A victory for the ‘little guys’ over credit providers

Over-indebted consumers recorded a huge victory for the “little guys” when the Western Cape High Court in Cape Town last week ruled credit providers were in contravention of the National Credit Act (NCA) for overcharging on legal fees and interest.

The Stellenbosch University’s Law Clinic and Summit Financial Partners brought the case on behalf of several customers of loan providers who ended up owing several times the initial sum borrowed after falling into default. According to them, the majority of the applicants are “poor, over-indebted and sinking deeper into financial distress”.

The Law Clinic asked the court for a declaratory order effectively limiting a consumer’s total debt repayment to double the original debt.

The NCA was introduced to “promote a fair and non-discriminatory marketplace for access to consumer credit and for that purpose to provide for the general regulation of consumer credit and improved standards of consumer information”.

A class action is set to follow, resulting in billions back for consumers in credit fees. Credit providers must now appoint an expert to determine how much the applicants were overcharged.

“Credit providers have no incentive to look after consumers or not to exploit consumers,” said acting judge Bryan Hack in delivering his judgment.

“Because they can utilise their resources to pursue consumers who default with a degree of impunity, knowing that they will ultimately, even if it takes a considerable time, recover all that is owed to them, including their very substantial legal costs incurred.

“The escalation of indebtedness as a result of costs set out suggest the credit providers are not even paying lip service to the need for fairness and equity. I take judicial notice of the notorious fact that consumers are being cajoled and encouraged [to apply] for credit.”

While we urge people to avoid getting into financial trouble, this judgment sends out a clear message to credit providers to stop exploiting people.

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