The effect of the in duplum rule and clause 103(5) of the National Credit Bill on the calculation of interest

Abstract

The in duplum rule is a rule of Roman-Dutch origin which has been preserved by the South African common law. A useful consumer-protection device, it temporarily ceases interest once arrear interest has reached the unpaid capital. The rule distinguishes between arrear and accrued interest. Arrear interest is interest that has become due but because of non-payment it has accumulated. While accrued interest is also accumulated interest, this type of interest has not become due and payable. The in duplum rule prevents arrear interest from accumulating to more than the unpaid capital amount. This preclusion is only temporary, however, and as soon as the debtor makes payment towards the debt, the interest begins to run again. The in duplum rule has no effect on accrued interest. Thus, when parties agree that the capital amount plus the interest component of the debt will be paid at a future date, without installments by the debtor in the interim, the in duplum rule will have no effect on the total amount owing. The rule has recently been incorporated into the National Credit Bill of 2005. The rule seems to have been codified without due caution to its carefully sculpted common law developments. The courts have over the years cleared misconceptions that the rule prevented any interest from accruing to more than the unpaid capital or that the rule permanently affected the running of interest. The work of the courts has somewhat been neglected in clause 103(5) of the National Credit Bill which appears to include in its interest component more than just interest. This may have a very dramatic effect on the profit element of the risk takers (credit lenders) and may in the long term curb investment in the lending market. The effect of the codified in duplum rule remains to be seen through the actions of the lawmaker, and if the codified form of the rule is accepted into law, the burden will once again lie with the judiciary.