dwp eNewsletter
Vol 1 : MAILSHOT - June 2007
| mekanik |
| the national credit act explained - point form summary |
1. Definition of Credit Providers / Agreements
1.1. “Credit Provider” carries a wide definition under its definition clause read with section 8 of the Act.
1.2. The definition of credit agreements specifically includes instalment sale agreements, mortgage agreements, etc but of particular importance is the umbrella definition under (h) of the definition namely “the party who advances money or credit to another under any other credit agreement”, credit agreement in turn carrying the wide definitions contained in Section 8 and in particular clause 8(4)(f) covers “any other agreement, other than a credit facility (e.g. cheque or credit card transactions) 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 – (i) the agreement; or (ii) the amount that has been deferred”.
1.3. In simple terms therefore any loan agreement with interest provisions are hit by the Act and this would include credit card and overdraft loans.
2. Incidental Credit Agreements
2.1. This is a very important aspect of the Act for all individuals and businessmen. Even if one is not dealing with a Credit Agreement (i.e. a loan with interest being applicable), an incidental credit agreement comes into being in the following circumstances:
2.1.1. A supplier of goods or a service provider stipulates in his contract that payment for the goods or services are to be made within say 30 days, failing which interest will be charged from that date at a stipulated rate.
2.1.2. The moment the purchaser/client is in default those interest provisions kick in and an incidental credit agreement is deemed to have been concluded with retrospective effect.
2.2. The consequences of an incidental credit agreement are that some of the important aspects of the Act apply (although the provider of the goods/services need not register as a credit provider), in particular as follows:
2.2.1. The specific interest rates applicable will be hit by the provisions of the Act.
2.2.2. The debt collection proceedings will kick in which, as set out below, have potential dire consequences when opportunistic debtors start calling for their debt counsellors.
2.3.
2.3.1. The practical solution to this problem is for suppliers of goods/services to call their agreements (instead of e.g. “application for credit” as they sometimes do) “terms of sale” and there should be no reference to penalty interest in the event of a default.
2.3.2. All that must be said in the agreement is that payment is to be made within a certain period from the date of delivery or the rendering of the service, and in terms of ordinary legal principles interest runs at the statutory prescribed rate of 15.5% per annum on the outstanding amounts.
2.3.3. This is then not an incidental credit agreement hit by the Act and one can simply claim the outstanding amount with the prescribed interest.
3. Exclusions
Section 4 deals with the application of the Act and the principal exclusion is that the Act does not apply if the consumer (borrower) is a juristic person whose asset value or annual turnover exceeds the threshold value determined by the Minister in terms of Section 7(1). At present the thresholds are as follows:
3.1. If the borrower company has an asset value or annual turnover (together with that of related companies) which equal or exceed R1 million, all credit transactions with such company are excluded from the ambit of the Act;
3.2. In the case of companies below this threshold, loan transactions are exempt if the amount of the loan equals or exceeds the amount of R250,000 (in other words, a loan of R200,000 to a company with an asset value and turnover of R500,000, is hit by the Act).
4. Registration of Credit Providers
4.1. In terms of Section 39 the registration provisions Section 40, 42, 45, 48, 49 and 51 do not apply to a credit provider who operates only within one province and is registered as a credit provider in terms of applicable provincial legislation.
4.2. A credit provider must register with the National Credit Regulator if he is the credit provider under least 100 credit agreements or if the total principal debt owed to that credit provider under all outstanding credit agreements exceeds the threshold prescribed by the Minister in terms of Section 42(1) (presently R500,000).
4.3. Registration takes place in terms of Section 40 of the Act and in terms of Section 40(4) “a credit agreement entered into by a credit provider and who is required to be registered in terms of sub-section 1 but who is not so registered is an unlawful agreement and void to the extent provided for in Section 89.” In terms of Section 89(4) the credit agreement survives if at the time that it is concluded the credit provider had applied (or does so within 30 days) for registration, or if the credit provider held a clearance certificate issued by the National Credit Regulator in terms of Section 42(3)(b).
4.4. The declaration of an agreement as being an unlawful credit agreement has extremely detrimental affects on the credit provider who (subject to discharging the very difficult onus of proving enrichment) forfeits all payments made by him in terms of the agreement whilst the borrower can in terms of that section reclaim whatever he/she has paid pursuant to the agreement.
