In duplum and the lump-sum loan: The common law and section 103(5) of the National Credit Act
Author Monica L Vessio
Affiliations: Research Associate, Centre for Banking Law, University of Johannesburg
Source: South African Law Journal, Volume 136 Issue 3, p. 463-488
The prohibition of interest in duplum refers to the rule that arrear interest ceases to accrue once it exceeds the unpaid capital amount of a loan or credit extended. A version of this rule has been enacted in s 103(5) of the National Credit Act 34 of 2005. This article examines the issue of payment of interest that exceeds the unpaid capital amount in instances where parties enter into a lump-sum payment arrangement that is, where they agree that payment of the capital amount and interest is to be made in a single lump sum at the end of the term of a credit agreement, instead of periodic instalments being paid. The article explores the views of Roman and Roman-Dutch authorities and case law on the issue. The author submits that, because the common-law in duplum rule regulates interest only once a debtor has defaulted, it does not limit interest in lump-sum payment arrangements. Since the statutory in duplum rule in s 103(5) of the Act only comes into effect when there is breach by the consumer, lump-sum payment arrangements that fall within the ambit of the Act should not be treated any differently. The author further submits that if the date for the lump-sum payment of the capital amount plus interest arrives and the debtor fails to meet his or her obligations, the aggregate amount (capital initially lent and interest accrued over the contractual period) starts to accrue mora interest, and that it is the latter interest which is limited by the operation of the common-law in duplum rule or s 103(5) of the Act, as the case may be.