The default charge ceiling

When a customer falls far enough behind, there is a limit on what you may keep charging them. The debt may grow, but only so far: the charges added while they are in default may not exceed what they owed on the day the default began.

The platform enforces the limit for you. It notices the default at end of day, fixes the ceiling then, and counts every charge against it from that moment. You see the running figure on the account, and a charge that would break the ceiling is refused rather than posted.

The rule this follows

Where your organisation lends under the South African National Credit Act 34 of 2005, section 103(5) caps the cost of credit that may accrue while the consumer is in default. The cap is the unpaid balance at the moment the default occurred. Bankers know it as the in duplum rule.

The standards register row National Credit Act 34 of 2005 (South Africa) Reg 35(f) / §103(5) — cost of credit records what the platform claims. What it claims is that the same categories a statement summarises are the categories the ceiling counts, that the ceiling is captured on the day the default began, and that charges stop there. Two things it does not claim are set out under “What is not enforced” below.

When the ceiling is fixed

Every night the system walks each account forward, day by day. On each walked day it asks how far past due the account was on that day. The first day the answer reaches the threshold your organisation has set, a default episode opens.

flowchart LR
    A["Days past due<br/>reach the threshold"] --> B["Default episode opens"]
    B --> C["Ceiling fixed at the<br/>balance owed that day"]
    C --> D["Every counted charge<br/>from now on is totted up"]
    D --> E["Arrears cleared to zero"]
    E --> F["Episode closes,<br/>normal charging resumes"]
    style B fill:#1e40af,color:#ffffff
    style C fill:#1e40af,color:#ffffff
    style F fill:#059669,color:#ffffff

Two things matter about the day it picks.

• It is the day the account actually crossed, not the day you noticed. If the night run is a fortnight behind and catches up in one pass, the episode still opens on the day the customer crossed the threshold, and the ceiling is that day’s balance. A ceiling captured late would be a ceiling captured on a balance that has already grown — too high, and too kind to the lender.
• The ceiling is the whole balance owed that day, including interest already added to it, multiplied by the multiple your organisation configures. Under the National Credit Act that multiple is one.

Take Alex, a Woodgrove Bank customer, owing 8,000 with the threshold set at 20 days past due. At 19 days past due nothing happens. On the twentieth day the episode opens and the ceiling is 8,000. Had the rule been set to twice the balance, the ceiling would be 16,000.

What counts toward the ceiling

Every charge type your organisation sets up carries a cost-of-credit category. The counted categories are interest, fees, insurance, collection costs, default administration and legal costs. Money you advance to the customer, and money the customer pays you, are not costs of credit and never count.

Reversals subtract. Charge 500 of interest and later reverse 200 of it, and the total charged reads 300, not 700. A customer payment of 5,000 against a ceiling of 10,000 leaves the remaining headroom at 10,000 — the payment reduces what the customer owes, but it does not buy back room to charge more. That last point is a deliberate reading, and it is flagged below.

Only charges that have actually been posted count. Interest that has accrued but is not yet booked stays outside the total, so the figure on the account always matches the charges on the statement. See reading the transaction list and transaction types.

What happens as the ceiling is reached

While a default episode is open, each night’s charges are trimmed to whatever headroom is left. The last charge before the ceiling is a partial one, and every charge after it is nothing.

On a ceiling of 1,000, with the day’s counted charge working out at 100 each day:

Run that for thirty days and exactly 1,000 is charged, not a cent more. Nothing about the calculation itself changes — the balance, the rate and the day count that produce the day’s interest are untouched, and the ceiling limits only what is booked. See how interest is calculated.

Capital movements are never trimmed. A customer at their ceiling can still draw down, still repay, and still have their balance move.

When you try to charge over it

Day-end trims quietly, because there is nobody to tell. An operation that would charge over the ceiling behaves differently: it is refused outright, and the message names the amount you asked for, the headroom left, and the ceiling it is measured against. Silently shaving an operator’s figure would post an amount nobody asked for.

On a ceiling of 5,000:

The refusal is statutory, so a second approver cannot wave it through. Approval does not enter into it — see countersign.

Two limits on that refusal, stated plainly. It covers charges raised through an operation. A charge captured directly against the account, as a transaction, is not refused — it is counted toward the total, and it can take the account past its ceiling.

When the ceiling lifts

The episode closes when the arrears clear to zero, and normal charging resumes from that day.

An improving arrears position does not close it. A customer who moves from 90 days down to 30 days down is still in default, and the ceiling fixed at 90 days still stands, at the same figure.

If the same customer falls into default again later, that is a fresh episode with a fresh ceiling, fixed at the balance owed on the new default day. Alex clears their arrears with 8,000 outstanding, borrows more, and defaults again owing 12,000 — the new ceiling is 12,000.

An account with an open episode is walked every night, whether or not anything else on it moves, so its figures are never stale.

The Charge Ceiling panel

The account viewer carries a Charge Ceiling panel, under Risk. On an account that is not in default it says so and shows nothing else. On an account in default it shows five rows.

The same figures print on the customer’s statement where the account is under the National Credit Act, so the customer can see the ceiling and how close the account is to it. See statements.

What is not enforced

Two honest limits, both recorded in the standards register row.

Charges already booked above the ceiling are never clawed back. If an account was over its ceiling before the episode opened — or was charged over it through a path that is not refused — the headroom simply reads zero and further charges stop. Nothing is reversed and nothing is written off.

An account with a ceiling of 1,000 that has already been charged 4,000 shows 4,000 charged, zero remaining, and charges nothing further. It does not refund the 3,000. Putting that right is an operator decision, made deliberately and on the record — not something a night run should do to booked income on its own.

Payments during an episode do not re-open headroom, and that reading is ours. The older common-law version of the rule let charges revive as the customer paid. We read section 103(5) as fixing the ceiling at the moment of default and totalling cumulatively from there. That is the standard position, but it is not settled by us: it is flagged in the standards register as a legal-review item. If your legal advice differs, say so before you go live — it changes what customers in long default are charged.

What your organisation configures

• Which agreements the ceiling applies to. Each account records the regulatory regime governing it, pre-filled at origination from the counterparty’s type and changeable by the clerk. An account outside the regime never opens an episode, and neither does an organisation that defines no regime at all.
• The rule itself — how many days past due count as default, what multiple of the balance the ceiling is, which charge categories count, the date it takes effect, and the citation behind it. The National Credit Act settings are 20 days and one times the balance. A product can carry its own rule where statute is narrower.
• Which charges carry which category. Every charge type on a regulated product must state its cost-of-credit category, or state explicitly that it is not a cost of credit. That is what makes the statement summary and the ceiling count the same buckets.
• Arrears tracking must be switched on. The ceiling is driven by how far past due the account is, so it needs the collections capability. A system configured with a ceiling but no arrears tracking refuses to start rather than reporting every customer as up to date — a cap that quietly switches itself off is worse than no cap. See switching features on and off and chasing arrears.

The ceiling is a charging limit, not an accounting judgment about recovery. What you expect to lose on the loan is a separate question — see bad debt provisioning.