AN OVERVIEW OF THE NATIONAL CREDIT ACT NO. 34 OF 2005 Presented by Andrew Muir of Austen Smith

1. AN OVERVIEW OF THE NATIONAL CREDIT ACT NO. 34 OF 2005Presented by Andrew Muir of Austen Smith

3. DEFINITION OF CREDIT AGREEMENT • A credit agreement is an agreement that meets all the criteria set out in Section 8. • Section 8 (1) states that a credit agreement includes the following: • A credit facility • A credit transaction • A credit guarantee or • any combination of the three

4. CREDIT FACILITY • An agreement constitutes a credit facility if, in terms of that agreement a credit provider undertakes- • to supply goods or services or to pay an amount to the consumer or on behalf of, or at the direction of, the consumer; and either to- • defer the consumer's obligation to pay any part of the cost of goods or services, or to repay to the credit provider any part of an amount contemplated in subparagraph (i); or • bill the consumer periodically for any part of the cost of goods or services, or any part of an amount, contemplated in subparagraph (i); and • any charge, fee or interest is payable to the credit provider in respect of the deferred or billed amount.

5. CREDIT TRANSACTION • a pawn transaction or discount transaction; • an incidental credit agreement, subject to section 5 (2); • an instalment agreement; • a mortgage agreement or secured loan; • a lease; or • any other agreement, other than a credit facility 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- • the agreement; or • the amount that has been deferred.

6. CREDIT GUARANTEE • “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.”

7. PAWN TRANSACTION • one party advances money or grants credit to another, and at the time of doing so, takes possession of goods as security for the money advanced or credit granted; and • either- • the estimated resale value of the goods exceeds the value of the money provided or the credit granted, or • a charge, fee or interest is imposed in respect of the agreement, or in respect of the amount loaned or the credit granted; and • the party that advanced the money or granted the credit is entitled on expiry of a defined period to sell the goods and retain all the proceeds of the sale in settlement of the consumer's obligations under the agreement;

8. DISCOUNT TRANSACTION • goods or services are to be provided to a consumer over a period of time; and • 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;

9. INCIDENTAL CREDIT AGREEMENT • 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; or • 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.

10. INSTALMENT AGREEMENT • all or part of the price is deferred and is to be paid by periodic payments; • possession and use of the property is transferred to the consumer; • ownership of the property either- • passes to the consumer only when the agreement is fully complied with; or • passes to the consumer immediately subject to a right of the credit provider to re-possess the property if the consumer fails to satisfy all of the consumer's financial obligations under the agreement; and • interest, fees or other charges are payable to the credit provider in respect of the agreement, or the amount that has been deferred

11. MORTGAGE/SECURED LOAN • “mortgage agreement” means a credit agreement that is secured by a pledge of immovable property; • "secured loan" means an agreement, irrespective of its form but not including an instalment agreement, in terms of which a person- • advances money or grants credit to another, and • retains, or receives a pledge or cession of the title to any movable property or other thing of value as security for all amounts due under that agreement;

12. LEASE • temporary possession of any movable property is delivered to or at the direction of the consumer, or the right to use any such property is granted to or at the direction of the consumer; • payment for the possession or use of that property is- • made on an agreed or determined periodic basis during the life of the agreement; or • deferred in whole or in part for any period during the life of the agreement; • interest, fees or other charges are payable to the credit provider in respect of the agreement, or the amount that has been deferred; and • at the end of the term of the agreement, ownership of that property either- • passes to the consumer absolutely; or • passes to the consumer upon satisfaction of specific conditions set out in the agreement;

13. CONSUMER • the party to whom goods or services are sold under a discount transaction, incidental credit agreement or instalment agreement; • the party to whom money is paid, or credit granted, under a pawn transaction; • the party to whom credit is granted under a credit facility; • the mortgagor under a mortgage agreement; • the borrower under a secured loan; • the lessee under a lease; • the guarantor under a credit guarantee; or • the party to whom or at whose direction money is advanced or credit granted under any other credit agreement

14. CREDIT PROVIDER • the party who supplies goods or services under a discount transaction, incidental credit agreement or instalment agreement; • the party who advances money or credit under a pawn transaction; • the party who extends credit under a credit facility; • the mortgagee under a mortgage agreement; • the lender under a secured loan; • the lessor under a lease; • the party to whom an assurance or promise is made under a credit guarantee; • the party who advances money or credit to another under any other credit agreement; or • any other person who acquires the rights of a credit provider under a credit agreement after it has been entered into;

15. CATEGORIES • A small agreement is a pawn transaction or a credit facility or a credit transaction falling below the threshold of R15,000.00 • An intermediate agreement is a credit facility or a credit transaction (excluding a pawn transaction, a mortgage agreement or a credit guarantee), falling between the thresholds of R15,000.00 and R250,000.00 • A large agreement is a mortgage agreement or a credit transaction (excluding a small or intermediate agreements) falling over the threshold of R250,000.00

16. EXCLUSIONS • The Act only applies to credit agreements concluded at arms length and made within or having effect within the Republic. Thus any agreement not concluded at arms length i.e. of a business transaction nature would be excluded from the application of this Act. • The Act does not apply where the consumer is a juristic person (which includes a Trust), whose asset value or annual turnover, together with the combined asset value or annual turnover of all related juristic persons exceeds One Million Rand. The Act also does not apply to consumers who are the State or an organ of the State. • The Act does not apply to a large agreement where the consumer is a juristic person irrespective of the asset value of such consumer.

