Understanding Mora Interest and the Prescribed Rate of Interest Act

(Updated on the 2 March 2022)

The Prescribed Rate of Interest Act (Act 55 of 1975) sets the maximum rate of interest that can be charged on mora interest (over-due payment) and also governs interest awarded granted by the South African court in their judgments.

Mora interest applies where payment is due, and the rate of interest has not been agreed between the parties. For a creditor to become entitled to such interest, there has to be demand made for payment or a due date for payment. The creditor is then entitled to charge mora interest from such date as prescribed in the Prescribed Rate of Interest Act.

Section 1(1) of the Act provides that:

“If a debt bears interest and the rate at which interest is to be calculated is not governed by any other law or by an agreement or trade custom or in any other manner, such interest shall be calculated by the rate contemplated in subsection (2) (a) as at the time when such interest begins to run, unless a court of law, on the ground of special circumstances relating to that debt, orders otherwise.”

The prescribed rate seemed to get stuck at 15,5% per annum for a long period of time, notwithstanding fluctuations in SA Reverse Banks repurchase rate (commonly called the Repo rate), the rate which had previously influenced changes in the prescribed rate of Interest. This rate of 15,5% per annum operated between 1st October 1993 up to 31st July 2014.

The prescribed rate of interest was then reduced to 9% from the 1st August 2014.

Effective from the 8^th January 2016 a change was legislated to the Prescribed Rate of Interest Act to ensure that the prescribed rate of interest would be automatically linked to the Repo rate at 3,5% above the aforementioned rate, effective 2 months after the Repo rate adjustment and to published by the Department of Justice and Correctional Service in the government gazette.

It is important to be aware that the prescribed rate of interest is not a variable rate in the sense that it has to vary previously existing mora matters’ interest from time to time when the rate varies.

In the Appellate Division case of Davehill (Pty) Ltd vs Community Development 1988(1) SA 290(A) it was held that the prescribed rate at the time when mora interest begins to run is fixed at that time and remains constant, notwithstanding that the Minister may from time to time prescribe different rates.

This was confirmed in Crookes Brothers Ltd v Regional Land Claims Commission for the Province of Mpumalanga and others [2013] 2 All SA 1 (SCA) at para 22, and it specifically quotes Davehill at 300J-301E, which includes the specification at 301B that the rate is fixed at the time and remains constant at the time when interest begins to run. In the case of mora interest, from the date the debtor is placed in mora.

The most recent relevant changes in the rate as of the date of the update of this publication are: