This is according to Clark Gardner, CEO of Summit Financial Partners, commenting on a judgment handed down on December 13 in the Western Cape high court.

While the judgment wasn’t a new legal development, it did clarify and reinforce the existing legislation which is meant to protect people who are struggling to pay off their debt.

“It always has been law; it’s just been abused by lenders and collectors alike,” said Gardner.

“Out of 1.3 million garnishee orders, about a million could be stopped with immediate effect. It’s big amounts,” Gardner said.

“Almost every debt judgment relating to insecure credit would have been overcharged. Anyone with a debt judgment would probably have a right to a refund.”

A garnishee order, also known as an emolument attachment order, is a court order to deduct money from a person’s salary each month in order to settle an outstanding debt. Employers are obliged by law to deduct this amount from an employee’s salary so that it directly services an amount still owed to a creditor. However, unscrupulous creditors have taken advantage of this process by illegally adding legal fees, collection costs and other charges to the total amount of the debt, which massively inflates the amount that the debtor has to repay.

In one case studied by Summit Financial Partners, a loan for R16 000 ended up demanding R57 000 in total repayments and fees. In an ideal scenario, the lenders and collectors who have illegally overcharged should take the initiative to pay back consumers, but that’s unlikely.

The easiest way to claim their money back and to stop further overcharging is to approach their employer rather than going through the courts.

What it means for you

What the judgment effectively means is that if you’re in default on any of your credit agreements, the maximum you can be charged is double the capital amount outstanding at the time of your falling into default — and this applies to all fees, not just interest. It also applies for as long as you are in default and until you have purged your debt.

So, if the capital owed by you at the time you defaulted was R500, you can’t be charged more than R500 in interest and legal fees.

The judgment says collection costs includes all legal fees incurred by the credit provider “before, during and after litigation” against a debtor. Furthermore, collection costs recovered by a credit provider can’t be passed on to you unless they have been taxed (checked by the court) and agreed to be paid by you.