VOL 14 PART 3
Michelle Kelly-Louw
The common-
law versus the
statutory in
duplum rule
Better consumer protection under the
statutory rule
Introduction Coppenhagen v Van Coppenhagen 1947 (1) SA
576 (T); Stroebel v Stroebel 1973 (2) SA 137 (T);
At common law, under what is known as the ABSA Bank Ltd v Leech & others NNO 2001 (4)
‘in duplum rule’, a creditor may not claim an SA 132 (SCA); and Standard Bank v Oneanate
amount of interest that exceeds the outstanding Investments (in Liquidation) 1998 (1) SA 811
capital sum under a loan or credit transaction. (A) at 828).
If interest has accrued to an amount equal to
the outstanding capital sum, the creditor must The in duplum rule prevents interest from
first obtain a judgment, or the defaulting debtor running only on a temporary basis. The rule
must first start making payments, after which stops arrear interest from running when that
interest may once again accrue to an amount interest has reached the outstanding capital
equal to the capital sum. So when a debtor amount. Once payments on the account are
starts making payments on his loan again, his made again, interest starts running again until
payments will have the effect of decreasing the it equals the outstanding capital. So it is clear
interest amount, and the interest will then again that the rule does not set a maximum amount
begin to run until it again equals the capital of interest that may be charged (see Monica L
amount. This implies that the total amount Vessio ‘A limit on the limit on interest? The in
of unpaid interest (contractual and default duplum rule and the public policy backdrop’
interest) may accrue only to an amount equal (2006) 39 De Jure 25 at 36).
to the outstanding capital sum. In short, the
in duplum rule asserts that all arrear interest The in duplum rule is based on public policy
ceases to run when it reaches the amount of the — its purpose is to protect the debtor (the
outstanding capital amount. borrower) from exploitation by creditors
(the lenders) (see Standard Bank v Oneanate
It is settled that the common-law in duplum Investments supra at 828). The rule protects a
rule forms part of South African law (LTA debtor who is in financial difficulty and unable
Construction Bpk v Administrateur, Transvaal to service his debts from an ever-increasing
1992 (1) SA 473 (A); Union Government accumulation of interest. The rule prevents the
v Jordaan’s Executor 1916 TPD 411; Van over-extension of a debtor’s limited financial
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resources. But it provides him with temporary • service fees (s 101(1)(c)); see also reg 44
relief only, as the escalation of the ever- (the maximum monthly and annual service
continuing interest is merely tempered by the fees that may be charged);
rule (see Vessio op cit at 36). • interest (contractual and default)
(s 101(1)(d); see also reg 42(1) (Table A)
The statutory rule: the general principles read with s 105 (the maximum prescribed
interest rates that may be charged on the
The statutory in duplum rule set out in section seven different types of credit agreement),
103(5) of the National Credit Act 34 of 2005 s 103(1) (it stipulates that the maximum
(‘the Act’) will come into operation on 1 June interest rate applicable to the principal debt
2007. The statutory rule will apply only to (set out in reg 42(1)(Table A)) also applies
those credit agreements that fall within the to the maximum default interest that may be
ambit of the Act (the rule will effectively charged on a specific credit agreement), and
protect only individual debtors (see ss 4, 6 and reg 40 (the interest calculation that should
8)). So the common-law rule will still apply to be done);
all agreements that do not fall within the ambit • the costs of any credit insurance (including
of the Act. the credit insurance premiums payable)
(s 101(1)(e) read with s 106, on the allowed
The statutory in duplum rule changes the costs of credit insurance that may be
common-law rule drastically. Section 103(5) charged);
states: • default administration charges (s 101(1)(f)
‘Despite any provision of the common law read with reg 46, on the allowed default
or a credit agreement to the contrary, the administration charges that may be charged);
amounts contemplated in section 101(1)(b) and
to (g) that accrue during the time that a • collection costs (s 101(1)(g) read with
consumer is in default under the credit reg 47, on the allowed collection costs that
agreement may not, in aggregate, exceed the may be charged).
unpaid balance of the principal debt under
that credit agreement as at the time that the
default occurs.’
It is clear that the statutory in duplum
rule offers better consumer protection
Briefly, the statutory in duplum rule states than its common-law counterpart
that when a debtor (a consumer of credit)
is in default, all the combined amounts set
out in section 101(1)(b)–(g) cease to run If all the amounts set out in section 101(1)(b)–
when they reach the outstanding balance (g) combined have accrued to an amount
of the debtor’s principal debt at the time of exceeding the outstanding principal debt,
default. To understand this statutory rule fully the creditor must first obtain a judgment
one needs to establish exactly what these (or the defaulting debtor must first start
amounts are: making payments), after which these types
• initiation fees (s 101(1)(b)); see also reg 42(2) of amount may once again accrue to an
(Table B) of the National Credit Regulations amount not exceeding the outstanding
of 2006 (GN R489 Government Gazette principal debt. This statutory in duplum rule
28864 of 31 May 2006 (Reg Gaz 8477) (the applies generally to all credit agreements.
maximum limits that apply to the initiation However, it applies with slight changes
fees that may be charged according to the where the credit agreement involved is an
seven different types of credit agreement), instalment agreement, a mortgage agreement,
and reg 41(1) (the dates upon which an a secured loan, or a lease of movable property
initiation fee may be levied); (see below).
