PRESCRIPTION by wulinqing


(19 PAGES)


The National Credit Act, (NCA) came into effect on the 1st of June 2007. It
is intended to repeal the Usury and Credit Agreement Acts as well as
subordinate legislation. The current legislation was seen to be outdated
and not keeping with the pace of developments in the consumer credit

The aim of the NCA is, inter alia, to introduce a single, functional system
of regulation that will apply to all credit activities, thereby ensuring that all
credit providers and credit consumers are treated equally.


In summary

           The Usury and Credit Agreement Acts are outdated.
           Access to credit remains a problem to a large portion of the
           There is generally reckless lending by certain credit providers.
           Credit consumers are being exploited by the credit industry.

It is estimated that close to 70% of South Africans relied on money lenders
and they were not adequately protected by legislation. Money lenders
gave loans at ridiculously high interest rates to low income earners who
mostly used those loans for personal purposes, mainly to supplement low
income. This situation led to the inability to repay loans that provided for

basic household needs and led to more borrowing, creating a downward
spiral from which the borrowers were unable to escape.

Low income earners struggled to access credit, and should they get it,
they paid very high interest rates because their risk factor was higher.
The Usury Act also allowed money lenders to charge higher interest rates.
This was in contrast with middle to high income earners who were
charged more reasonable rates of interest and were able to access credit
more easily.

The objectives of the NCA therefore are:

         To create a framework where competition and transparency will
          be promoted because all credit transactions will be treated the
          same within the identified market sectors.
         All consumers will have equal rights and these rights will be
         Measures are introduced to manage over-indebtedness of
          consumers and to avoid reckless lending practices.
         A regulatory framework is established to regulate credit bueaux,
          credit providers and debt counselors.
         The complaints mechanisms are formalized and regulated to
          ensure maximum protection and compensation for consumers.

The purpose of the NCA can therefore be summarized as follows:

         Improved accessibility of the credit market to previously
          disadvantaged consumers.
         Enhanced consumer rights and education.
         Better regulation of credit.
         Consistent treatment of all consumers and credit providers.

         Responsible borrowing and elimination of reckless lending.
         Redressing the balance of power between the consumer and
          the credit providers.

The NCA requires the consumer to understand the risks and rights of the
credit, as well as obligations under the credit agreement.       Unlike the
position under the Usury Act, there is a clear statutory duty on the credit
provider in this regard. Non-compliance may result in all the consumer’s
rights and obligations under the credit agreement being set aside, or the
credit agreement suspended.

Therefore we, as the attorneys for the institution, wish to fulfill a special
role in terms of the “prevention of reckless credit” with the specific focus
on section 81(2)(a)(i) by creating a general understanding and
appreciation of the rights, risks, obligations and costs of a consumer under
the credit agreement. It is required that the consumer be taken through
the credit agreement and all paragraphs discussed and clarified, so as to
ensure understanding.

It will be the responsibility of THE CREDITOR, as a credit provider, to
prove that the aforesaid was complied with.          This may require the
individuals employed by THE CREDITOR to testify at court as to the
process followed, the specific rights and obligations explained, questions
that were asked, how they were answered in terms of the NCA, etc. It will
therefore be required of the THE CREDITOR employees to have a good
knowledge and understanding of the NCA and THE CREDITOR’s loan
agreement form, both of which are complex legal documents.

A training of all staff members dealing with the THE CREDITOR loans will
therefore be recommended to deal with the changes in the Application and
Loan Agreement forms to comply with NCA.

The Mortgage and/or the Notarial Bonds registering security on behalf of
THE CREDITOR for loans advanced to consumers must also be amended
to comply with the provision of the NCA.

Kindly note that while language appropriateness is not a requirement, it is
advisable to ensure the consumer’s understanding. Section 64 of the Act
deals with the right of consumers to information in plain and
understandable language. Section 64(2) states that: “a document is in
plain language if it is reasonable to conclude that an ordinary consumer of
the class of persons for whom the document is intended, with average
literary skills and minimal credit experience, could be expected to
understand the content, significance, and importance of the documents
without undue effort”, having regard to:

         the context, comprehensiveness and consistency of the
         the organization, form and style of the document;
         the vocabulary, usage and sentence structure of the text, and
         the use of any illustrations, examples, headings, or other aids to
          reading and understanding.

