costs of any credit insurance;
- default administration charges, which may not exceed the prescribed maximum for the category of the said credit agreement and which may only be imposed if the consumer has defaulted on payment of his obligation, as permitted by Part C of Chapter 6; and
- collection costs, as permitted by Part C of Chapter 6.
It is clear from the above stated terms, that the act does not provide a credit provider with the remedy to collect the legal costs associated with the process of collecting a principal debt from the credit consumer, therefore the Applicants in the abovementioned case requested the Court to supply clarity in regards to three aspects:
- an order declaring that the collections costs as defined in the act must be read to include legal fees incurred to enforce the monetary obligation under the credit agreement, regardless of whether such fees are charged before, during or after litigation;
- that the limitation in terms of section 103 (5) that all amounts (bar the capital) cannot exceed the balance of the debt, must apply at all times regardless of whether a judgment has been granted;
- lastly, that legal fees may not be claimed until they are agreed upon or taxed;
After immense consideration the court ordered the following order, therefore supplying clarity in regards to the aspect of costs in the following terms:
a) collection costs as referred to in section 101 (1), includes all legal fees incurred by the credit provider in order to enforce the monetary obligations of the consumer under a credit agreement charged before, during and after litigation;
b) that section 103 (5) of the credit act applies for as long as the consumer remains in default of his/her credit obligations, from the date of default to the date of collection of the final payment owing in order to purge his default, irrespective of whether judgment in respect of the default has been granted or not during this period; and
c) that legal fees, including fees of attorneys and advocates, in as much as they comprise part of collection costs as contemplated in section 101 (1) of the credit act, may not be claimed from a consumer or recovered by a credit provider pursuant to a judgment to enforce the consumer’s monetary obligations under a credit agreement, unless they are agreed to by the consumer or they have been taxed.
Ariko Stoltz (LL.B); source: https://www.lexisnexis.co.za/
Final Edition Judgments
Corporate and Commercial Law :: National Credit Act 34 of 2005
University of Stellenbosch Law Clinic and others v National Credit Regulator and others
|Case Number:||14203 / 2018|
|Judgment Date:||13 / 12 / 2019|
|Division:||Western Cape, Cape Town|
Consumer – Micro-loans – “collection costs” – Definition in National Credit Act 34 of 2005 – Inclusion of legal fees
The first and second applicants rendered legal advice and services to many, but in particular to the third to twelfth applicants who were all consumers as defined in the National Credit Act 34 of 2005. They sought a declaratory order to determine the interpretation of the definition of “collection costs” in section 1, and the application of the provisions in section 101(1)(g) and section 103(5) of the Act.
Held that section 1 of the Act defines “collection costs” as referring to an amount that may be charged by a credit provider in respect of enforcement of a consumer’s monetary obligations under a credit agreement, but does not include a default administration charge. The applicants sought an order declaring that the collections costs as defined in the Act had to be read to include legal fees incurred to enforce the monetary obligation under the credit agreement, regardless of whether such fees are charged before, during or after litigation. They also sought to have the limitation in terms of section 103(5) that all amounts (bar the capital) cannot exceed the balance of the debt, apply at all times regardless of whether a judgment has been granted. Thirdly, an order was sought declaring that legal fees may not be claimed until they are agreed upon or taxed.
The court held that the respondents’ attempt to distinguish legal fees which are part of collections costs and legal fees which are part of ligation costs was contrived. The dispute required an interpretation of the Act, and the court set out the principles applicable to statutory interpretation.
The applicant’s interpretation was in line with consumer protection, and served to protect the consumer from collection costs far exceeding the amount that was initially borrowed in the context of micro-loans. The applicants’ interpretation encouraged and promoted responsible lending by ensuring that creditor providers properly vet their clients. The court was satisfied that the Act should be interpreted to obtain the purpose set out by the applicants.
The declaratory and other relief sought was thus granted.