SUMMARY OF IMPLICATIONS OF THE NATIONAL CREDIT ACT, 2005 (“THE ACT”)
1 APPLICATION OF THE ACT:
1.1 Subject to certain exemptions the Act applies to all credit agreements. An agreement will be a credit agreement for the purposes of the Act if two elements are present, namely:
a) some deferral of payment or prepayment; and
b) there is a fee, charge or interest imposed with respect to a deferred payment or a discount given when prepayments are made.
1.2 The following agreements are excluded from the operation of the Act:
1.2.1 A credit agreement in terms of which the consumer is:
1.2.1.1 A juristic person whose assets value or annual turnover, together with the combined asset value or annual turnover of all related juristic persons at the time the agreement is made, equals or exceeds One Million Rand; or
1.2.1.2 The State; or
1.2.1.3 An organ of State; or
1.2.1.4 A large agreement (as defined in the Act) in terms of which the consumer is a juristic person whose asset value or annual turnover is, at the time the agreement is made, below One Million Rand.
1.3 A juristic person is related to another juristic person if one of them has direct or indirect control over the whole or part of the business of the other or if a person has direct or indirect control over both of them.
1.4 The Act differentiates between small, intermediate and large agreements depending on the monetary threshold stipulated in the regulations:
1.4.1 A small agreement is an agreement in which the credit limit is fifteen thousand rand or less;
1.4.2 An intermediate agreement is a credit facility (as defined) in which the credit limit falls above fifteen thousand rand or a credit transaction of which the credit limit falls above fifteen thousand rand but is less than two hundred and fifty thousand rand; and
1.4.3 A large agreement is a mortgage agreement or a credit transaction of which the principle debt exceeds R250 000.00 (two hundred and fifty thousand rand).
For instance, if a client enters into a loan and supply agreement with a fishing rights holder, which is a juristic person and, whose assets or annual turnover exceeds One Million Rand or the amount loaned exceeds Two Hundred and Fifty Thousand Rand the provisions of the credit agreement Act will not apply.
2 CATEGORIES OF CREDIT AGREEMENTS IN TERMS OF THE ACT:
2.1 The Act distinguishes four primary categories of credit agreements namely:
2.1.1 Credit Facility:
2.1.1.1 The credit provider undertakes to supply goods or services, or to pay an amount or amounts to the consumer, or on behalf of the consumer, or at the direction of the consumer, and either to defer the consumer’s obligations to pay any part of the costs of the goods or services or to repay any amount advanced or bill the consumer periodically for any part of the goods or services, or advance; and
(a) A charge, fee or interest is payable to the credit
provider in respect of the agreement or amounts deferred or billed.
2.1.1.2 Where a client for instance processes fish for a client and payment is deferred and interest charged upon the amount billed, this may be classified as a credit transaction and there may be certain implications in terms of the Act as set out below.
2.1.2 Credit Transaction:
2.1.2.1 An agreement, irrespective of its form, constitutes a credit transaction if it is:
2.1.2.1.1 A pawn transaction or discount transaction;
2.1.2.1.2 An incidental credit agreement subject to Section 5(2) of the Act;
2.1.2.1.3 An instalment agreement;
2.1.2.1.4 A mortgage;
2.1.2.1.5 A mortgage agreement or secured loan;
2.1.2.1.7 Any other agreement, other than a credit facility or credit guarantee in terms of which payment of an amount owed by one person to another is deferred and any charge, fee or interest is payable to the credit provider in respect of the agreement or the amount that has been deferred.
2.1.2.2 The standard loan and supply agreement entered into by clients in the fishing industry will in all likelihood be classified as agreements in terms of 2.1.2.1.7 above and the Act will therefore apply to these agreements unless they are entered into with a juristic person with an annual turnover or asset value of more than One Million Rand. The implications of this is discussed below.
