WORKSHOP OF THE KZN LAW SOCETY PIETERMARITZBURG 1st September 2007 p Workshop on the National Credit Act 34 of 2005 Saber Ahmed Jazbhay y Attorney Omar and Jazbhay email@example.com TRYING TOUNDERSTAND THE NCA ARE YOU? WELCOME TO THE CLUB OF SUFFERERS OVERVIEW OF THE NATIONAL CREDIT ACT C The NCA aims to: • Help prevent consumers from falling into a position of over-indebtedness; • Promote a fair, non-discriminatory credit market; • Minimise the granting of reckless credit; • Regulate the costs of credit; • Attempt to increase access to credit; • Attempt to eradicate the exploitation of consumers by unscrupulous lenders; • Provide greater transparency and choice in favour of the consumer seeking credit; Provide ith the ti to in ffi i l l • P id consumers with th option t engage i an official language of their f th i choice; • Enforce disclosure relating to the total cost of credit to the consumer; • Provide more information to the consumer prior to engaging in a credit agreement; Provide d ti d l ti to dit • P id consumer education and awareness relating t credit; • Regulate consumer credit information held by institutions such as credit bureaux; and • Provide a regulated mechanism of debt restructuring for consumers in distress. p y , y p The NCA replaces the Usury Act of 1968, the Usury Act Exemption Notice of 1992, and , the Credit Agreements Act of 1980. From 1 June 2007, impact of the NCA is being felt by persons applying for credit. Any credit agreement clients have with financial institutions prior to 1 June 2007 will still be valid, lh h f h f h d d although some of the fees charged under these agreements may change. The National Credit Act brings South Africa in line with similar consumer legislation in the UK, USA, Australia, Ireland, Singapore and Switzerland, and I am encouraged by the fact that there is now one Act that governs consumer and credit issues.. THE TRICK IS TO KEEP IN FOCUS ON THE OVER ALL PURPOSE OF THE ACT TABLE OF CONTENTS Part One 1 Road Map h National C di A dB R d M to the N i l Credit Act and Beyond d 2 The purposes of the NCA 3 Objectives underpinning the NCA 4 Ten common sense steps for a credit provider to be fully compliant under the NCA Step 1 registration as Credit Provider Step 2 Registration Procedure Step 3 Assessment of Credit Worthiness and risk Step 4 Factors that a Credit Provider has to consider Step 5 Pre-agreement disclosure Step 6 Form and content of Credit Agreement Step 7 Statement of account Step 8 Procedure for debt enforcement prior to court action Step 9 Debt Procedures in Court Step 10 Post surrender and repossession of goods 5 l i h f h General rights of the Consumer 6 Rights of Consumers Unlawful agreements Unlawful provisions Right t i P A t Quotation Ri ht to receive Pre-Agreement Q t ti TABLE OF CONTENTS Part two g g g Right to understandable language Right to apply for debt review Early settlement of credit agreement Surrender of goods Unpacking th National Credit Act U ki the N ti l C dit A t Scope and ambit of NCA in practice Exclusions Juristic Persons as consumers Suretyships Definitions of a ‘consumer’ a ‘credit agreement’ credit facility a ‘credit facility’ a ‘credit transaction’ a ‘credit provider’ an ‘incidental credit agreement’ Juristic ‘Juristic’ Persons ‘lease’ ‘secured’ loan TABLE OF CONTENTS p Operational p procedural p provisions or p provisions of the NCA Introduction Entering into Credit Agreements Rights of the Consumer Unlawful agreements g 22.214.171.124 Consequences of an unlawful (section 89) agreement 126.96.36.199 Credit agreements containing unlawful provisions. Consumer’s rights in a debt collection scenario Section 86 (Debt Review) Procedure ( ) Section 127 (Surrender of Goods) Procedure Section 129 (Litigation) Procedure 3.3.6 Rights and Duties of Credit Providers 188.8.131.52 Registration as Credit Providers g 184.108.40.206 Provide a report to the National Credit Register or directly to a Credit Bureau TABLE OF CONTENTS 220.127.116.11 Make an assessment of the consumer 18.104.22.168 Pre-agreement disclosures 22.214.171.124 Keep a record of each consumer 126.96.36.199 Advertising practices 188.8.131.52 What a credit provider can recover 3.3.7 Interest Road Map to the National Credit Act and beyond Need to review and overhaul existing credit Legislation goes way back to 1994 South African consumer credit legislation previously consisted principally of the Usury Act; the Credit Agreements Act 74 of p p y y ; g 1980 (hereafter “the Credit Agreements Act”); and the Exemption Notices, 1992 and 1999 dysfunctional credit market regime Fragmented and outdated legislation High cost of credit and, for some areas, lack of access to credit Rising l Ri i l f i d bt d levels of over-indebtedness Reckless behavior by credit providers and exploitation of consumers by micro lenders, intermediaries, debt collectors and debt administrators . Purpose of NCA p The Preamble of the National Credit Act provides that the main p p purpose of this 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 in 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; re-organization over-indebtedness; · To provide for debt re organization 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; g ; · 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 p · To provide for related incidental matters To promote and advance the social and economic welfare of South Africans Promote a fair, transparent, competitive, sustainable, responsible, efficient, effective and accessible credit market and industry Objectives of the Act Promote and advance the social and economic welfare of South Africans Promote a fair,transparent,competititve,sustainable, responsible, efficient, effective and accessible credit market and industry and to promote consumers. How ? Promote development of a credit market accessible to all South Africans Ensuring consistent treatment of different credit products and different credit providers Promote responsible borrowing Discourage over-indebtedness and reckless lending Providing for a consistent and accessible system of consensual resolution of disputes arising from credit agreements Providing for a consistent and harmonised system of Debt restructuring Enforcement of debts and judgment g p y p g Placing priority on the eventual satisfaction of all responsible consumer obligations under credit agreements The State we’re in Food for thought More Food for Thought Ten common sense steps for a credit provider to be compliant under the NCA Step 1: Are you a registered credit provider operating in more than one province? If not…….. The NCA does not apply to credit providers in terms of Section 39 if a credit provider only operates in one province. This means that he or she Does not have to apply to be registered as a credit provider in terms of section 40 The threshold of R500,000 determined by the Minister does not apply to him or her Not obliged to apply for registration to the National Credit Regulator in terms of section 