By Anja van den Berg
If you borrow money and the interest accumulates to equal the amount you borrowed, can you still be charged further interest?
This is dealt with by the in duplum rule, which means “double the amount.”
It specifies that interest on a debt will cease to run when the total amount of arrear interest has accrued to an amount equal to the outstanding principal debt.
It’s important to distinguish between the common law in duplum rule which existed for about a hundred years before the statutory in duplum rule was signed into law under the National Credit Act (NCA) of 2005.
The common-law interpretation is that interest on a debt stops accruing once it has reached an amount equal to the outstanding debt. If you owe R2 000 and have accumulated interest on the debt up to R2 000, no further interest can be charged.
But the common-law in duplum rule does not stop interest from beginning to run again once you have paid the outstanding interest to below the in duplum level.
For instance, if you pay R400 in interest, you can become liable again for R400 up to R2 000. You would once again owe R4 000 (R2 000 for the amount borrowed and R2 000 interest).
The common-law in duplum rule only applies to interest. The statutory in duplum rule limits all interest and other payments on debt to double the amount of the original debt.
So, in the above example, if you paid R400, you would only owe R3 600 (R2 000 for the amount borrowed and R1 600 interest). The interest would not accumulate to R2 000 again.
However, if a creditor goes to court and the court orders the debtor to pay back, it is unclear how the in duplum rule applies.
The National Credit Act of 2005 has continuously been criticised for its unclear drafting, and numerous cases have been brought to court to clarify precisely what is included and what is excluded in the statutory in duplum rule.
For the moment, the situation is as follows:
- You can’t be charged more in interest than your original debt.
- If other charges are added to the interest, you still can’t be charged more than double the original amount borrowed. However, banks don’t agree on this point and have, in many cases, added legal fees after that amount. This action now being challenged in court.
- If you go to court and the court rules on the debt you must pay, interest can be charged on that debt.
Business Tech: https://businesstech.co.za/news/finance/266401/sa-credit-companies-are-using-a-loophole-to-make-you-pay-back-more-than-double-your-original-loan/
Fin 24: https://www.fin24.com/Opinion/debt-can-you-be-charged-more-in-interest-than-your-original-loan-20190930