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Thread: Exclusions

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    Exclusions

    In an instance where the creditor is excluded from the NCA (turnover exceeds R1m) but the surety is not excluded, what is the situation where the creditor defaults?

    This is probably quite common where directors are required by credit providers to provide surety for their companies' debts.

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    Site Caretaker Dave A's Avatar
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    Section 4.2. (c) reads
    this Act applies to a credit guarantee only to the extent that this Act applies to a credit facility or credit transaction in respect of which the credit guarantee is granted;
    so from that it would seem if the consumer is excluded from the provisions/protection of the NCA, then so is the guarantor/surety.
    The trouble with opportunity is it normally comes dressed up as work.

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    Hmmmm. Section 4(2)(c)of the Act. I don't read it the same way as you do. The consumer is not actually mentioned.

    I read it that the Act would apply to the guarantor in pretty much the same way as if the guarantor was actually the consumer. So, if the guarantor falls within the thresholds which would entitle him to the protection of the Act, then he is indeed entitled to such protection.

    Not an easy subsection to interpret! Is there any precedent anyone knows of? Any opinions?

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    Site Caretaker Dave A's Avatar
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    It should probably be read in conjunction with Section 8. (5)
    An agreement, irrespective of its form but not including an agreement contemplated in subsection (2), constitutes a credit guarantee if, in terms of that agreement, a person undertakes or promises to satisfy upon demand any obligation of another consumer in terms of a credit facility or a credit transaction to which this Act applies.
    This defines a credit guarantee as something different from a credit transaction or credit facility - and establishes the relationship between the guarantor and the consumer.

    We might be missing each other on an issue of reference point. It is the facility/transaction that is being tested. Where there is a credit transaction, there are, of necessity, parties to that transaction.
    Last edited by Dave A; 11-Nov-09 at 01:21 PM.
    The trouble with opportunity is it normally comes dressed up as work.

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    This discussion is getting too interesting!

    In most surety agreements, the guarantor binds himself as co-principal debtor. That would mean that the guarantor would be able to invoke the protections of the Act (provided he qualifies) would he not?

    Also, just on the principle of fairness, would it be equitable to penalize the guarantor just because the guaranteed party falls outside the protection of the Act?

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    Site Caretaker Dave A's Avatar
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    Don't worry - you've got me thinking too. Your call for a precedent is a good one - certainly first prize

    Hopefully someone will turn up with something. But in the meantime let's see how complicated we can make this:
    Quote Originally Posted by Mewler View Post
    In most surety agreements, the guarantor binds himself as co-principal debtor. That would mean that the guarantor would be able to invoke the protections of the Act (provided he qualifies) would he not?
    Which in turn means the credit provider is required to apply a means test on the surety as well as the consumer, which in turn implies that a (principal?) consumer may be declined credit even if the (principal?) consumer is credit worthy in his/her/it's own right if tested alone, but the surety (as co-principal consumer) is not. Or should affordability be tested against the sum of the means of the two as common practice for bonded property? The fact that typically surety agreements allow the credit provider to pursue the guarantor alone and in preference to the consumer does not arise from the act.

    Given that the credit provider generally provides the surety agreement, perhaps it might be best practice not to refer to the guarantor as a co-principal debtor and rather have them as guarantors as provided for in the act.
    Quote Originally Posted by Mewler View Post
    Also, just on the principle of fairness, would it be equitable to penalize the guarantor just because the guaranteed party falls outside the protection of the Act?
    This would seem to be a sound argument if the court has the latitude to entertain it. However, the credit provider hasn't extended credit for goods or services to the guarantor in the facility/transaction, so would this claim by the credit provider against the guarantor then be dealt with as an incidental agreement?

    One other thought to throw in the mix - the relationship between consumer and guarantor is seldom at arms length.
    Last edited by Dave A; 11-Nov-09 at 03:54 PM.
    The trouble with opportunity is it normally comes dressed up as work.

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    Site Caretaker Dave A's Avatar
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    Mewler, what exactly is your concern? Reckless credit?
    The trouble with opportunity is it normally comes dressed up as work.

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