45 The conditions of registration precedent to his or registration as well as the criteria set out in section 48 do not apply to him or her Section 49 which provides for a review of registration and the proposal of new conditions for applicants for registration does not apply to him or her He or she does not have to pay any fees either upon registration or annually However read section 39(2) carefully ! It does not mean that you do not have to register as a credit provider in terms of comparable provincial legislation What if you do operate in more than one province? Section 40 kicks in Section 40(1)(a) provides that if you are a credit provider under at least 100 credit agreements, except incidental agreements; or Section 40(1)(b) provides that the total principal debt owed to a credit provider under all outstanding credit agreements, agreements, agreements other than incidental agreements exceeds the threshold in terms of section 42(1) which is R500,000 as determined by the Minister at intervals of five years. Here is a conundrum conveyancers or property lawyers Registration of Credit Providers continued…. credit provider as, We know that Section 1 of the NCA defines a ‘credit provider’ as inter alia “ (a) the party who supplies goods or services under a discount transaction, incidental credit agreement or installment agreement; the party who extends credit under a credit facility; the lender under a secured loan; What if A privately sells his House to B for, say R900,000, with a deposit of R200,000. He undertakes to pay the balance R 700,000 in interesting bearing installments and as security he registers a kustingsbrief against the property in favour of A. After a while, he defaults. The question foremost is whether A needed to register as a credit provider at the time when the contract of purchase and sale was concluded ? If so was he obliged to do the due diligence, such as background check etc that credit providers are not obliged to do? Is it necessary for to engage in a re-agreement statement etc. If he did’nt and if the matter went to court A would be in all sorts of trouble because the court would be obliged to enquire whether or not his was a reckless lending transaction and if so, it could declare the contract void and all moneys paid to A would have to be repaid with interest! Much about this aspect later but I though I just whet you appetite a little! Registration of Credit Providers continued…. agreement, Remember that section 8(1) tells us that a credit agreement is an agreement irrespective of form, if it is – (a) A credit facility described in subsection (3); (b) A credit transaction as described in subsection (4); (c) A credit guarantee as described in subsection(5); or (d) Any combination of the above In essence what subsection 3 says that where good or services are supplied and payment is deferred as per agreement from time to time and any charge or interest is payable in f h differed, h h i di facility. Subsection 4 respect of the amount so diff d then that constitutes a credit f ili S b i includes, inter alia, an installment agreement as a credit transaction where payment is deferred and a charge or interest is levied in respect thereof So I suppose that conveyancers be on their guard in such transactions which, from my own experience, are not uncommon Step 2: Registration as a Credit Provider Section 45 provides that a person wishing to be registered a a credit provider must apply in the prescribed manner and form to the National Credit Regulator. There is a criteria set out in the NCA that has to be complied with and if these are met must register the person as a credit provider What is the criteria? As far as I can gather these are • If the credit provider is over 18 years • If he or she is not listed as an excluded person under section 14 of the National gambling Act • j g y p He or she is not subject to an order of court as being unfit or mentally incompetent • He or she has not been struck off the roll of attorneys for, inter alia, misappropriation of trust moneys • He or she has not been convicted or theft or fraud or forgery or any offence under g p the Prevention and Combating of Corrupt Activities Act 12 of 2004 Step 3: Assessment of Creditworthiness and Reckless Credit when a consumer applies for credit facility Caveat The detailed provisions of the NCA dealing with assessment of creditworthiness and reckless credit are far reaching and therefore extremely important to be merely glossed over A credit provider may not enter into a reckless transaction with a consumer (section 81(3) So before he or she must assess the consumer's understanding of the appreciation of credit the risks and costs of the credit, the consumer’s rights and obligations involved; His debt and repayment history as a consumer under previous or existing credit agreements His financial situation, His prospects and overall obligations He may use of his own means of assessment provided that it is fair and objective ( ( ) (section 82(1). Assessment of Creditworthiness and Reckless Credit (Continued) co operate The consumer himself or herself must truthfully and fully co-operate with the credit provider and provide the requested information (section 81) Remember that in order to fulfill his or her statutory obligations and exercise g p g g p due diligence to escape the charge of reckless lending, the person making theg assessment must satisfy the criteria prescribed in section 81. What Information must be obtained? Section 70(1) of the NCA gives us a direction because this is the information that a credit provider has to in any case to the credit bureau: His full d Hi f ll names and surname His SA Identity Card and if he does not have one his passport number and date of birth His financial history, including his past and current income, assets and debts and others matters within the scope of the consumer’s financial means His education or professional qualification, business history, employment, marital status, family relationships, past and current addresses and other contact details. Assessment of Creditworthiness and Reckless Credit (Continued) Because, Why? Because in any case a credit provider is obliged to submit credit information to a credit bureau in respect of a consumer in terms of regulation 19(1). Assessment of Creditworthiness and Reckless Credit (Continued) And because if the matter eventually ends up before a court as contemplated in section 130 of the NCA and the court determines that the credit agreement was reckless as described in section 80 the court will make an order contemplated in section 83(2) which ( a) sets aside all or part of the consumer’s obligations and rights under that agreement as the court may determine just and reasonable in the circumstances, or (b) S d the force and effect of th t credit agreement i accordance with Suspend th f d ff t f that dit t in d ith section 83(b)(i) which includes restructuring the consumer’s obligations or (c ) may declare