Since 2006, the NCA regulates the credit industry and has profoundly altered the consumer credit law.

It was implemented for the purpose to –

 1. Protect consumers from credit providers (over indebtedness)

2. Regulate credit bureaux and to ensure correct information is disclosed

3. Regulate the way in which debt is recovered by creditors.

In general, emphasis is placed on natural persons, in other words members of the general public (consumers). The NCA introduced new remedies and options for debtors. As a result of the implementation of the NCA legal and other collection costs are dramatically limited and some standard provisions in credit agreements are now unlawful to the extent where same could render the entire credit agreement unenforceable. For example, the sale of attached assets for less than their market value will result in the debtor being able to claim damages.

Even though the NCA mostly applies to natural persons, the NCA does have limited application where a consumer is a juristic person whose asset value or annual turnover is below R1 million and the credit agreement is either small or intermediate (in other words the agreement is not a mortgage bond or the principal debt is less than R250 000.00).

 

Application of the National Credit Act:

 

The NCA applies to any agreement, excluding the following agreements in terms of Section 8(2) of the Act. Irrespective of form, where a credit provider:

 

Undertakes to supply goods or services or

To pay an amount or amounts as determined by the consumer from time to time to or on behalf of or the direction of the consumer, and

The consumer’s obligation to pay is:

 

Deferred, or

Deferred until periodic statements are furnished to the consumer, and

Any charge, fee or interest is deferred for a period of time – Section 8(3)(a) of the Act.

The following agreements are excluded from the scope of the NCA:

 

Credit agreements where the consumer is a juristic person (company, closed corporation and / or trust) whose asset value or annual turnover exceeds R1 million at the time the agreement is entered into – Section 4(1)(a);

A large agreement (mortgage loan or any agreement to the value of R250 000 or above) where the consumer is a juristic person with an asset value or annual turnover below the R1 million threshold – Section 4(1)(b);

Credit agreement between a juristic person and some who has a controlling interest in that juristic person – Section 4(2)(b)(i);

Credit agreement between family members – Section 4(2)(b)(ii);

Credit agreements where the consumer is the South African Reserve Bank, the state or an organ of state (however where the state or reserve bank is the creditor, in otherwords the lender and not the consumer, the NCA is not excluded) – Section 4(1)(a);

Leases of immovable property (buildings and / or houses) – however movable property is included (i.e. motorvehicles) – Section 8(2)(b).

The NCA is applicable irrespective of whether or not a credit provider (lender) is a registered credit provider:

 

In terms of Section 89 and Section 40(4) of the National Credit Act, a credit agreement (loan) entered into by a credit provider (lender) who should have been registered with the National Credit Regulator is unlawful and void.

 

There is an exception to this rule namely:

 

According to Section 89(4)(a), the unregistered credit provider may still register as a registered credit provider within 30 days after entering into a credit agreement.

 

Consequences of unlawful agreements:

 

If a credit agreement (loan) is deemed unlawful in terms of section 89, a court will order that the credit agreement is void, meaning that the agreement have ceased to exist between parties. All payments made by the consumer must be refunded to him /her under that agreement with interest and all rights of the credit provider (lender) under the credit agreement to recover any moneys paid or goods delivered to, or on behalf, of the consumer are either:

 

Cancelled, unless the court concludes that doing so would unjustly enrich the consumer; or

Forfeited to the state, if the court concludes that cancelling those rigths in the circumstances would unjustly enrich the consumer.

An unlawful provision is void (ceased to exist) from the date the parties entered into the credit agreement. The court may sever the unlawful provision, in other words only declare the provision in question unlawful and keep the rest of the credit agreement in force. Should the removal of the unlawful provision not be reasonable, the court will declare the credit agreement unlawful as a whole. Each case is based on its own merits and the court will make an order that is just and reasonable depending on the specific facts.

 

Examples of unlawful provisions:

 

A provision that defeats the purpose of the National Credit Act

A provision that deceives the consumer to fraudulent conduct

A provision that states that the consumer waives or gives up any right bestowed by the National Credit Act

A provision that states that a credit provider (lender) is exempt from any particular obligation imposed in terms of the National Credit Act

A provision that states that the consumer acknowledges that no representation or warranty was made in regarding the credit agreement by the credit provider (lender).

A provision in terms of which the consumer will deposit with the credit provider an identity document, credit or debit card, bank account or ATM card or to provide a PIN or number to be used by the credit provider (lender) to access an account

A provision in terms of which the consumer consents to the jurisdiction of the High Court, if the Magistrates court would ordinarily have jurisdiction

A provision that permits the credit provider (lender) to enter any premises to repossess goods that are the subject of the credit agreement (loan)

A provision that grants the credit provider (lender) power of attorney in advance

A provision in which the consumer acknowledges receipt of goods or services or documentation where as in fact there has been no such delivery of aforesaid goods, services and / or documentation

A provision that provides for a variable interest rate which is not fixed

Recovery of Debt / Litigation:

 

Where the consumer has defaulted in making payment in terms of the credit agreement entered into between parties then the credit provider must, in terms of Section 129(a) of the Act, send a letter to the consumer notifying him / her of the default, together with a proposal to refer him / her to a debt counsellor, or an alternative dispute resolution agent, consumer court or ombud with jurisdiction to resolve any dispute under the agreement, or develop and agree on a plan bringing payments up to date.

 

The next legal step would be summons, however only after at least 10 business days since the above notice in terms of Section 129(a) of the Act has been delivered to the consumer and the consumer has neither nor responded to the said notice or responded to the notice by rejecting the credit provider’s proposals.

 

TIPS FOR SMART CONSUMERS:

 

When entering into any sort of agreement where your will be the person making payment to a credit provider and / or supplier on finance, make sure:

You have a thorough understanding of the terms and conditions you agreeing to. Read the agreement before signing. Remember, your signature indicates your full agreement to and full comprehension of that term and / or condition, so no excuses afterwards.

If you find it difficult to understand the terms and conditions, do not be afraid to ask questions. Credit providers have to comply with the National Credit Act therefore they have a responsibility to you as consumer.

You know what the interest rates are as you will be end up paying interest long after you have settled the purchase price of the item. Look at the bigger picture, how much will you be actually paying in the end (including interest). You do have the right to negotiate.

That you can afford this item, think twice: do I really need to purchase this item on credit or can this purchase wait until I have saved up enough to buy it cash.

You know how much are you spending already on monthly payments, can I afford to add one more.