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A problem can arise where the credit agreement creditor should comply in order to be able to
involved is, for example, an unsecured credit include these amounts in the principal debt,
facility, as the creditor (the credit provider) see s 102(2)–(3) and reg 48):
will then not be able to charge the debtor for • an initiation fee (s 101(1)(b)), if the debtor
the costs of the credit insurance, including the (the consumer) has been offered and
insurance premiums payable. If the creditor declined the option of paying that fee
does not want the credit insurance to lapse, separately;
it will have to ensure that, for the time being, • the cost of an extended warranty
the creditor itself pays the premiums and the agreement;
other costs of credit insurance until • delivery, installation, and initial fuelling
the combined costs set out in section 101(1)(b)– charges;
(g) no longer exceed the outstanding principal • connection fees, levies, or charges;
amount. But this will be a problem only with the • taxes, licence, or registration fees; or
unsecured credit agreements (such as normal • the premiums of any credit insurance payable
credit facilities) — a different rule applies to in respect of that agreement (subject to
cases where the credit agreement involved is an s 106).
instalment agreement, a mortgage agreement,
a secured loan, or a lease of movable property Accordingly, when the statutory in duplum
(see below). rule has to be applied to the situation where
the credit agreement involved is an instalment
The application of the statutory in duplum agreement, a mortgage agreement, a secured
rule to specific types of credit agreements loan, or a lease of movable property, the
problem of the costs of the credit insurance
The position set out above will be slightly (including the insurance premiums) ceasing
different when the credit agreement involved to accumulate will not be as acute as with the
is — other credit agreements (like an unsecured
• an instalment agreement (a sale of movable credit facility) — when the application of
property where the debtor makes periodic the statutory rules involves one of these four
payments and receives possession of the types of credit agreement, the credit insurance
property but ownership passes to the debtor premiums do not cease to accumulate as part
only once the last instalment has been paid, of the section 101(1)(b)–(g) costs, as they will
or ownership passes subject to the creditor be deemed to form part of the principal debt.
retaining the right to re-possess the property So even if the combined costs of the section
if the debtor defaults), 101(1)(b)–(g) items equal the outstanding
• a mortgage agreement (where the security principal debt at the time of the default, the
is in the form of a mortgage over an credit insurance premiums will be excluded
immovable property), from the calculation of the costs equalling the
• a secured loan (where the security is in the principal debt. In one of these cases, then,
form of, for example, a bond over movables the creditor does not have to worry about also
such as farming equipment), or including the credit insurance premiums in the
• a lease of movables. combined costs for the purposes of section
101(1)(b)–(g), which costs will cease to run
Section 102 states that if a credit agreement if they exceed the outstanding principal debt
is one of these four types of agreement, the at the time of the default of the debtor, as
creditor may include in the principal debt the premiums are deemed to form part of the
deferred under the agreement any of the outstanding principal amount.
following items to the extent that they apply in
respect of any goods that are the subject of the In a nutshell, where the credit agreement
agreement (on the requirements with which a involved is an instalment agreement, a mortgage
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agreement, a secured loan, or a lease of movable fees, interest, the costs of any credit insurance,
property, the statutory in duplum rule will be default administration charges, and collection
applied as follows: the combined amounts set costs) cease to run if they combine to exceed
out in section 101(1)(b)–(g) (namely — the outstanding principal debt.
• initiation fees (only if the debtor (the
consumer) decided that such a fee should It is clear that the statutory in duplum rule
be paid separately and should not form part offers better consumer protection than its
of the principal debt (see also s 102(1)(a)); common-law counterpart. But the statutory rule
• service fees; has worsened the position of credit providers.
• interest (contractual and default); From 1 June 2007, they will have to ensure
• the costs of any credit insurance (excluding that when a debtor defaults all the amounts
the credit insurance premiums payable set out in section 101(1)(b)–(g) combined do
— they form part of the principal debt (see not exceed the defaulting debtor’s outstanding
also s 102(1)(f)); principal debt at the time of his default.
• default administration charges; and
• collection costs. It is also important to remember that as the
statutory in duplum rule stated in section 103(5)
will cease to run when they reach the outstanding of the National Credit Act applies only to those
balance of the debtor’s principal debt at the credit agreements that fall within the ambit of
time of the default. the Act, the common-law rule will still apply to
all other agreements (s 8(2)). For example, a
loan between a stokvel and its member will still
Conclusion be governed by the common-law in duplum
rule.
From the above it emerges that the vital
difference between the common-law and the
statutory in duplum rules is found in the fact
that with the common-law rule it is only the
interest (contractual and default) that ceases to
run if it equals the outstanding capital amount.
By contrast, with the statutory rule, all the Michelle Kelly-Louw: University of South
amounts (such as the initiation fees, service Africa, Pretoria (e-mail: kellym@[Link])
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