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WORKSHOP OF THE Powered By Docstoc

   1st September 2007
Workshop on the National Credit Act 34
              of 2005

          Saber Ahmed Jazbhay y
            Omar and Jazbhay
          ARE YOU?

        CREDIT ACT
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
• 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;
• 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..

         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
         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
            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
       Juristic Persons as consumers
   Definitions of
       a ‘consumer’
       a ‘credit agreement’
          credit facility
       a ‘credit facility’
       a ‘credit transaction’
       a ‘credit provider’
       an ‘incidental credit agreement’
       ‘Juristic’ Persons
       ‘secured’ loan
Operational p               procedural p
              provisions or p          provisions of the NCA
    Entering into Credit Agreements
    Rights of the Consumer
    Unlawful agreements
                g Consequences of an unlawful (section 89) agreement 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 Registration as Credit Providers
            g Provide a report to the National Credit Register or
         directly to a Credit Bureau
  TABLE OF CONTENTS   Make an assessment of the consumer   Pre-agreement disclosures   Keep a record of each consumer   Advertising practices   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
     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
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
· 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
· 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
· 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
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….
  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
      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
           So before he or she must assess the consumer's understanding of the appreciation of
           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
           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[1])
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
    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)
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-
Assessment based on information when agreement
made; consumer required to “fully and truthfully
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
Step 4: Factors that a Credit Provider must
consider before entering into a Credit
  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)
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

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
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[1])
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
Pre-Agreement Disclosure (costs of credit) Part 2
   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
        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
Maximum Prescribed Interest
    Rates (Section 105)

 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
             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.
             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
  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
Agreement becomes void:
A       tb          id
  Effect: void
  Consumer payments to be refunded and
  C              t t b      f d d    d
    (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
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[2]) 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).
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
in the said letter --
       the defendant was informed that he was in default under the agreement to the extent that <set out
       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” “
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
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
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).

Subject to section 130(2) the credit provider may
not commence action unless the consumer has
(a) Not responded to that notice; or
                                        provider s
(b) responded but rejected the credit provider’s proposals
(c) In the case of an instalment agreement, secured loan or
    lease he or she has not surrendered the relevant property
    to the credit provider

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
       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
     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
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
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).
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
 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[1]) . Furthermore the NCA
 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[2]). The Act also
 prohibits negative option marketing (Section 74[1]) 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
 attached to unlawful agreement[7]
                Rights of Consumers
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
     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
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[1]) with consent of
the administrator
Agreement that result from negative option marketing ( section 74[1])
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[3])
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
     consumer under debt review runs the risk of the agreement
     constituting reckless credit.
       y                       g
   Early settlement of credit agreement
             ( Section 113[1])
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[1])
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
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
 Chapter 7: Dispute Settlement Other Than Debt Enforcement;
 Chapter 8: Enforcement of Act; and
 Chapter 9: General Provisions.
 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
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;
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
 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
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.
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
(d)        the mortgagor under a mortgage agreement
(e)        the borrower under a secured loan;
(f)        the lessee under a lease;
( )        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
           ‘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,
      a   credit facility; or
      a   credit transaction; or
      a   credit guarantee; or
      a                       above.
          combination of the above

      [1] 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[1]
[1] 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
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
  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
Provincial Regulators
  If provincial legislation passed &
  institutions established
  Provincial registration if credit
  provider has branches in only one
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
 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
 information on entering settling or
 transferring of agreements
Independent from National Credit
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
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
Decisions can be appealed or taken
on review to High Court
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;
      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 [1] if that credit agreement
would have fallen within the application of the Act in
terms of Chapter 1 if the Act had been in effect at the
time subject to certain provisos[2]. For instance any
credit agreement, other than a pawn transaction,
entered into within one year of the effective date[3],
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
[1] See Section 4 of Schedule 3 to the NCA
[2] Subitems (2) to(5) thereto
[3] Say 1 June 2007
 Exclusions from the scope and
        ambit of the NCA
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
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
      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
                      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
If consumer is not over-indebted,
then outside the jurisdiction of debt
“…     k        i   l ti  t      dit
“ weaknesses in relation to credit
  bureau activities … a key inefficiency
  in the consumer credit market”

  Consumer i f
  C                i
    Curb unlimited ‘trade’ in private
    Protect confidentiality
                                        S68 to S73
        Information (cont.)
Credit register
   National, non-competitive register to enable
   indebtedness assessment; not competing with
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
Prescribed information will have to be
However, note that reckless lending provisions
are not dependent on the Register