If you’ve ever been late paying a doctor’s bill or private school fees, you may have been charged interest.
On accounts such as these, the most you can be charged is two percent a month. This is because they are what the National Credit Act (NCA) defines as “incidental credit agreements”. They’re called “incidental” because the interest you are charged becomes due only if you fail to pay for the goods and services after a certain period of time, usually 30 days.
Make sure you don’t get charged more than the prescribed maximum interest – and be careful not to confuse interest with the amount you will pay if you do not take up an offer of a discount for paying the full amount upfront.
A Johannnesburg reader complained to Personal Finance after a doctor sent him an account for R950 for treatment that would have cost him R700 had he paid for it on the day of the consultation. Mr M assumed that the R250 difference between what the doctor’s secretary said he should pay on the day and the amount on the statement he received two weeks later was interest.
The doctor’s account makes no mention of interest and is silent on the terms and conditions of late payment. It states only: “Account is strictly 30 days”.
Attorney Stephen Logan, who specialises in the NCA, says this is not unusual, because incidental credit agreements are rarely, if ever, formalised. He says it is not uncommon for doctors to offer such discounts, but they usually explain the terms of the offer, because it is an inducement to pay upfront.
There is no limit on the discounts that can be offered. In Mr M’s case the discount was 26 percent.
Logan says credit is classed as incidental only when there is no intention from the outset of charging interest other than when it follows a default on standard payment terms. “If the service provider gives 30 days to make payment, then incidental credit may be charged on day 31 and thereafter.”
He says when interest is charged from the day on which the service is rendered or immediately afterwards, it is not incidental credit but “actual credit”, and only registered credit providers can enter into such agreements with you.
This does not apply to credit providers with less than 100 credit agreements, although this provision in the Act is likely to be amended.
Interest on unpaid sectional title levies
If you’re in arrears with your body corporate levy, what interest can you be charged, and is your body corporate or managing agent at liberty to charge you debt collection costs?
Trustees say they can charge interest at their own discretion, since they are not bound by the National Credit Act (NCA).
Sectional title schemes are governed by the Sectional Titles Act and trustees rely on Prescribed Management Rule 31 of the Act, which states that the trustees are entitled to charge interest on arrear amounts “at such rate as they may from time to time determine”.
They also argue that the NCA does not apply to levies, because bodies corporate do not provide goods or services; they collect revenue that is used to pay service providers.
When an agreement falls outside the NCA and is silent on interest, then the provisions of the Prescribed Rate of Interest Act apply, and interest is charged at the prescribed rate, which is currently 15.5 percent a year (straight, not compounded).
Whether or not levies collected in terms of the Sectional Titles Act constitute payment for services rendered is debateable, says attorney and NCA expert Stephen Logan.
There has been a high court decision stating that they do not qualify because the obligation does not arise from a service agreement |but from a statute (the Sectional Titles Act), he says.
“This is a highly technical argument and while the courts may take this view, the more likely intention of the legislature would have been to protect consumers irrespective of the origin of the obligation to make payment – whether by agreement or otherwise.”
Logan says the high court decision is only binding on courts in KwaZulu-Natal, because it was given by the Pietermaritzburg High Court.
“We have yet to see whether this precedent will be followed by other courts,” Logan says.
The Council for Debt Collectors says only registered debt collectors and attorneys can charge for collecting debt. Managing agents – and estate agents – may not.
Martin Deysel, the national secretary of the National Association of Managing Agents, says that managing agents who do the business of debt collecting must be registered with the Council for Debt Collectors.
The council’s view is that there is a clear distinction between the functions of an estate agent/managing agent and a debt collector. The moment an estate agent or managing agent begins collecting debts as a function ancillary to the main function of acting as an estate agent or managing agent, that agent becomes a debt collector, and that part of his or her function is subject to the Debt Collectors Act.
Definition
The National Credit Act defines an incidental credit agreement as one in which an account is tendered for goods or services provided to a consumer (for example, a medical service), or when goods and services are provided to a consumer over a long period (for example, a cellphone contract) and either or both of the following conditions apply:
* A fee, charge or interest becomes payable if payment of an amount charged in terms of that account is not made on or before a determined period or date; or
* Two prices are quoted for settlement of the account, the lower price being applicable if the account is paid on or before a determined date, and the higher price being applicable if the account is not paid by that date.