17. EXCLUSIONS cont. • a policy of insurance or credit extended by an insurer solely to secure premium payments, • a lease of immovable property, • a transaction between a stokvel and its members. (Section 8(2)).

18. QUESTIONS • Is a Trust a Juristic Person? Trustees or one of the Trustees is, in turn, a juristic person. • How does one determine the asset value or annual turnover of a juristic person? Section 4(2)(a) states that “the asset value and / or 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 it enters into that agreement”. • What is an arms length transaction? A transaction where the consumer and credit provider are acting fully independently from each other and consequently strive to obtain the utmost possible advantage out of the transaction (see section 4 (2)).

19. A consumer pays for a product with a cheque which is subsequently dishonoured and interest becomes applicable. Is this a credit agreement? No see Section 4 (5). • If a consumer purchases items using a credit card is the seller of those items a credit provider? No, as with the above this type of transaction is excluded. The credit agreement subsists between the provider of the credit facility and the consumer and not the retailer selling for cash. • Is the supply of a utility or continuous service in terms of which payment is deferred until the rendering of an account a credit agreement? No, provided that no interest is chargeable on the service charge unless and until the consumer is in default in which case an incidental credit agreement is created. This incidental credit agreement only arises at a period of 20 business days after the interest or penalty commences to be charged. • A tenant of a flat defaults on his rent and the landlord charges rent. Must the lease comply with the requirements of a credit agreement? No. (S8(2)).

20. POWERS OF TRIBUNAL • Adjudicate in relation to any application that may be made to it in terms of this Act, make any order provided for in this Act in respect of such application; or • Adjudicate in relation to any allegations of prohibited conduct by determining whether prohibited conduct has occurred and, if so, by imposing a remedy provided for in this Act. • In addition to these powers the Tribunal may grant an order for costs. • The requirement for qualification for members of a Tribunal is that they must be citizens of the Republic, have legal training and represent a cross section of the diversity of the republic.

21. ADR Complaint NCR Arbitration, mediation, reconciliation Tribunal Appeal ito S59 (decision of NCR)

22. SECTION 150 • Section 150.Orders of Tribunal.—In addition to its other powers in terms of this Act, the Tribunal may make an appropriate order in relation to prohibited conduct or required conduct in terms of this Act, including— • declaring conduct to be prohibited in terms of this Act; • interdicting any prohibited conduct; • imposing an administrative fine in terms of section 151, with or without the addition of any other order in terms of this section; • confirming a consent agreement in terms of this Act as an order of the Tribunal; • condoning any non-compliance of its rules and procedures on good cause shown; • confirming an order against an unregistered person to cease engaging in any activity that is required to be registered in terms of this Act; • suspending or canceling the registrant’s registration, subject to section 57 (2) and (3); • requiring repayment to the consumer of any excess amount charged, together with interest at the rate set out in the agreement; or • any other appropriate order required to give effect to a right, as contemplated in this Act.

23. CREDIT PROVIDER • A credit provider must be registered if that person is the credit provider under at least 100 credit agreements (excluding incidental credit agreements) or the total principal debt under all credit agreements exceeds R500, 000.00 (five hundred thousand Rand) (section 40 (1)).

24. UNREGISTERED CREDIT PROVIDERS • A person who is not registered must not offer, make available or extend credit or enter into credit agreement. Any such credit agreement is void (S 40(3)) the consequences being that are that a court must order that: • The credit agreement is void from the date the agreement was entered into (40(4)); • The credit provider must refund to the consumer any money paid by the consumer under the agreement under the credit provider with interest (89(5)); • All purported rights of the credit provider under the credit agreement to recover any money paid or goods delivered to the consumer are either cancelled unless doing so unjustly enriches the consumer in which case they will be forfeit to the State (89(5)).

25. CREDIT AGREEMENT DETAILS • Credit provider’s name, principal business address and registration number, • the name and address of the consumer, • whether or not the consumer is a natural person or a juristic person and their respective identity or registration numbers, • where the credit agreement is a credit facility the credit limit in terms of the facility or where the credit agreement is a credit transaction or credit guarantee the principal debt together with an amount and schedule of repayments of the debt, • the date on which the consumer’s obligations will terminate.

26. OVER INDEBTED • 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 financial means, prospects and obligations and the probable propensity to satisfy its obligations based on historical performance of the consumer. The determination is based on the settlement values of any credit facility or any credit guarantee (subject to a prescribed discount) and to the consumer’s other obligations at the time of the determination. (See Section 79).

27. CONSUMER RELIEF Referral Reject claim Own Debt Counsellor Suggest voluntary rearrangement Mag Court Extend duration Over-indebted Postpone date Other Unlawfulness Recalculate Incorrect Procedure Charges (incl surrender) Suspend agreement (83) Reckless Cancel agreement (not automatically unlawful (83)

28. SECTION 90 • Section 90 contains a list of prohibited and unlawful provisions which must not be included in the credit agreement. • See the hard copy in the handout.

29. FORMALITIES Valid agreement not automatically unlawful Pre agreement statement Unlawful agreement 89 (eg unregistered credit provider) Void ab initio 89(5) Credit Agreement Void ab initio 89(5) Quotation Unlawful provision 90 Provision severed

30. TABLE A • See the hard copy in the handout.