the consumer to be over-indebtedness and make any order What happens during the period of suspension? Section 84 provides that the consumer does not have to make any payment under the agreement and that no interest, fee or other charges may be levied against the consumer Reckless lending Criteria for kl C it i f recklessness No assessment of the consumer’s circumstance Consumer did not understand his/her obligations Agreement concluded when consumer already over- indebted Assessment based on information when agreement made; consumer required to “fully and truthfully disclose” Over-indebtedness applies to individual – reckless lending to the debt Reckless lending Reckless credit Failure to take reasonable steps to assess repayment history and “existing financial means, prospects and obligations” Extending credit where the “consumer will be unable to satisfy in a timely manner all the agreements to which the consumer is a party” But: protection only available when consumers unjust enrichment’ disclosed accurately + ‘unjust enrichment prevented Step 4: Factors that a Credit Provider must g consider before entering into a Credit Agreement In terms of section 78(3) a credit provider is obliged to consider factors such as Income , or any right to receive income regardless of the sources, frequency or regularity of that income, other than income that he holds in trust for another person. Financial means, prospects and obligations of any other adult ithi the person within th consumer’s i di t family ’ immediate f il or h h ld to household, t the extent that the consumer, or prospective consumer, and that other person customarily share their respective means; and mutually bear their respective financial obligations. If the consumer has a commercial purpose for applying for credit, the reasonably estimated future revenue flow from that business. Step 5: Pre-Agreement Disclosure (Section 92) small, Whether the credit agreement is a small intermediate or large one, the credit provider must submit to the consumer, in a prescribed form, a ‘pre-agreement statement and quotation’. R l ti 28(1) and R l ti 29(1) apply i respect of small Regulation d Regulation l in t f ll and intermediate or large agreements respectively. g p Pre-Agreement Disclosure in respect of intermediate or large agreements (Regulation 29) p Q There is a specific form and it must be headed “Quotation” What information must be disclosed? Principal debt Proposed distribution of that debt with reference to items such as Initiation fee Costs f t d d C t of an extended warranty t Delivery, installation and initial fueling charges Connection fees Taxes licences or registration fees Premiums of any credit insurance payable in respect of that agreement Other ongoing credit costs Service fee, whether it is paid monthly, annually etc Initiation fee Rand value of interest Residual or final payment payable if any) Total cost of proposed agreement Annual interest rate Installment amount Number of installments to be paid Pre-Agreement Disclosure (costs of credit) Part 1 interest, What is the maximum fees and interest which is naturally part and parcel of the credit industry? The NCA contains a closed list of fees, charges, interest and items that a credit provider can claim from a consumer. He or she is not entitled to claim any additional amount (Section 100) which came into operation on 1 June 2007 Another important aspect pertaining to the cost of credit is that a credit provider may not charge more for the item now being sold on credit, h d h sold i f cash [ S i b i ld di had he ld it for h Section 100(2)] Pre-Agreement Disclosure (costs of credit) Part 2 agreement, Since most credit transactions are in the form of installment agreement mortgage agreements, secured loans or a lease of a movable, what may a credit receiver be able to recover? The principal debt (i.e. the deferred amount) to which he can add (see section 102) Initiation fee Interest (see 103) Cost of any credit insurance agreement provided for in section 106 y g p Default administration charges Collection charges Delivery, installation and initial fuelling charges Connection fees, levies or charges Taxes, licences or registration fees Pre-Agreement Disclosure (costs of credit) Part 3 Regulation and calculation of i t R l ti d l l ti t f interest (Section 104) Credit provider cannot unilaterally increase (a) periodic or incidental charges fees etc under that credit agreement (b) interest unless the rate of interest is variable If he needs to charge the above then he must give five business days written notice to the consumer In the case of variable interest rates, he must be atleast 30 business days notice See Regulation 40 Calculation of Interest Remember that interest has to be expressed in rand as opposed to percentage terms in the credit agreements and the formula that applies to all credit agreements, except short term transactions, is all follows” R (interest for the day) = Deferred amount for the day x interest _______________________________ Number of days in the year ULTRA DUPLUM RULE ? Unlike the common law rule, section 103(5) permits the continuation of ultra duplum rule but with an amendment in the sense that any amount that accrues during the time a consumer is in default under the not, aggregate, credit agreement may not in aggregate exceed the unpaid balance of the principal debt under that agreement as at the time that the default occurs. Maximum Prescribed Interest Rates (Section 105) SUB-SECTOR MAXIMUM PRESCRIBED INTEREST RATES Mortgage Agreements 22 RR x 2.2 + 5 % PA Credit facilities RR x2.2 + 10 % PA Unsecured Credit Transaction : RR x 2.2 + 20% Developmental Credit Agreements For development of small business : RR x 2.2 + 20% For low income housing: RR x 2.2 + 20 % Short Term Credit Transactions 5 % per month Other Credit Agreements: RR x 2.2 + 10 % Incidental Credit Agreements 2 % per month Step 6: Form and Contents of credit agreements Whether the credit agreement is a small, intermediate or large, once entered into, the credit provider must deliver a copy thereof free of charge to the consumer. We must bear in mind that an unlawful agreement (section 89) or an agreement containing unlawful provisions ( section 90), the repercussions are severe for the credit provider and therefore it is imperative that the credit provider pays attention to the detailed provisions of regulation 31 What are the repercussions of an unlawful agreement or an agreement that contains unlawful provisions? agreements In the case of unlawful credit agreements, that agreement will be void ab initio and p p y g the credit provider must refund to the consumer all payments made together with interest thereon and all the rights of the credit provider are cancelled unless the court finds that doing so with unjustly enrich the consumer or it may forfeit to the state if it concludes that cancellation of those rights would unjustly enrich the consumer. provisions, Where an agreement