2.1.3 Credit guarantee:
2.1.3.1 A credit guarantee is an agreement whereby a person undertakes to satisfy on demand any obligation of another consumer in terms of a credit facility or a credit transaction to which the Act applies;
2.1.3.2 Any agreement which or contains any combination of the above is a “credit agreement�?.
2.1.3.3 For clients’ purposes this will bring the Act into effect where a client loans money to a juristic person and the directors or members are requested to sign surety for the amount loaned, but only if the underlying credit transaction is not excluded in terms of clause 1.2 above.
2.1.4 Incidental Credit Agreements:
2.1.4.1 Incidental credit agreement is defined to mean:
2.1.4.1.1 An agreement irrespective of its form, in terms of which an account was tendered for goods or services that have been provided to the consumer, or goods and services that are to be provided to a consumer over a period of time, and either or both of the following conditions apply:
(a) A fee, charge or interest became payable when payment of an amount charged in terms of that account was not made on or before a determined period or date; or
(b) Two prices were quoted for the settlement of the account, the lower price being applicable if the amount is paid on or before a determined date, and a higher price being applicable due to the account not having being paid by that date.
2.1.4.1.2 Suppliers of goods and services under an incidental credit agreement will not have to concern themselves with the following aspects of the Act:
2.1.4.1.3 The supplier will not have to register as a credit provider;
2.1.4.1.4 Provisions in the Act pertaining to prevention of reckless credits and in particular the assessment required to be done by a credit provider to establish whether a consumer is over indebted will not apply; and
2.1.4.1.5 The incidental credit agreement need not adhere to the prescribed requirements in the Act of what the form and content of credit agreements should be.
2.1.4.2 When an incidental credit agreement is concluded, or comes into being, a supplier must be aware of the following:
2.1.4.2.1 The consumer must be offered the opportunity to receive a document that is required to be delivered to a consumer in terms of the Act; in one of two official languages;
2.1.4.2.2 Following a default under an incidental credit agreement, and prior to the consumer receiving a default letter, a consumer may apply to a debt counsellor to be declared over indebted;
2.1.4.2.3 A credit supplier may only recover a closed list of fees and charges stipulated in the Act.
3 POTENTIAL OBLIGATIONS OF CLIENTS IN TERMS OF THE ACT:
3.1 Affordability Assessment:
3.1.1 In terms of the Act all credit providers will be required to conduct affordability assessments of each potential debtor. This is aimed at eliminating reckless lending where credit providers grant credit to consumers who are over indebted. Should a credit agreement be considered reckless the agreement may be suspended by a court of law while the consumer’s obligations are restructured with the assistance of a debt counsellor or officers of the court. During the suspension, the credit providers rights will not be enforceable. Once the suspension has been lifted, no back charges will be allowed. The credit provider however, is entitled to take the consumer’s word when conducting the assessment, should the consumer prove untruthful, such that the assessment is inaccurate, allegations of credit agreement recklessness against the credit provider may be dismissed. These provisions obviously do not apply to credit agreements where the credit consumer is a juristic person and has an asset value or annual turnover of one million rand or higher.
3.2 A credit provider must forward the following information to the credit bureau on the prescribed forms:
3.2.1 Credit provider’s name, principal business address and registration number;
3.2.2 Name and address of the debtor;
3.2.3 Identity Number or registration number of debtor;
3.2.4 If the agreement is a credit facility: the limit under that facility and the expiry date of the agreement;
3.2.5 If the agreement is a credit transaction or credit guarantee:
3.2.5.1 Principal debt;
3.2.5.2 Particulars of previous credit agreement which was terminated as a result of the new agreement;
3.2.5.3 Amount and schedule of each payment under the agreement;
3.2.5.4 Date on which debtor’s obligations will be satisfied;
3.2.5.5 Particulars of termination or satisfaction of the debt.
4 REGISTRATION UNDER THE ACT:
4.1 In terms of Section 40 of the Act a credit provider must apply to be registered as such if:
4.1.1 That credit provider, provides credit under at least 100 credit agreements, other than incidental credit agreements; or
4.1.2 The total principle debt owed to the credit provider under all outstanding credit agreements, other than incidental credit agreements exceeds the threshold prescribed in the Act which will not be less than R500 000.00 (five hundred thousand rand).
