Incidental credit agreements

[Dave A]

This thread deals with issues relating to incidental credit agreements.

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[Dave A]

1. 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.

5. (1) Only the following provisions of this Act apply with respect to an incidental credit agreement:

(a) Chapters 1, 2, 7, 8 and 9;
(b) Chapter 3, sections 54 and 59;
(c) Chapter 4, Parts A and B;
(d) Chapter 4, Part D, except to the extent that it deals with reckless credit;
(e) Chapter 5, Part C, subject to subsection (3)(a);
(f) Chapter 5, Parts D and E, once the incidental credit agreement is deemed to have been made in terms of subsection (2); and
(g) Chapter 6, Parts A and C.

(2) The parties to an incidental credit agreement are deemed to have made that agreement on the date that is 20 business days after�

(a) the supplier of the goods or services that are the subject of that account, first charges a late payment fee or interest in respect of that account; or
(b) a pre-determined higher price for full settlement of the account first becomes applicable,

unless the consumer has fully paid the settlement value before that date.

(3) A person may only charge or recover a fee, charge or interest�

(a) in respect of a deferred amount under an incidental credit agreement as provided for in section 101(d), (f) and (g) subject to any maximum rates of interest or fees imposed in terms of section 105; or
(b) in respect of an unpaid amount contemplated in paragraph (a) of the definition of ‘‘incidental credit agreement’’ only if the credit provider has disclosed, and the consumer has accepted, the amount of such a fee, charge or interest, or the basis on which it may become payable, on or before the date on which the relevant goods or services were supplied.

[Dave A]

Restricted activities by unregistered persons
54. (1) Subject to subsection (2), the National Credit Regulator may issue a notice in the prescribed form to any person who, or association of persons, that�

(a) is engaging in an activity that, in terms of this Act, requires registration, or offering to engage in such an activity, or holding themselves out as authorised to engage in such an activity; and
(b) is not registered in terms of this Act to engage in that activity,
requiring that person or association to stop engaging in, offering to engage in or holding themselves out as authorised to engage in, that activity.

(2) Before issuing a notice in terms of subsection (1) to a regulated financial institution, the National Credit Regulator must consult with the regulatory authority that issued a licence to that regulated financial institution.

(3) A notice contemplated in subsection (1) must set out�

(a) the name of the person or association to whom the notice applies;
(b) details of the nature and extent of the activity concerned;
(c) the date from which the unregistered person must discontinue engaging in that activity;
(d) the basis of the opinion that the person engaging in that activity is required to be registered; and
(e) any penalty that may be imposed in terms of this Act if the person fails to discontinue that activity.

(4) Subject to section 59, a notice issued in terms of this section remains in force until�

(a) a registration certificate is issued to the person to whom the notice was issued; or
(b) the notice is set aside by the Tribunal, or a court upon an appeal or review of a Tribunal decision concerning the notice.

(5) Failure to comply with a notice issued in terms of this section is an offence.


Review or appeal of decisions
59. (1) A person affected by a decision of the National Credit Regulator under this Chapter may apply to the Tribunal to review that decision, and the Tribunal may make an order confirming or setting aside the decision in whole or in part.

(2) An order contemplated in subsection (1) may include an order setting aside any condition attached to a registration if the Tribunal is not satisfied that the condition is reasonable and justifiable, having regard to the objects and purposes of this Act, the circumstances of the application or review, as the case may be, and the provisions of section 48.

(3) A decision by the Tribunal in terms of this section is subject to appeal to, or review by, the High Court to the extent permitted by section 148.

[Dave A]

Part A - Consumer rights.

60. Right to apply for credit
61. Protection against discrimination in respect of credit
62. Right to reasons for credit being refused
63. Right to information in official language
64. Right to information in plain and understandable language
65. Right to receive documents
66. Protection of consumer credit rights

[Dave A]

Confidentiality, personal information and consumer credit records

67. Conflicting legislation
68. Right to confidential treatment
69. National register of credit agreements
70. Credit bureau information
71. Removal of record of debt adjustment or judgment
72. Right to access and challenge credit records and information
73. Verification, review and removal of consumer credit information

[Dave A]

69. (2) Upon entering into or amending a credit agreement, other than a pawn transaction or an incidental credit agreement, the credit provider must report either directly to the national register established in terms of this section, or to a credit bureau, in the prescribed manner and form, and within the prescribed time the following information, subject to subsection (6):

Comment: No need to report incidental credit.

[Dave A]

Over-indebtedness and reckless credit

Application and interpretation of this Part
78. (1) This Part does not apply to a credit agreement in respect of which the consumer is a juristic person.

(2) Sections 81 to 84, and any other provisions of this Part to the extent that they relate to reckless credit, do not apply to�

(a) a school loan or a student loan;
(b) an emergency loan;
(c) a public interest credit agreement;
(d) a pawn transaction;
(e) an incidental credit agreement; or
(f) a temporary increase in the credit limit under a credit facility,

provided that any credit extended in terms of paragraph (a) to (c) is reported to the National Credit Register in the prescribed manner and form, and further provided that in respect of any credit extended in terms of paragraph (b), reasonable proof of the existence of the emergency as defined in section 1 is obtained and retained by the credit provider.