contains unlawful provisions then such provisions are void and a court will either sever the unlawful provision from the agreement or alter it to the extent to make it lawful it is reasonable to do so having regard to the agreement as a whole, or it may declare the entire agreement unlawful and make a similar order as in the case of unlawful credit agreements Unlawful agreements Unlawful agreements (pawn transactions excluded) When: minors; mentally unfit; under administration and administrator has not consented; unregistered p g provider; “negative option credit” Except if credit provider “induced” or “mislead” into t i into “ i l d” i t entering i t agreement t Unlawful provisions Unlawful provisions When: Deceitful; Fraudulent; Defeats pu pose of C a e p esc bed purpose o NCA ; Waive prescribed “common law rights”; Automatic increases in credit limit; Alterations without consent; Retains bank Card ID or PiN; Representative is agents of consumer; Pre-authorisation to enter premises for repossession; Power-of- attorney; consent to payment prioritisation; allow general set-off; interest variations Unlawful agreements and provisions Agreement becomes void: A tb id Effect: void Consumer payments to be refunded and C t t b f d d d either (i) cancel all rights of credit provider to recover the outstanding monies or (ii) forfeit to the State if canceling rights ld j tl i h would unjustly enrich consumer Step 7: Statements of Account 107- Sections 107 115 read with Regulation 35 deal extensively with obligations of the credit provider vis-à-vis statement of account. Credit providers must deliver periodic statements [section 108(1)] which may not exceed • Six months in the case of mortgage agreements • Two months in the case of an installment agreement, lease or secured loan. • One month in all other cases Where a consumer wishes to settle a credit agreement he may request the credit provider to provide him with a statement without charge (section 110) The110). consumer may direct how the statement may be delivered( section 113) if he wants to settle. If the credit provider refuses or fails to do so then the National Credit Tribunal, p , on the application of the consumer may compel the credit provider to do so (Section 114). p Step 8: Procedures for debt enforcement where consumer in default (Section 129) If a consumer is in default for atleast twenty business days under the credit agreement, a letter of demand must be sent to him or her informing him or her of the right to refer the credit agreement to a debt counsellor, or alternative dispute resolution agent, consumer court or an ombud with jurisdiction , with the intention to resolve any dispute under the credit agreement or develop and agree on a plan to bring the payments under the agreement up to date within ten business days of receipt of that notice ; Section 129 letter format “ ”In the drafting of the letter of default in section (1)(a), one should follow the Wording of the section, eg. “we draw to your attention to your default of the agreement in that you are in arrear in the sum of R…” In the summons the plaintiff should make the allegation that all the requirements of sections 129 and 130 have been complied with. It would be best to be specific and give the following details: “the defendant was and still is in default under the agreement for more than 20 business days in that he has failed to pay installments since <date>. a letter of default was sent to the defendant at his latest known address in terms of section 129 on <date>. in the said letter -- the defendant was informed that he was in default under the agreement to the extent that <set out extent>. the plaintiff proposed that the defendant refer the credit agreement to a debt counselor or alternative dispute resolution agent, consumer court or ombud with jurisdiction with the intent p y p g p g plan that the parties resolve any dispute under the agreement or develop and agree on a p to bring g the payments under the agreement up to date. more than ten days have elapsed since the delivery of the said notice and the defendant has not responded to the notice. (or responded by rejecting the plaintiff’s proposals.) the defendant has not surrendered the property to the plaintiff as contemplated by section 127” “ CHECKLIST FOR DEFAULT JUDGEMENTS/PARTICULARS OF CLAIM Simple Summons is not to be used. Check whether Summons was issued before or after 01/06/2007. Original credit agreement or certified copy to be attached to POC – concluded before or after 01/06/2007? Particulars of Claim must aver the following/ following to be pleaded: That NCA applies to agreement, state nature of agreement (large, small, short term credit transaction, etc), a d a ou t claimed. See sections 1,4, 5, 8, 9, etc. t a sact o , and amount c a ed sect o s , , etc If agreement excluded under NCA, reason why it is excluded must be pleaded. Date of agreement must be averred or attached agreement sufficient. That credit provider/Plaintiff is registered (section 40). Proof of registration must be attached. If registration not required, this must be pleaded and reason for exclusion must also be pleaded. stated. Interest rate must be stated That section 92 has been complied with. That consumer is in default for at least 20 business days. Section 129 notice given to consumer/Defendant – notice plus proof of postage/delivery must be attached. At least business days have lapsed since delivery of notice. Consumer failed t respond to notice/rejected the proposal. Where goods were transferred, that consumer failed to surrender goods. Matter not pending before Tribunal, debt counselor, consumer court or Ombud. Where applicable, aver that property was sold subject to attachment order or section 127 surrender, and that there is still an outstanding balance due by consumer. 80, 93, 106, Aver that there is compliance with sections 80 89 – 93 and 100 – 106 read with Regulations 28 – 33 (agreements dated from 01/06/2007). COMMENCING ACTION Subject to section 130(2) the credit provider may action, not commence action unless the consumer has notice; (a) Not responded to that notice; or provider s (b) responded but rejected the credit provider’s proposals and (c) In the case of an instalment agreement, secured loan or lease he or she has not surrendered the relevant property provider. to the credit provider CHECKLIST: DEFAULT JUDGEMENT/PARTICULARS OF CLAIM Simple summons not to be used. Credit agreement or certified copy to be attached. Aver that NCA applies to agreement, state nature of agreement exp - large, small agreement or short term credit transaction, and amount claimed. If agreement is excluded, reason for exclusion should be pleaded. Date of agreement should be averred – or attached agreement should reflect said date d d f f b h d f d Averment as to registration as credit provider. Proof of registration to be attached. If not required, must be pleaded – and reason for exclusion to be given. Interest rate claimed to