Does the NCA affect all agreements?

[Xander]

Does the NCA affect all agreements after 1 June 2007?

[Eugene]

Not all agreement are regulated by the NCA

Xander, the answer is no. The NCA specifically excludes agreements that are not credit agreements. Section 8 defines credit agreements as being those agreements where goods and/or services are provided and the consumer's obligation to pay is deferred or is repaid in instalments AND there is a fee that is levied (typically, interest) for the ability to repay later or in instalments.

The NCA also excludes all leases of immovable property (note that movable property is included), credit agreements between people who are not contracting at arm's length (such as a loan by a son to his mother), credit agreements where consumer is a company or CC whose asset value or turnover is over a million rand and credit agreements where the consumer is the South African Reserve Bank, the state or an organ of the state (note that when the state/Reserve Bank is the lender, the NCA is not excluded).

[Dave A]

One thing I'm trying to figure out is trade debtors and "casual" debtors.

How does the NCA affect the way we treat:

• Regular debtors with an ongoing account
• Once off debtors (provide service - send bill and they tend to pay within 7 - 30 days)

The other aspect is where a COD discount is offered - as opposed to paying at, for example, 30 days.

[Eugene]

Dave, good question. These could be considered as incidental credit agreements. Say for instance you have a number of incidental credit agreements where the debtor has agreed to pay these accounts off over time (for instance if I am a doctor and have bad debtors), would you have to register as a Credit Provider? I think the answer is no: The debt still arises from an incidental credit agreement and thus you are exempt from having to register as a Credit Provider (see section 40(1)(b) of the NCA). This does not, however, mean that you do not have to comply with all the sections of the NCA that relate to incidental credit agreements - it simply means you don't have to register as a Credit Provider.

[Eugene]

I believe that the crux of the matter is the charging (and regulating fees or interest charged). As a general rule of thumb, if the intention of the person was not to levy interest or an additional charge, it will not be seen as a incidental credit agreement. An incidental credit agreement comes into being 20 business days after the consumer was due to pay provided that there is interest being charged if the consumer doesn't pay. For this reason many of my collegue attorneys have indicated that they would prefer not to charge interest as not charging interest would remove these agreements from the ambit of the NCA.

[Dave A]

For this reason many of my collegue attorneys have indicated that they would prefer not to charge interest as not charging interest would remove these agreements from the ambit of the NCA.

I think that is one of the more critical points for business to consider when developing a debtors control strategy around the NCA.

Thanks Eugene.

[duncan drennan]

Do you think that there is a possibility that COD discounts will fall away as a result of this? In the same way that it might be better to avoid interest charges, it could be better to avoid COD discounts? Obviously this is not necessarily good for the consumer....

[Dave A]

Obviously this is not necessarily good for the consumer....

Not that hot for cashflow of the business either.

[Eugene]

Duncan / Dave

I believe that the working of the COD (Cash on delivery) type of account will not be impacted by the NCA as it does not constitute a credit agreement, nor was it the intention of the parties to form a credit agreement. The fact that you offer a discount on early payment, I believe will not have an affect at all. (But the question still arises: if the consumer cannot pay the full settlement amount upon delivery and makes arrangements to pay it off in say, 2 instalments: this would then create and incidental credit agreement and the transaction would fall under the workings of the NCA).

[duncan drennan]

From the NCA definitions,

"incidental credit agreement" means an agreement, irrespective of its form, in terms of which an account was tendered for goods or services that have been provided to the consumer, or goods or services that are to be provided to a consumer over a period of time and either or both of the following conditions apply:

(a) a fee, charge or interest became payable when payment of an amount charged in terms of that account was not made on or before a determined period or date; or

(b) two prices were quoted for settlement of the account, the lower price being applicable if the account is paid on or before a determined date, and the higher price being applicable due to the account not having been paid by that date.

Surely a COD discount is an example of (b)?

[Eugene]

Duncan, I'm not sure if I fully agree. The part (section (b)) that you are referring to states that "...or goods or services that are to be provided to a consumer over a period of time and either or both of the following conditions apply" and the one being acceptance of the lesser amount when making early payment(s). As I understand, the second part of the definition suggests a continuation of payments happening "over a period of time". Thus, if you engage in an agreement with monhtly payments (with an incentive of a lesser amount when paid by the due date) it would fall under teh ambit of the NCA. If however I buy something (once-off) and get discount when paying before the due date, it cannot be regarded as a credit agreement or incidental credit agreement: that would mean chaos!