For this purpose an additional document as an addition to the loan
agreement which serve as confirmation that the credit agreement, with
specific reference to the rights, risks, obligations and costs have been
discussed and understood by the consumer.          The document will be

       “Confirmation of National Credit Act (NCA), Compliance in respect
       of Rights, Risks, Obligations and Costs.”

We attach a sample copy of the compliance document to be signed by the
consumer marked “A”.

A signed “Confirmation of NCA Compliance in respect of Rights, Risks,
Obligations and Costs” document by the consumer will be part of the
documentation filed in THE CREDITOR’s security documents.

A summary of the aim of the NCA is as follows:

           It aims to promote a fair and non-discriminatory market place
            for access to consumer credit and for that purpose, to
            provide for the general regulation of consumer credit and
            improved standards of consumer information.

           It aims to promote Black economic empowerment and
            ownership within the consumer credit industry.

           It aims to promote responsible credit granting and use, and
            for that purposes to prohibit reckless credit granting.

           It aims to promote a consistent enforcement framework
            relating to consumer credit.

           It aims to provide for debt re-organisation in case of over-

           To provide for a controllable registration system for credit
            bureaux, credit providers and debt counselors.

             It will establish national norms and standards relating to
              consumer credit.

             It establishes a uniform regulatory and tribunal authorities in
              the form of the National Consumer Regulator (NCR) and the
              National Consumer Tribunal.

             It prohibits certain unfair credit and credit-marketing

             Finally it regulates credit information access and sharing.

By this Act government intends to reduce reckless credit behaviour both
by credit providers and consumers and the level of indebtedness in South


Does THE CREDITOR need to register as a Credit Provider?

THE CREDITOR is a Credit Provider in terms of section 40(1)(a) and (b) it
must therefore register with the National Credit Regulator.        We have
already dealt with consequences of not registering in our earlier
discussion which we stipulated in section 40(3), section 40(4), section
54(1) and section 89(2)(d), which has an effect of rendering loan
agreements unlawful.



Previous legislation did not make provision for the establishment of a body
or entity to regulate and enforce consumer credit except for the Micro
Finance Regulatory council which was established in terms of the
Exemption notice to the Usury Act to regulate micro-lenders.

The most important purpose of the NCA is to establish a body, with
sufficient power and resources, to effectively administer and enforce the


The NCR is established in terms of Section 12 of the NCA. Section 12 to
18 of the NCA sets out its functions and powers. It is an independent
body which is subject to the Constitution and the Law. It is governed by a
body appointed by the Minister of Finance.


Development of an accessible credit market in terms of Section 13 of

      This is one of the key functions of the NCR. The majority of our
       population was historically excluded from the credit market or was
       "forced" to over extend themselves financially in order to survive.

       In terms of Section 13(a) the NCR is responsible to promote and
        support the development, where the need exists, of a fair,
        transparent, competitive, sustainable, responsible, efficient,
        effective and accessible credit market and industry to serve the
        needs of

            historically disadvantaged persons
            low income persons and communities
            remote, isolated, low density populations and communities in
               a manner consistent with the purpose of the Act.

   In developing an accessible credit market the NCR must:-

                set appropriate conditions for credit providers who wish
                 to enter into Developmental Credit Agreements

                report to the Minister of Trade and Industry on a range of
                 issues related to credit

                report on the level of indebtedness of consumers and the
                 social import of over-indebtedness

                conduct research and submit proposals related to
                 legislative, regulatory or policy initiatives which would
                 improve access to credit for historically disadvantaged
                 persons, low income persons and communities and
                 sparsely populated or remote areas.

The Registration function of the NCR

           The NCR is responsible to regulate the consumer credit industry
           by registering credit providers, credit bureaux and debt
           counselors. Section 40, 41 and 42 of the NCA sets out the
           registration requirements, criteria and procedures.