be stated. Section 92 complied with – handed consumer pre-agreement statement Aver that: Consumer in default for at least 20 business days, Section 129 [of 86(10)] notice delivered – attach proof of notice and proof of delivery S i [ f i d li d h f f i d f f d li At least 10 business days have lapsed since delivery Consumer failed to respond to notice, or rejected the proposal In instances of transfer of goods – consumer failed to surrender the goods. Aver that the matter is not pending before the Tribunal. Aver that the property was sold pursuant to an attachment order or section 127 surrender and there is till t t di b l bl by ( h li bl ) still an outstanding balance payable b consumer (where applicable). The matter is not pending before debt counselor, consumer court or ombud. Aver that there is compliance with section 80, 89-93 and section 100-106 read with regulation 28-33 (agreements dated from 1 June 2007). Step 9: Debt procedures in Court ( Section 130) Once the 10 business days from the date the notice had been given to the consumer have elapsed since the Section 129(1) notice and there has been no response from the consumer or that the consumer had rejected the credit provider’s proposals or that he has not surrendered the relevant property, the matter goes before the court. However before the Court considers the matter it must be satisfied that However, matter, there had been compliance with section 127 (surrender of goods), section 129 or section 131 (repossession of goods) There is no matter pending before the Tribunal that could result in an order affecting the issues Court, to be determined by the Court or The credit provider had not approached the court prematurely whilst the matter was before the debt counsellor or - the consumer surrendered his property to the credit provider, and before that the property had been sold; or - that he had agreed to the proposal made in terms of section 129(1) and had acted in good faith in fulfillment of the agreement; - that he had complied with an agreed plan as contemplated in section 129(1)(a) or - that he had brought the payments up to date as contemplated in section 129(1)(a) Step 9: Debt procedures in Court ( Section 130) Having ti fi d itself that f the b H i satisfied it lf th t none of th above t i d then looks into the transpired th it l k i t th credit dit agreement itself and it could determine that the agreement was reckless within the meaning of section 80 in which case it is obliged to make an order in terms of section 83 (i.e. suspend the agreement and set aside all or part of the consumers rights and obligations there under as it determines just and reasonable and it must further consider whether or not the consumer is over indebted and if it concludes that he is over indebted, it may make an order suspending the force and effect of that agreement until a date determined by the court g p ; making that order of suspension; and Restructure the consumer’s obligations in accordance with section 87 Caveat Before it makes the above order it has looks into the consumer’s current capacity and means to pay his current obligations that existed at the time when the agreement was made; and the expected date when nay such obligations under the credit agreement will be fully satisfied assuming he makes all the payments in accordance with any p p proposed order. Step 10: Post surrender or repossession of goods It is not uncommon that after all that , the credit provider is still out of pocket especially after the credit provider re-sells the car and the proceeds are not enough to extinguish the debt. Some creditors could regard the matter as ended but there are large institutions which would sell and cede the remaining book debt at a discount to a third party whose debtors. business it is to collect outstanding debts from debtors What does the NCA provide in such instances? Section 130(2) permits the credit provider to approach the court to enforce the remaining obligations of the consumer Most i t t is that ti 130( does not only apply t new agreement b t th t M t important i th t section 130(2) d t l l to t but that it has a retrospective affect and therefore will apply to agreements entered into before 1 June 2007 (see Proclamation 22 in Government Gazette 28824 dated 11 may 2006 as well as item 4(2) in Schedule 3 to the NCA).NCA). 130( Is this constitutional? Because section 130(2) takes away existing common law and contractual rights of consumers and therefore whether it will pass constitutional muster because it interferes with the right to property in terms of section 25 is an interesting aspect whose outcome will have to be determined by the courts. courts. General Rights of the Consumer non-discrimination the right to apply for credit (Section 60) and non discrimination (Section 61) A credit provider has to advise a consumer before adverse information is reported to the credit bureau and the consumer may challenge it. Any person who receives, compiles, retains or reports confidential information pertaining to a consumer must protect the confidentiality thereof (section 68(1) Consumer has the right to receive a copy of the credit agreement ( Section 93) When entering into a credit agreement the credit provider must present to the consumer an options to Be excluded from telemarketing campaigns Marketing or customer lists sold, or Mass distribution of email or sms. Any person may inspect a credit bureau, the national credit register or any file or information concerning him and to challenge the accuracy of any information. The credit provider etc is obliged to investigate the challenge to its information and to remove it if they are unable to find any credible evidence in support of the information General Rights of the consumer Consumers are protected in various ways against marketing practices and unsolicited credit agreement at the consumer’s home or work place Section 75) . Furthermore the NCA q has set out requirements and standards for advertisements relating to the availability of credit or goods and services to be purchased on credit (Section 76). The Act also prohibits negative option marketing (Section 74) Section k l that t t is l d d 74(4) makes it clear th t if a contract i concluded as a result of negative option marketing it will be treated as unlawful and void with all the serious consequences agreement. attached to unlawful agreement Rights of Consumers Preamble If one analyses the Preamble, and the Purposes as well as the Objectives underpinning the NCA, it is evident that Consumers have been afforded many rights and duties under the NCA.. It is appropriate to therefore define who is a consumer. Section 1 defines such a person as transaction, 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 is 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 The t h i dit d th dit Th party who receives money or credit under any other credit agreement t What are the rights ? Where a consumer is a ‘juristic’ person