5. Credit Policy
5.1. In terms of Sections 60, 61 and 62 of the Act any person has the right to apply for credit and to ask for reasons for the refusal of credit, and has the right not to be discriminated against.
5.2. On the other hand the Act condemns “reckless credit” in terms of Sections 80 and 81 meaning that the credit provider must make the necessary investigations in terms of those sections to ensure that the borrower complies with the relevant provisions, in essence that the borrower can reasonably meet his repayment obligations.
5.3. It is submitted that these two issues interact and that, if Sections 80 and 81 are properly applied through proper credit searches and investigations, the consumer rights under Sections 60, 61 and 62 will automatically be protected as credit will only be refused in circumstances where the credit provider believes that the borrower will be unable to meet his obligations and/or the criteria of Sections 80 and 81.
5.4. In terms of Section 69 every credit agreement must be reported to the national credit register or to a credit bureau and the particulars of the transaction and of the parties provided as set out in that section.
6. Provisions relating to Administrative Charges and Interest
6.1. In terms of the National Credit Act interest provisions are more beneficial to credit providers than they used to be in terms of the old Usury Act, which is now replaced by the National Credit Act.
6.2. In this regard the following maximum interest rates are permissible (in respect of credit agreements) in terms of the Act:
6.2.1. mortgage agreements (i.e. secured loans) : repo rate x 2.2 + 5% ;
6.2.2. credit facilities (credit cards and the like) : repo rate x 2.2 + 10%;
6.2.3. unsecured credit transactions (most other loans) : repo rate x 2.2 + 20%.
6.3. The effect of this is that, if a loan is unsecured and the repo rate is say 10%, the lender can effectively charge an annual interest rate of 42%.
6.4. Incidental credit agreements carries a maximum prescribed rate of 2% per month, therefore effectively 24% per annum.
6.5. To prevent credit providers from colouring in excessive interest by charging administrative fees, maximum fees are prescribed as follows:
6.5.1. mortgage agreements (secured debts) : a certain formula based on the amount of the loan, but not to exceed R5000;
6.5.2. credit facilities : a formula but not to exceed R1000;
6.5.3. other unsecured credit transactions : a formula but not to exceed R1000.
7. Debt Enforcement
7.1. In terms of Section 129 of the Act the credit provider may not commence any legal proceedings to enforce the agreement before giving notice either in terms of Section 129(1)(a) (referring the default to a debt counsellor, alternative dispute resolution agent, consumer court or ombud with jurisdiction “with the intent that the parties resolve any dispute under the agreement or develop and agree on a plan to bring the payments under the agreement up to date”) or unless notice was given in terms of Section 86(10) (being a notice to terminate the review proceedings contemplated in that section).
7.2. The review procedures of Section 86 and in pursuance thereof the potential consequences of Sections 87 and 88 (“The Magistrate’s Court may rearrange consumer’s obligations”), are of concern. These provisions must be looked at carefully and there seems to be no escape other than push the review process or to give the notice in terms of Section 86(1) (although that may only be done 60 business days after the date on which the consumer applied for the review).
7.3. Furthermore, in terms of Section 130 of the Act the court cannot be approached for enforcement of a credit agreement unless the borrower has been in default for at least 20 business days and if at least 10 business days had lapsed since the credit provider delivered a notice in terms of either Section 86(9) (we think this is a mistake – it should have referred to the Section 86(10) notice) or the Section 129(1) notice, both whereof are referred to above.
7.4. It is submitted that the 2 periods run concurrently and that the 10 business days notice can be given immediately so that if the proposals are rejected or no response is received court steps can be taken approximately 3 weeks after the default.
7.5. A credit provider must also look out for other jurisdictional problems such as the reference in Section 130 to existing proceedings in a credit tribunal.
7.6. These provisions of the Act (particularly where an opportunistic debtor may deliberately delay payment by calling for a debt counsellor) are potentially going to create huge problems in the collection of debts. We cannot think of a way out of the specific notice and a suggestion is to embody in the letter of demand (where one has to make reference to the debt counsellors), warnings to the debtor to the effect that (if he takes this obstructive route) he may not incur further debt and can be reported to a Credit Bureaux and will be in for additional legal costs.
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