National Credit Act

The National Credit Act, Act 34 of 2005, regulates the provision of credit in South Africa.

The Act introduces new rights for consumers, as well as measures that allow consumers to make informed decisions before buying goods and services on credit. It also places a greater responsibility on credit providers to refuse to give consumers credit if they cannot afford it and, for the first time in South African history, it will regulate the way credit bureaus do business.

Discussion of the NCA can be found in The National Credit Act forum area here.

Purpose of the Act

(The purpose of the Act is) To promote a fair and non-discriminatory marketplace for access to consumer credit and for that purpose to provide for the general regulation of consumer credit and improved standards of consumer information; to promote black economic empowerment and ownership within the consumer credit industry; to prohibit certain unfair credit and credit-marketing practices; to promote responsible credit granting and use and for that purpose to prohibit reckless credit granting; to provide for debt re-organisation in cases of over-indebtedness; to regulate credit information; to provide for registration of credit bureaux, credit providers and debt counselling services; to establish national norms and standards relating to consumer credit; to promote a consistent enforcement framework relating to consumer credit; to establish the National Credit Regulator and the National Consumer Tribunal; to repeal the Usury Act, 1968, and the Credit Agreements Act, 1980; and to provide for related incidental matters.

Definitions

Some of the more important definitions in the Act are:

Consumer

in respect of a credit agreement to which this Act applies, means-

(a) the party to whom goods or services are sold under a discount transaction, incidental credit agreement or instalment agreement;

(b) the party to whom money is paid, or credit granted, under a pawn transaction;

(c) the party to whom credit is granted under a credit facility;

(d) the mortgagor under a mortgage agreement;

(e) the borrower under a secured loan;

(f) the lessee under a lease;

(g) the guarantor under a credit guarantee; or

(h) the party to whom or at whose direction money is advanced or credit granted under any other credit agreement;

Credit

when used as a noun, means-

(a) a deferral of payment of money owed to a person, or a promise to defer such a payment; or

(b) a promise to advance or pay money to or at the direction of another person;

Credit agreement

See Credit Agreement

From the Act: means an agreement that meets all the criteria set out in section 8

Credit provider

in respect of a credit agreement to which this Act applies, means-

(a) the party who supplies goods or services under a discount transaction, incidental credit agreement or instalment agreement;

(b) the party who advances money or credit under a pawn transaction;

(c) the party who extends credit under a credit facility;

(d) the mortgagee under a mortgage agreement;

(e) the lender under a secured loan;

(f) the lessor under a lease;

(g) the party to whom an assurance or promise is made under a credit guarantee;

(h) the party who advances money or credit to another under any other credit agreement; or

(i) any other person who acquires the rights of a credit provider under a credit agreement after it has been entered into;

Discount transaction

means an agreement, irrespective of its form, in terms of which-

(a) goods or services are to be provided to a consumer over a period of time; and

(b) more than one price is quoted for the goods or service, the lower price being applicable if the account is paid on or before a determined date, and a higher price or prices being applicable if the price is paid after that date, or is paid periodically during the period;

Reckless credit

means the credit granted to a consumer under a credit agreement concluded in circumstances described in section 80;

Other definitions

Definitions are set out in Section 1 of the National Credit Act.

Application of the Act

This Act applies to every credit agreement between parties dealing at arm's length and made within, or having an effect within, the Republic of South Africa, with the following exceptions-

Exceptions

The National Credit Act is not applicable for a credit agreement in terms of which the consumer is-

(i) a juristic person whose asset 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 the threshold value determined by the Minister in terms of section 7(1) (currently set at R1 000 000.00);

(ii) the state; or (iii) an organ of state;

The National Credit Act is not applicable for a large agreement (currently value above R250 000.00), as described in section 9(4), 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 the threshold value determined by the Minister in terms of section 7(1) (currently set at R1 000 000.00);

The National Credit Act is not applicable for a credit agreement in terms of which the credit provider is the Reserve Bank of South Africa.