Something to chew over Key features of the National Credit Act 1. Credit Providers must explain rights of consumers before entering into credit agreements 2. p p pp y g Consumers must provide more detailed information about their income and expenses when applying for a credit or loan 3. Interest rates and fees charged have been capped 4. Consumers can approach debt counsellors for assistance 5. Credit providers are obliged to inform consumers before they list information about them with a credit bureau 6. Consumers are entitled to regular statements containing full details of all payments and repayments Unlawful Agreements (Section 89) NCA 89 The NCA, in section 89, as has been pointed out declares certain credit agreements unlawful as such. What are these ? Agreement with a consumer who is an unemancipated minor unassisted by a guardian .. An emancipated minor is someone who has the permission of his guardian to start his court own business or has applied to court. Agreement with persons who have been declared mentally unfit Agreements with persons subject to administration orders (section 74) with consent of the administrator Agreement that result from negative option marketing ( section 74) Supplementary agreements which contains unlawful provisions [Section 91(a)] Agreement concluded by an unregistered credit provider Agreement concluded by a credit provider who was under a notice by the NCR or A l d db di id h d i b h Provincial Regulator to stop extending credit. I have discussed the consequences of an unlawful agreement already Unlawful Provisions (Section 90) Section 90 declares many provisions as unlawful. Some of these are those that ⌦ defeat the purposes and policies of the Act ⌦ Deceive the consumer ⌦ Subject the consumer to fraudulent conduct ⌦ Wh it purports either directly or indirectly to waive or deprive a consumer of of right Where t ith di tl i di tl t i d i f f i ht set out in the Act ⌦ Avoid a credit provider’s obligations or duty in terms of the Act ⌦ Set aside or override any provision of the Act ⌦ Authorise the credit provider to * to do anything that is unlawful in terms of the Act * fail to do anything that is required under the Act ⌦ p y g Purports to waive any common law rights that- * may be applicable under the Act * may have been prescribed under subsection 5 The consequences of unlawful provisions have been discussed already g g Right to receive Pre-Agreements Quotations (Section 92) The Credit Provider must provide the consumer with a quotation and a statement prior to the conclusion of the agreement. The details are prescribed by regulation 28 (small agreements) and regulation 29 (intermediate and large agreements) Purpose of the quotation is to give the consumer an opportunity to consider his intended agreement and to shop around for better or cheaper credit Moreover the quotation and statement are binding on the credit provider for five business days ( Section 92) They are in the nature of an option created by the NCA with the consumer the option holder. Right to understandable language (Section 63) Section 63 (1) right to receive any document that is required under the NCA in an official language that the consumer reads or understands to the extent that is reasonable having regard to usage, practicality, expense, regional circumstances an the balance of the needs and preferences of the population ordinarily served by the person required to be served that documents Section 63(2) in at least two official languages Section 64(1) must be in plain language that an ordinary consumer of the class of personss for whom the document is intended, with average literacy skills and minimal credit experience, could be expected to understand, the content, significance and import of the document without undue effort having regard to (a) The context, comprehensiveness and consistency of the document; (b) The organisation, form and style of the document (c) The vocabulary, usage and sentence structure of the text, and understanding Right to apply for debt review (Section 86) An over indebted consumer may initiate proceedings for a debt review There are in two ways in which this can take place: In a court proceeding where it is alleged that he or she is over indebted, the court may refer the matter to the debt counsellor for an evaluation and d ti t d l hi h t b recommendation, or it may mero motu declare him or her to be over indebted (Section 85). He can apply to a debt counsellor to be declared over indebted before any action is taken against him by the credit provider in terms of section 129 . He is expected to provide the counsellor with comprehensive details as prescribed by regulation 24. While debt review is taking place all legal proceedings are halted and he cannot enter into further credit agreements until the matter is resolved. A credit provider who concludes a credit agreement with a resolved. consumer under debt review runs the risk of the agreement credit. constituting reckless credit. y g Early settlement of credit agreement ( Section 113) A consumer is entitled to request a settlement statement from the credit provider and he is entitled to settle his account any time with or without notice ( section 125) Where the agreement is subject to variable interest then interest is payable up to a period of three months from the period of notice in addition to the settlement amount. Surrender of Goods ( Section 127) The NCA provides the consumer with a way out of a credit agreement by unilaterally deciding to return the goods to the credit provider so that they can be sold by the credit provider in order for the account to be settled. Notice of Surrender g g He must give notice in writing of his intention to do so Thereafter return the goods within five days of the notice being given and received by the credit provider Within ten days of receipt of the goods, the credit provider must furnish the consumer with a written notice setting out the estimated value of the goods If the value is accepted, the credit provider may sell the goods and provide him with a statement of * what the goods were sold for *the nett proceeds after deducting permitted default charges and reasonable costs incurred * the amount credited or debited to the consumer’s account * If there is a debit amount the credit receiver may demand payment of the remainder and if the consumer fails to pay, proceedings may be commenced in the Magistrates’s Court. Unpacking the National Credit Act The National Credit Act consists of 173 sections grouped under nine chapters: Chapter 1: Interpretation, Purpose and Application of the Act; Chapter 2: Consumer Credit Institutions; Chapter 3: Consumer Credit Industry Regulation; Chapter 4: Consumer Credit Policy; Chapter 5: Consumer Credit Agreements; Chapter 6: Collection, Repayment, Surrender and Debt Enforcement; Chapter 7: Dispute Settlement Other Than Debt Enforcement; Chapter 8: Enforcement of Act; and Chapter 9: General Provisions. schedules. There are three