4.1.3 A credit agreement entered into by a credit provider who is required to be registered in terms of the Act but who is not so registered is an unlawful agreement and void to the extent that a court of law must order that all rights of the credit provider under the credit agreement to recover any money paid or goods delivered to or on behalf of the consumer in terms of the agreement are either cancelled unless this would result in unjustly enriching the consumer or forfeited to the State if the court concludes that cancelling those rights in the circumstances would unjustly enrich the consumer.
5 PRE-AGREEMENT DISCLOSURE:
5.1 A credit provider may not enter into an intermediate or large credit agreement unless the credit provider has given the consumer:
5.1.1 A pre-agreement statement in the form of the proposed agreement;
5.1.2 A quotation in the prescribed form setting out the principle debt, the proposed distribution of the amount, the interest rate and other credit costs, the total costs of the proposed agreement and the basis of any costs that may be assessed under the Act if the consumer rescinds the contract.
5.1.3 A credit provider must offer to deliver to each consumer periodic statements of account in accordance with the Act.
6 UNLAWFUL PROVISIONS IN CREDIT AGREEMENTS:
6.1 For clients’ purposes it is also interesting to note that the Act makes certain provisions in loan agreements unlawful.
6.2 Section 90 of the Act lists a number of unlawful provisions, which may not be included in credit agreements. The most striking of which are the following:
6.2.1 A provision of a credit agreement will be unlawful if it purports to waive any common law rights that may be applicable to the agreement and which have been prescribed in the Act such as:
(a) Exception errore calculi which entitles the debtor to rectification of the amount due where the agreement discloses a means of arriving at the price;
(b) exceptio non numerate pecuniae which is an exception that the debtor may take on the grounds that, although he signed the agreement, the amount was never paid over to him;
(c) exceptio non causa bebiti. This clause is usually included in surety agreements and including it would mean that the surety would have to prove that the principle debt of which he took liability does not exist.
6.2.2 A clause which expresses an acknowledgement by the consumer that before the agreement was made, no representations or warranties were made in connection with the agreement by the credit provider or a person on behalf of the credit provider, or that a consumer has received goods or services, or documents that is required by this Act to be delivered but which has as yet not been delivered to the consumer;
6.2.3 A clause which purports to appoint a credit provider or any employee or agent of the credit provider as an agent of the consumer. there are however some exceptions to this rule. The credit provider may be appointed to act as the agent of the debtor for purposes of arranging, among other things, taxes, licences, registration fees, levies or charges. Should it be necessary, client could still, therefore, be appointed as a debtor’s agent in order to collect a debtor’s fishing permit, apply for tax clearance certificates or pay its fishing levies.
6.2.4 A clause which expresses, on behalf of the consumer, a granting of a power of attorney to the credit provider in respect of any matter relating to the granting of credit;
6.2.5 A consent to the jurisdiction of the High Court, if the Magistrates Court has concurrent jurisdiction or any court seated outside the area of jurisdiction of a court having concurrent jurisdiction and in which the consumer resides or works or where the goods in question are ordinarily kept.
6.2.6 The Act also sets a limit on the interest that may be charged on a loan. The limit is currently:
(SA reserve Bank’s Repurchase Rate x 2.2) + 10 %.
6.3 A credit agreement may also be declared unlawful if the credit provider was suppose to be registered in terms of the Act but failed to. The agreement will then be void and unenforceable.
7 SUMMARY & CONCLUSION:
7.1 It is therefore clear that the Act has been drafted so as to regulate most credit transactions but is primarily aimed at protecting the interests of individuals from unscrupulous credit providers and not juristic persons.
7.2 The Act therefore will not apply to a lot of the juristic persons that client lends money to.
We trust the above is of some assistance and should you have any further questions or queries we suggest that you contact our commercial department. Please also note that due to the complexity of the legislation and its application, it is advisable to first consult your attorneys before making any decisions regarding issues to which the above summary may apply.
Yours faithfully
Peter Edwards
Managing Director
DAWSON EDWARDS & ASSOCIATES