Over-indebtedness
79. (1) A consumer is over-indebted if the preponderance of available information at the time a determination is made indicates that the particular consumer is or will be unable to satisfy in a timely manner all the obligations under all the credit agreements to which the consumer is a party, having regard to that consumer’s�

(a) financial means, prospects and obligations; and
(b) probable propensity to satisfy in a timely manner all the obligations under all the credit agreements to which the consumer is a party, as indicated by the consumer’s history of debt repayment.

(2) When a determination is to be made whether a consumer is over-indebted or not, the person making that determination must apply the criteria set out in subsection (1) as they exist at the time the determination is being made.

(3) When making a determination in terms of this section, the value of�

(a) any credit facility is the settlement value at that time under that credit facility; and
(b) any credit guarantee is�

(i) the settlement value of the credit agreement that it guarantees, if the guarantor has been called upon to honour that guarantee; or
(ii) the settlement value of the credit agreement that it guarantees, discounted by a prescribed factor.

Reckless credit
80. (1) A credit agreement is reckless if, at the time that the agreement was made, or at the time when the amount approved in terms of the agreement is increased, other than an increase in terms of section 119(4)�

(a) the credit provider failed to conduct an assessment as required by section 81(2), irrespective of what the outcome of such an assessment might have concluded at the time; or
(b) the credit provider, having conducted an assessment as required by section 81(2), entered into the credit agreement with the consumer despite the fact that the preponderance of information available to the credit provider indicated that�

(i) the consumer did not generally understand or appreciate the consumer’s risks, costs or obligations under the proposed credit agreement; or
(ii) entering into that credit agreement would make the consumer overindebted.

(2) When a determination is to be made whether a credit agreement is reckless or not, the person making that determination must apply the criteria set out in subsection (1) as they existed at the time the agreement was made, and without regard for the ability of the consumer to�

(a) meet the obligations under that credit agreement; or
(b) understand or appreciate the risks, costs and obligations under the proposed credit agreement,

at the time the determination is being made.

(3) When making a determination in terms of this section, the value of�

(a) any credit facility is the credit limit at that time under that credit facility;
(b) any pre-existing credit guarantee is�

(i) the settlement value of the credit agreement that it guarantees, if the guarantor has been called upon to honour that guarantee; or
(ii) the settlement value of the credit agreement that it guarantees, discounted by a prescribed factor; and

(c) any new credit guarantee is the settlement value of the credit agreement that it guarantees, discounted by a prescribed factor.

[Dave A]

Sections 81 to 84 deals with the prevention of reckless credit (duty to obtain information prior to granting credit), assesment mechanisms, the court's ability to suspend a reckless credit agreement, and the effects thereof.

Critically, section 84 is removed in respect of incidental credit agreements.

Effect of suspension of credit agreement
84. (1) During the period that the force and effect of a credit agreement is suspended in terms of this Act�

(a) the consumer is not required to make any payment required under the agreement;
(b) no interest, fee or other charge under the agreement may be charged to the consumer; and
(c) the credit provider’s rights under the agreement, or under any law in respect of that agreement, are unenforceable, despite any law to the contrary.

(2) After a suspension of the force and effect of a credit agreement ends�

(a) all the respective rights and obligations of the credit provider and the consumer under that agreement�

(i) are revived; and
(ii) are fully enforceable except to the extent that a court may order otherwise; and

(b) for greater certainty, no amount may be charged to the consumer by the credit provider with respect to any interest, fee or other charge that were unable to be charged during the suspension in terms of subsection (1)(b).

[Dave A]

Part C - Consumer’s liability, interest, charges and fees
100. Prohibited charges
101. Cost of credit
102. Fees or charges
103. Interest
104. Changes to interest, credit fees or charges
105. Maximum rates of interest, fees and charges
106. Credit insurance

Question: How much of this is not applicable to incidental credit?

[Dave A]

Application of Part C is qualified by 5. (3)(a) which states:

A person may only charge or recover a fee, charge or interest in respect of a deferred amount under an incidental credit agreement as provided for in section 101(d), (f) and (g) subject to any maximum rates of interest or fees imposed in terms of section 105

This is further qualified by 5.(3)(b) which states:

A person may only charge or recover a fee, charge or interest in respect of an unpaid amount contemplated in paragraph (a) of the definition of ‘‘incidental credit agreement’’ only if the credit provider has disclosed, and the consumer has accepted, the amount of such a fee, charge or interest, or the basis on which it may become payable, on or before the date on which the relevant goods or services were supplied.

para (a) of the defintion of "incidental credit agreement" states (read in full):

‘‘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 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

Effectively, this requires that fees, charges and interest that may become due in the event of default to pay must be made known to the consumer and accepted by the consumer prior to the supply of goods or services.