How does the in duplum rule work in the following scenario:
I have a loan which I have been paying. In month 4 I default, with a capital outstanding amount of R2 816.09 (Interest ect. is added on the last day of the month, but my debit orders are supposed to go off on the 25th).
An arrangement was made where I was making additional payments, and by month 6 the capital amount was down to R141.57, when my last payment was made. Does the in duplum rule run from the original point of default at R2 816.09, or from the second, where the amount was R 141.57?
The in duplum rule is a common law rule that limits the amount of interest and charges added to an account. The National Credit Act also addresses the interest and fees charges through Section 103(5).
The fees and charges may never in total exceed the outstanding capital amount at point of default. There are so many interpretations of this rule and section in the act. There will be more clarity on his section and its interpretation soon as the NCR and DTI has established a subcommittee to come up with an all-round accepted interpretation.
As an example, let’s say you have an outstanding balance of R2000 with instalments of R500. The current understanding is that when you default, interest is added. If you stay in default, interest can only be added until the total interest and fees are equal to R2000. At that point, interest and fees charges must stop. When you make a payment again of R500, you arrears will be R1500. Then interest and charges can again accumulate up to R2000.
Remember that any funds paid will firstly be applied to interest, then fees and then capital.
Hope this answers your question.