schedules the first contains rules on conflicting legislation, the second stipulates the amendment of legislation and the third contains transitional provisions KEY CONCEPTS g In the National Credit Act terms like “over-indebtedness” and “reckless lending” are the key y concepts or buzz words, which ultimately determine whether a consumer is creditworthy or not. If one looks at sections 79, 80 and 81 of the Act, the two key terms are defined as follows: Credit is lent recklessly if, Either the credit provider took no steps to assess the proposed consumer’s general understanding and appreciation of the risks and costs of the proposed credit agreement and his rights and obligations under the agreement; his debt repayment history for credit; existing financial means, prospects and obligations and whether there is a reasonable basis to conclude that any commercial purpose may prove to be successful, if the consumer has such a purpose for applying for the credit; or After conducting an assessment, the credit provider still entered into the credit agreement with the consumer despite the fact that the preponderance of information available to the credit provider indicated that the consumer did not generally understand or appreciate his risks, costs or obligations under the proposed credit agreement; or if entering into that credit agreement would make the consumer over-indebted. In other words making an assessment whether the consumer can meet his repayments Section 80(1) read with section 81(2) Key Concepts Over-indebtedness is defined as follows “A consumer is over-indebted if the preponderance of available information at the time a determination is made indicates that the 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. Although the National Credit Act has refined these definitions and clearly prohibits a credit provider from entering into a reckless credit agreement with a prospective consumer, there will still be those creditors who argue against the “reckless lending rule”, because they wish to make loans even where the evidence indicates that the consumer cannot make the repayments! The National Credit Act provides that whenever a credit agreement is being considered in any court proceedings, the court may declare the credit agreement reckless. If a court declares that a credit agreement is reckless, because the dit id f il d t d th t h d th t b t till t d i t th credit provider failed to do the proper assessment, or if he did do the assessment but still entered into the agreement t even though the consumer did not generally understand or appreciate the risks, costs or obligations under the agreement, the court may make an order: · Setting aside all or part of the consumer’s obligations under that agreement, as the court determines is just and reasonable in the circumstances; or · Suspending the force and effect of the credit agreement and may then issue an order: di th f d ff t f th t dit t til d t suspending the force and effect of that credit agreement until a date determined by the court; and restructuring the consumer’s obligations under any other credit agreements, in accordance with the Act. Key concepts The National Credit Act , in section 78(3) clearly provides that “financial means, prospects and obligations ” in this context, of a consumer or prospective consumer, includes the following: income or any right to receive income, regardless of the source, frequency or income, income source regularity of that income, other than income that the consumer or prospective consumer receives, has a right to receive or holds in trust for another person; and receive, the financial means, prospects and obligations of any other adult person within the consumer’s immediate family or household, to the extent that the consumer, or prospective consumer, and that other person customarily share their respective financial means; and mutually bear their respective financial obligations; and if the consumer has or had a commercial purpose for applying for or entering into a particular credit agreement, the reasonably estimated future revenue flow p p from that business purpose. Definitions Consumer ‘Consumer’ The NCA defines such a person as ‘ (a) the party to whom goods or services are sold under a discount transaction, incidental sale credit agreement, installment agreement; or i t ll t t (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) ( ) th guarantor under a credit guarantee; or the t d dit t (h) the party to whom or under whose direction money is advanced or credit granted under any other credit agreement. ‘Credit Agreement’ As a basic requirement, an agreement for the purposes of the NCA exists if two elements are present, namely There is some deferral of re-payment or pre-payment; and there is a fee, charge or interest imposed with respect to the deferred amount or a discount given when pre- payments are made. The omnibus term employed by the NCA is ‘ credit agreement’ the criteria whereof is set out in section 8, namely a credit facility; or a credit transaction; or a credit guarantee; or a above. combination of the above  Subject to exclusions set out in section 8(2) ‘ Credit Facility’ This i ti t h f dit Thi is an agreement in terms whereof a credit provider supplies goods or services or pays an amount to the consumer or on his behalf or at his direction  A credit card agreement is a good example ‘ Credit transaction’ credit transaction To constitute a ‘credit transaction’ certain criteria have to be met in terms of section 8(4) of the NCA. These are a pawn transaction a discount transaction incidental credit agreement installment agreement mortgage agreement secured loan a lease of a movable; or t th th dit f ilit h any agreement, other than a credit facility, where payment is deferred, and any charge or interest payable is also deferred New institutions & registration procedures National C dit regulator N ti l Credit l t National credit register Registration and licencing Consumer Tribunal Credit Bureaux National credit regulator National Credit Regulator All Credit Providers operating in more than one province will have to register Compliance monitoring; Prosecution at Tribunal Complaints investigation (coordinated with Banking Adjudicator & provincial consumer ADR s) desks; ADR’s) Monitoring credit market prices, volumes, competitiveness, access to finance National credit regulator Will report to Minister & Parliament Funded from fees & government allocations Provincial Regulators passed, If provincial legislation passed & institutions established Provincial registration if credit provider has branches in only one province National Credit Register (NCR) 4, 69-72 Chapter 4 Sections 69-72, seeks to increase the breadth of credit information available across the client cohorts and create a basis for greater information sharing competition in information-sharing between credit bureaux. Better, more accurate information, and better information-sharing between consumer credit