How the National Credit Act affects You

The National Credit Act (“Act”) came into force on 1 June 2007. The Act is designed to prohibit certain unfair credit and credit marketing practices, to protect consumers and to promote responsible credit granting and use. It regulates a wide spectrum of credit agreements, including loans secured by mortgage bonds, the sale of movable goods on credit, credit cards, pawn transactions, personal loans, overdraft facilities and suretyship agreements.

What are credit agreements?

In terms of section 4(1) of the Act, it applies to every credit agreement (save for certain exemptions) between parties dealing at arm’s length and made within, or having an effect within, the Republic of South Africa.

An agreement is regarded as a credit agreement if it is a credit facility, credit transaction, credit guarantee or a combination of these, as defined in the Act. Broadly speaking, a credit agreement to which the Act applies has mainly two elements:

1. credit is granted; and
2. a fee, charge or interest is imposed in respect of the deferred payment.

Some agreements, however, constitute credit agreements even if no fee, charge or interest is imposed, for example, discount transactions, mortgage agreements, loans secured by a cession of movable property, and credit guarantees.

To whom does the NCA apply?

The act does not apply to a credit agreement if the debtor/consumer is the state or an organ of state. The same applies to credit agreements which are not concluded at arm’s length, agreements in terms of which the credit provider is the Reserve Bank of South Africa or in respect whereof the credit provider is located outside the Republic.

If a consumer is a juristic person (e.g. a company), the Act will not apply if the juristic person’s asset value or annual turnover is more than R1 million. There are also other exceptions relating to the size of the debt to which the agreement relates. Insurance policies, leases of immovable property and transactions between a stokvel and its members are similarly excluded from the application of the Act.

Registration requirements

It is very important to be aware of the fact that certain credit providers are obliged to be registered with the National Credit Regulator. In terms of section 40 of the Act a credit provider must apply to be registered as a credit provider if:

a) that person, alone or in conjunction with any associated person, is the credit provider under at least 100 credit agreements, other than incidental credit agreements; or
(b) the total principal debt owed to that credit provider under all outstanding credit agreements, other than incidental credit agreements, exceeds the amount of R500 000 (five hundred thousand rand). 

A credit provider’s failure to register as such carries severe consequences. A credit agreement entered into by a credit provider who is required to be registered, but who is not so registered is an unlawful agreement and is void from the date the agreement was entered into. This could mean that the credit provider must refund to the consumer any money paid under the agreement to the credit provider, including interest. It is therefore very important to apply for registration as a credit provider if you fall within the boundaries set out above. As soon as a credit provider goes over either of the thresholds stipulated above, he has 30 (thirty) days within which to apply to be registered as a credit provider. 

Other important obligations of credit providers in terms of the Act are, inter alia, the obligation to provide a consumer with a pre-agreement disclosure statement before conclusion of a credit agreement, to conduct a credit assessment of the debtor before entering into a credit agreement, the obligation to deliver to the consumer a copy of the agreement, the obligation to give notice to a consumer that he is in default prior to debt enforcement in a court and the obligation to keep records of all applications for credit, credit agreements and credit accounts for a prescribed period. 

Another noteworthy inclusion in the Act is section 90 which lists a number of provisions, which may not be included in credit agreements, called unlawful provisions. For example, if an agreement purports to waive any common law rights that may be applicable to the credit agreement and which have been prescribed by the Minister, such as the exceptio non causa bebiti clause, the agreement is unlawful. If an agreement is unlawful it is void as from the date the agreement was entered into.

The Act also deals with and prescribes rates of interest. It also regulates incidental credit, which becomes relevant when an account is overdue and the credit provider charges default interest.

In conclusion, it is clear that the Act introduced significant changes to South African law pertaining to the provision of credit, the details of which has not been explained in any detail above. What is, however, important is that participants in the South African credit market are informed as to the provisions pertaining to the application of the Act. They also need to evaluate their credit practices and ensure that they are complying with the Act, if the Act applies.