The Enforcement functions of the NCR
     Section 15(a) provides that the NCR must enforce the NCA by
     promoting informal resolutions of disputes arising in terms of the
     Act between consumers on the one hand and in credit provides on
     the other, without intervening in or adjudicating any such dispute,
     which includes:

       receiving complains regarding contraventions of the NCA

       monitoring the credit industry in order to prevent, detect and
        prosecute unlawful practices

       monitoring persons registered for certain functions, to ensure

       issuing compliance notices where required

       investigating and evaluating allegations of offences and the
        seriousness or extent thereof

      negotiating undertakings and consent orders

      referring anti-competitive behavior of credit providers to the
       competition commission

      referring matters to, appearing before the Tribunal and dealing
       with matters referred to it by the Tribunal.

Research and Public information function as laid out in Section 16 of
the NCA

         The NCR is responsible to increase knowledge of the nature
          and dynamics of the consumer credit market and industry and to
          promote public awareness of consumer credit matters by doing
          the following:-

      promoting public understanding and awareness of credit products

      monitoring, spending patters

      identifying factors contributing to over-indebtedness

      auditing records of credit providers

       monitoring trends related to credit insurance

       monitoring the use of alternative dispute resolution methods.


          A Provincial member of Executive Committee (MEC) may ask
           the NCR to conduct research, publication, education, staff
           development and training in matters related with the NCA.

          The NCR may also work with provincial credit regulators in co-
           operative activities to detect and suppress prohibited conduct, if
           there are reasonable grounds to believe the province or across
           its provincial boarders.

          The NCR also co-ordinate efforts of the courts and other
           authorities to enforce the NCA.


      Establishment of the National Consumer Tribunal in terms of
       section 26(1) of the NCA

      The Tribunal is established to adjudicate issues and to do what is
       required of in terms of the NCA. The Tribunal may enforce the
       NCA and prosecute on behalf of the NCR.

      It consist of a chairperson and to no less than 10 members who are
       qualified in areas like business, law, economics and consumers
       affairs. They are appointed by the President.

      It has jurisdiction throughout South Africa and is structured to
       represent a wide spectrum of the population of South Africa.


      The Tribunal, composed of any three members, or a single member
       of the Tribunal (depending on the specific matter), may adjudicate
       the following:-

        The de-registration of financial institution as a credit provider,
         but only if the NCR received such a request, or with the consent
         of, the Regulation of the financial institution and applied to the
         Tribunal for cancellation of registration

        Matters referred to it by NCR e.g for an order to deliver or
         review a statement of account

        The Tribunal will consider and improve a suitable penalty where
         prohibited conduct is assumed

        The costs to be awarded in a hearing

        If a consumer lies to the credit agreement appears reckless.
         The credit provider can rely on the consumer's untruthfulness as
         a defence. The Tribunal will assess if the lies materially
         affected the ability of the ability of the credit providers to make a
         proper assessment.

        If a credit agreement is unlawful, the Tribunal may conclude that
         the agreement is unlawful.

        A debt restructuring order can be made an order of the court by
         the Tribunal, if both parties consent to it.

        Declaring a registrant's conduct to be prohibited in terms of the

        Interdicting any prohibited conduct by a registrant.

        Condoning any non-compliance with its rules and procedures
         on good cause shown

        Confirming an order against an unregistered person required to
         be registered

        Requiring payment to the consumer of any excess amount

These are not the only powers the Tribunal have. Any issues of credit in
the ambit of the NCA given to it, it can adjudicated.


      The curent Application for Financial Assistance form does not
       comply with the NCA and must be redrafted.

      An applicant will be expected to furnish more information on his or
       her application form to assist THE CREDITOR in assessing his or
       her indebtedness, to avoid over-indebtedness. Failure to make an
       informed decision may expose THE CREDITOR to reckless

The following extra questions must be included in the application form:

        Have you ever been involved or placed under administration?