[duncan drennan]

that would mean chaos!

That's exactly what I'm worried about!

means an agreement, irrespective of its form, in terms of which an account was tendered for goods or services that have been provided to the consumer, or goods or services that are to be provided to a consumer over a period of time and either or both of the following conditions apply

There are two items in that definition which are separated by an or

1. Account tendered for goods or services, OR
2. Goods or services provided over a period of time

So if either of those are true, and either (a) or (b) are true....

Again, the scary bit is that we are going to have to wait and see what happens.

PS. Eugene, thanks for your amazing input on these topics — it really adds an immense amount of value for everyone accessing this forum (and hopefully it will add value to your business ). We (all) appreciate your time and effort. Thanks so much

[Brett Bentley]

I agree with what Eugene has said and to answer your question dsd, I believe a COD account would fall under subsection (b) of the defintion of incidental credit agreements that you referred to.

In addition there were concerns by some creditor providers that giving trade discounts for early payment would push a credit provider under the "general credit agreement" provisions, as opposed to being an incidental credit provider. However the subsection (b) referred to ensures, in my opinion, that such a transaction remains under the definition of an incidental credit transaction.

[Eugene]

I just has a legitimate enquiry from one of my clients regarding the normal "acceleration clauses" that we normally find in a contract. My enquiry was based on an interpretation of section 129 when a letter of demand has to be sent out only for the arrears of the account and not the full contract amount i.r.o. the acceleration clause. So I called up the toll free number of the NCR and spoke to 8 people explaining my enquiry. After forming new four lettered works starting with the letter "F", I decided to draft an e-mail to the NCR (Gabriel Davel himself and a couple of his sidekicks).

This is how it went:

My e-mail to them:

Good day Sirs!

I am an attorney from the Western Cape specializing in debt collection within the retail industry. I have been asked the following question by my clients and was unable to give them a clear answer in terms of the NCA. Could you please assist as a matter of urgency.

Question: What is commonly referred to in credit management, as an acceleration clause is a clause in which a creditor granting a debtor the right to repay a debt in instalments agrees the right to proceed for the full debt in the event of the debtor defaulting in the payment of any instalment. Could a credit provider still make use of such a provision in their agreement with a consumer?

Your reply is awaited.

Regards

Eugene Opperman


Their reply:

Dear Sir,

We have noted your e-mail enquiry which was sent to various people within this organisation and surprisingly, also to the CEO, on the basis that you require an urgent reply! Kindly note that this office, and in particular the CEO, is not in a position to respond to every attorney, or other member of the public for that matter, as a matter of urgency every time someone has a question about the Act or some related topic.

We will try to assist persons who approach us, but within reason. I am of the view that a credit provider would be entitled to demand repayment of the full amount outstanding under a credit agreement, if the client is in default and the credit provider seeks to enforce his rights in terms of the agreement in a court. The requirements of the Act and specifically sections 129 and 130 must be complied with – or any other section if applicable to the specific type of agreement. I suggest you consider all the sections dealing with termination and enforcement etc.

Please note that this is only my understanding of the legal position and should not be regarded as a formal legal interpretation of the Act by the NCR.

Yours faithfully,
National Credit regulator
Legal Advisor

My final reply to them:

Thank you very much for your reply. I fully understand your predicament with the number of enquiries received by your offices regarding the practical implications of the Act. The main reason for sending the e-mail to various people within the NCR is that we really needed some guidance from the NCR as after a couple of phone calls to your offices no-one was in a position to understand our enquiry, not to mention offering some advice. While attending one of the courses on the NCA, I was brought under the direct impression that the NCR would welcome input and questions as to clarify any issues arising – my apologies if I was brought under a misconception of the willingness, or lack thereof on the side of the NCR. I appreciate your answer though and getting back to me.

[Dave A]

Given the snail's pace at which these things get through court, Section 129 (3) looks rather troublesome.

The response from the national credit regulator is pretty much my point in establishing this forum. Imagine how much easier it would be if we had an easily accessible library of Q&A's with the regulator's input.

My thanks to all who are contributing to this knowledge base.