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Landmark legal action set to change the SA debt collection landscape

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More than R1 billion has been illegally deducted by credit providers who add additional costs to debtors fees. This is according to Summit Financial Partners and the Stellenbosch University’s Law Clinic. The application includes statements from 10 of the clinic’s clients siting irregularities in the manner in which creditors and collection agents calculate costs.

They filled an application in the Western Cape High Court earlier this week requesting judicial intervention. The intervention has the potential to dramatically impact on the South African financial landscape.

The case follows in the wake of the Clinic’s earlier work in the 2016 landmark Constitutional Court case of University of Stellenbosch Legal Aid Clinic & others v Minister of Justice and Correctional Services & Others, where the highest court in the country agreed that several practices relating to the abuse of emolument attachment orders, were unconstitutional.

Two years on, the applicants have approached the court regarding what they 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.

As a result of this practice, which they say is in contravention of section 103(5) as read with section 101(1)(b) to (g) of the National Credit Act 34 of 2005, financial experts at Summit have estimated that more than a billion rand has been illegally over deducted from thousands of distressed debtors by unscrupulous credit providers. In the case of just one of these debtors, who is also one of the applicants in this matter, an amount of R5 100 had been collected on an initial debt of R600.

Stephan van der Merwe, Senior Attorney and Notary Public at the Stellenbosch University Law Clinic says creditors use collection agents to collect debt. Van der Merwe says because debt amounts are small, the collection agent gets into agreement with the creditors, who say they won’t charge fees, but would add the cost to the debtor.

“They add legal fees and the collection costs on to that debt. These costs are not verified by the court. Debtors pay as much as 8 times more than their initial loans,” says Van der Merwe.
Van der Merwe further states that creditors, who operate in this way, do it unlawfully because it contravenes with the section of the National Credit Act which protects debtors.

“I want to make it clear that we have nothing against creditors, the problem we have is that they are operating in an illegal fashion,” he adds.
Van der Merwe says that they simply want those who were ripped off to be compensated.

“The fact that 49 respondents, including all the main banks and major lending institutions, have been joined to the application, is indicative of the impact that this case could have on the South African credit market,” added Dr Theo Broodryk, Head of the Law Clinic.

The matter is set to be heard in court early next year.

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