The National Credit Act is not applicable for a credit agreement in respect of which the credit provider is located outside the Republic, approved by the Minister on application by the consumer in the prescribed manner and form.

(2) For greater certainty in applying subsection (1)-

(a) the asset value or annual turnover of a juristic person at the time a credit agreement is made, is the value stated as such by that juristic person at the time it applies for or enters into that agreement;

(c) 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;

(5) If a person sells any goods or services and accepts, as full payment for those goods or services-

(a) a cheque or similar instrument upon which payment is subsequently refused for any reason; or

(b) a charge by or on behalf of the buyer against a credit facility in terms of which a third person is the credit provider, and that credit provider subsequently refuses that charge for any reason,

the resulting debt owed to the seller by the issuer of that cheque or charge does not constitute a credit agreement for any purpose of this Act.

(6) Despite any other provision of this Act-

(a) if a consumer pays fully or partially for goods or services through a charge against a credit facility that is provided by a third party, the person who sells the goods or services must not be regarded as having entered into a credit agreement with the consumer merely by virtue of that payment; and

(b) if an agreement provides that a supplier of a utility or other continuous service-

(i) will defer payment by the consumer until the supplier has provided a periodic statement of account for that utility or other continuous service; and

(ii) will not impose any charge contemplated in section 103 in respect of any amount so deferred, unless the consumer fails to pay the full amount due within at least 30 days after the date on which the periodic statement is delivered to the consumer,

that agreement is not a credit facility within the meaning of section 8(3), but any overdue amount in terms of that agreement, as contemplated in subparagraph (ii), is incidental credit to which this Act applies to the extent set out in section 5.

Definition: Not at arms length

In any of the following arrangements, the parties are not dealing at arm's length-

(i) a shareholder loan or other credit agreement between a juristic person, as consumer, and a person who has a controlling interest in that juristic person, as credit provider;

(ii) a loan to a shareholder or other credit agreement between a juristic person, as credit provider, and a person who has a controlling interest in that juristic person, as consumer;

(iii) a credit agreement between natural persons who are in a familial relationship and-

(aa) are co-dependent on each other; or

(bb) one is dependent upon the other; and

(iv) any other arrangement-

(aa) in which each party is not independent of the other and consequently does not necessarily strive to obtain the utmost possible advantage out of the transaction; or

(bb) that is of a type that has been held in law to be between parties who are not dealing at arm's length;

(d) a juristic person is related to another juristic person if-

(i) one of them has direct or indirect control over the whole or part of the business of the other; or

(ii) a person has direct or indirect control over both of them.

Location of parties

(3) The application of this Act in terms of subsection (1) extends to a credit agreement or proposed credit agreement irrespective of whether the credit provider-

(a) resides or has its principal office within or outside the Republic; or

(b) subject to subsection (1)(c), is-

(i) an organ of state;

(ii) an entity controlled by an organ of state;

(iii) an entity created in terms of any public regulation; or

(iv) the Land and Agricultural Development Bank.

(4) If this Act applies to a credit agreement-

(a) it continues to apply to that agreement even if a party to that agreement ceases to reside or have its principal office within the Republic; and

(b) it applies in relation to every transaction, act or omission under that agreement, whether that transaction, act or omission occurs within or outside the Republic.

Advertising and the ECTA

(7) In respect of an advertisement concerning credit, or in respect of a credit agreement or proposed credit agreement to which this Act applies, if there is an inconsistency between a provision of this Act read with any relevant definition in section 1, and a provision of sections 42 to 51 of the Electronic Communications and Transactions Act, 2002 (Act No. 25 of 2002)-

(a) the provisions of both Acts apply concurrently, to the extent that it is possible to apply and comply with one of the inconsistent provisions without contravening the second; and

(b) the provisions of this Act prevail to the extent that it is impossible to apply or comply with one of the inconsistent provisions without contravening the second.