Credit providers facing court showdown

MORE than R1 billion has been illegally deducted by credit providers who add additional cost to debtors fees.

This is according to Summit Financial Partners who, together with Stellenbosch University Law Clinic and 10 of their clients, are taking on the debt industry in the country by challenging debt collection practices in court.

They filed an application in the Western Cape High Court this week to request judicial intervention.

The law clinic claimed that the unregulated manner in which creditors and collection agents add costs to debtors’ accounts was unconstitutional.

“Creditors use collection agents to collect debt. Because debt amounts are small, the collection agent gets into agreement with the creditor, saying we won’t charge your fees but we’ll add the cost to the debtor.

“They add legal fees and collection costs on to that debt. These cost aren’t verified by the court. We’ve been approached by debtors who pay (up to) eight times their initial loans.

“We’re saying that creditors, who practise in this way, do it unlawfully as it contravenes the section of the National Credit Act that protects debtors,” said senior attorney at the clinic Stephan van der Merwe. He said the clinic had been approached by thousands of debtors after being charged amounts five, six or eight times that of their original loan.

Van der Merwe said the additional cost added by debtors was due to the interpretation of Section 103.5 of the National Credit Act which dealt with the amount of interest and collection cost which can be charged to debtors in arrears.

Head of the clinic Dr Theo Broodryk said this case could change the debt collection landscape. “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 it could have.”