information sharing providers should improve risk assessment. Improved risk assessment should reduce risk a o a d g o o a associated with servicing the lower-income market and improve access to cheaper, longer term credit by those currently disadvantaged. The National Credit Register National C dit R i t (NCR) N ti l Credit Register One single register bl h d d d by h Established and monitored b the National Credit Regulator Reflecting all outstanding agreements R fl ti ll t t di t Duty on credit providers to report entering, information on entering settling or transferring of agreements Tribunal Independent from National Credit Regulator Operate independently with chairperson and members Direct access by credit providers and consumers in certain instances g g Single member hearings or full bench Order will be equivalent to a High Court order Tribunal Prosecution of credit providers by P ti f dit id b National Credit Regulator Confirmation of d bt restructuring if C fi ti f debt t t i by consent A l b Appeals by consumers & credit di providers Decisions can be appealed or taken on review to High Court Courts Magistrate Courts M i t t C t Cases brought by providers against (as t t lth consumers ( at present, although h consumers’ ground for defense are expanded / codified) Prior to approving court orders, compulsory indebtedness & reckless lending enquiry Credit Bureaux The role played by credit bureaux is an important one for they can provide vital information to credit providers to prevent over-indebtedness of consumers and the granting of reckless credit. The NCA contains detailed provisions dealing with information held by credit bureaux. What information can a credit bureau store? Section 70(1) provides us with a direction. It employs a wide phrase ‘consumer credit information’ which means (a) a person’s credit history, including applications for credit, credit agreements to which the person is or has been a party; p p y pattern of payment or default under any credit such agreement; debt re-arrangement in terms of the NCA; incidence of enforcement actions with respect to any such credit agreements; agreements, the circumstances of termination of such credit agreements and Related matters Credit Bureaux (b) person’s a person s financial history including past and current income assets and debts th ithi th f th t ’ fi i l other means within the scope of that person’s financial means prospects and obligations as defined in section 78(3), and related matters (c) a person’s education, employment, career, professional or business history, including the i t ft i ti circumstances of termination of any employment, career, professional or business relationship and f l t f i l b i l ti hi d related matters, or (d) a person’s identity, including his or her name, date of birth, identity number, marital status and family relationships, past and current addresses and other contract details, and related matters. Application of NCA to pre- existing agreements The NCA applies to a credit agreement that was made before the effective date  if that credit agreement would have fallen within the application of the Act in p terms of Chapter 1 if the Act had been in effect at the time subject to certain provisos. For instance any credit agreement, other than a pawn transaction, entered into within one year of the effective date, the credit provider has six months within which to provide the consumer with statements and documents in terms of sections 92, 93 and 108 of the NCA  See Section 4 of Schedule 3 to the NCA  Subitems (2) to(5) thereto  Say 1 June 2007 Exclusions from the scope and ambit of the NCA p Excluded from the ambit and scope of the NCA is where goods are sold or services rendered and payment is made by cheque which is subsequently dishonoured ( section 4(5)(a); or where a third party, say a bank refuses to pay a charge on behalf of a buyer( Section 4(5)(b)]; di a credit agreement i b juristic d h has is between a j i i person and someone who h a controllinglli interest in that juristic person ;[ Section 4(2)(b)(i)] a credit agreement between family members [Section 4(2)(b)(iii)]; between parties one of whom is dependent on the other and consequently does not endeavour to obtain an advantage out of the transaction [Section 4(2)(iv)]; where a consumer pays fully or partially for goods or services through a charge against a credit facility provided for by, for instance a bank [Section 4(6)(a)]; where payment for continuous service or utility is deferred by the supplier in terms of an agreement until a periodic statement is provided therefore; and no charge for a period of 30 days of the date upon which the statement is delivered, will be imposed as contemplated in section 103 in respect of the amount so differed [Section 4(6)(b)(ii)] Debt counseling Debt Counselors Assisting over-indebted consumers & facilitating debt restructuring Potential interventions: Education & guidance Voluntary debt restructuring, with consent order y g, Legal debt restructuring Registered & overseen by Regulator, independent from providers Debt restructuring must be “stamped” by Magistrates court Debt counseling (cont.) Consumer notified Before adverse information to credit bureaux; before debt enforcement procedures Counselors, Alternative Debt Counselors ‘Alternative dispute resolution agents’, consumer courts and ombuds all play a role over indebted; Debt counseling if over-indebted; debt review → debt re-arrangement → court order ADR where disputes (prior to court process) Complaints to regulator S86 – S88, S129, S130, S134, S136 Dispute settlement Can b “internal” – i C be “i t b t l” i.e. between ththe provider and the consumer H id ff j t d However, if provider offers rejected, then the court process will be opened again again. If consumer is not over-indebted, then outside the jurisdiction of debt counselors Information “… k i l ti t dit “ weaknesses in relation to credit bureau activities … a key inefficiency market in the consumer credit market” Consumer i f C i information Curb unlimited ‘trade’ in private information Protect confidentiality S68 to S73 Information (cont.) Credit register National, non-competitive register to enable indebtedness assessment; not competing with bureaux Credit Bureaux Exchange in information regulated; Bureaux registered; Responsibility for verification & accuracy, Regulation of purpose for which information released Consumer s records, Consumer’s access to records Correction procedure, Not report until dispute resolved Limited, defined “data cleansing process” Information (cont.) Reasons for rejection of credit applications Prohibition of refusing credit on discriminatory grounds Right to reason for credit refused Establishment of a “National Credit Register”, to curb over-indebtedness Register Prescribed information will have to be submitted However, note that reckless lending provisions are not dependent on the Register THANK YOU firstname.lastname@example.org ANY QUESTIONS?