The Supreme Court of Appeal (the “SCA”) considered the common law rule of in duplum in the context of the National Credit Act, 2005 (the “NCA”) in Nedbank v National Credit Regulator.
It is trite that the common law in duplum rule limits the amount of interest that may be charged on an outstanding debt and provides that such interest amount cannot exceed the capital amount outstanding.
The issue to be considered by the SCA was the issue of whether or not section 103(5) of the NCA codifies the common law position of the in duplum rule or in effect alters and extends the rule. Section 103(5) of the NCA states that despite any common law or credit agreement to the contrary, any interest which accrues while the debtor is in default may not in aggregate exceed the unpaid balance of the principal debt.
The appellants contended that section 103(5) of the NCA codified the common law rule by enabling credit providers to charge interest as soon as the capital debt was reduced by the debtor. The National Credit Regulator, the respondent, submitted that if the charges listed in section 102 equal or exceed the capital amount of the debt then no further interest would be charged.
The SCA held that section 103(5) of the NCA was no more than an application of a rule to specific situations, being credit agreements regulated by the NCA, and that the rule was no more than a statutory provision with limited operation. The SCA further outlined the difference between the common law rule and the statutory rule. The common law rule as already stated above provides that interest ceases to accrue once the interest reaches or is equal to the outstanding capital sum. The statutory rule created by the NCA alters and extends the common law rule through including not only default and contractual interest but also charges such as initiation fees, service fees, credit insurance costs, administration charges on interest and collection costs. This extension offers better protection to the consumer, albeit to the detriment of the credit provider.
The result was that the SCA confirmed the declaratory order of the court a quo and in so doing extended the ambit of the common law meaning of the in duplum rule in the context of credit agreements regulated by the NCA.