        Have you ever applied for debt counseling in terms of the
          National Credit Act 2005? (Sections 86(1) thereof)?

        Has a debt re-arrangement order ever been issued in terms of
          the National Credit Act, 2005?

        Applicant’s gross income and expenses to be clearly defined to
          determine affordability?

        Applicant’s gender to be included?
        Applicant’s ethnic group to be disclosed?

The form must also include consent clauses such as the following:

         An undertaking that all information supplied is to the best of
           applicant’s knowledge and belief both true and correct in all
           material aspects and that he/she is not aware of any other
           information which, should it be known to THE CREDITOR,
           would affect the consideration of the application.

         Consent for THE CREDITOR to make enquiries to confirm any
           information provided by applicant and that THE CREDITOR
           may obtain information from any credit bureau when assessing
           the application or at any time during the existence of the

         Allowing THE CREDITOR to disclose the existence of the
           account to any credit bureau, sharing any positive and negative
           information about the account.

         Allowing THE CREDITOR to pass confidential information,
           where necessary, to specific service providers that deliver
           services related to this credit agreement.

         An acknowledgment of liability for fees and wasted costs
           incurred by THE CREDITOR and its attorneys in the event of
           the applicant withdrawing from the loan after it has been

THE CREDITOR must make the following declaration in the application

      THE CREDITOR to declare its commitment to provincial,
        national and internal law, rules and regulations and regulations
        and policies regarding the combating of criminal activities,
        money laundering and terrorist financing.            Therefore all
        applications and applicant’s information is subject to verification,
        processing and screening and THE CREDITOR may be obliged
        to decline certain applications.

      Upon acceptance of an application all information and
        transactions will be subject to continuous screening which may
        prohibit, limit or delay the execution thereof, and which may
        oblige THE CREDITOR to terminate its relationship with the


The following must be attended to URGENTLY:

   Registration with the NCR
   Training of staff on compliance
   Amendment of :
     Application forms
     Loan Agreement
     Bond Registration Documents

                     ANNEXURE A


The entire Mortgage Loan Agreement (incorporating the Quotation Pre-
Agreement statement) must be discussed with the consumer with specific
reference to the undermentioned aspects where applicable:


         The consumer has the right to approach THE CREDITOR to
          discuss any matters relating to the credit agreement or where
          the consumer is experiencing financial difficulty.

         Where insurance is required, the consumer has the choice to
          make use of or to switch to an insurer chosen by him/her
          provided such insurer and the insurance policy is acceptable to
          THE CREDITOR.

         The consumer may repay any amount owed to THE CREDITOR
          under the agreement.

         The borrower may terminate the agreement at any time by
          paying the full outstanding balance, inclusive of all charges, (if a
          mortgage loan, this includes an early termination charge), fees
          and interest due in terms of the credit agreement.           On a
          mortgage loan, to give effect to termination, it is required that
          the mortgage bond is cancelled in the Deeds Office.

         The consumer may file a complaint with the the National Credit
          Regulator concerning an alleged contravention of the NCA by

         THE CREDITOR or make an application to the National
         Consumer Tribunal.

        The consumer has the right to apply to a debt counselor to be
         considered for an order to be declared over-indebted in terms of
         section 86 of the National Credit Act in accordance with the
         process set out in that section.

        The consumer has the right to confidential treatment by THE
         CREDITOR. Consumer information cannot be disclosed to third
         parties unless consent is either provided by the consumer,
         allowed by legislation or required in terms of a court order.

        Statements will be mailed every three months.            Duplicate
         statements will be provided on request from THE CREDITOR.


        Non payment of the minimum repayment could result in default
         occurring which will have a negative impact on the consumers’
         credit record and ultimately could result in any security held
         being realized by THE CREDITOR, including repossession of
         any bonded property.

        Where the credit agreement is a mortgage loan, the consumer
         is obliged to insure the property for the amount specified by
         THE CREDITOR,

        Should any circumstance arise where the consumer or their
         estate is unable to repay the loan and there is insufficient
         insurance cover e.g. death, disability, retrenchment, etc. the risk

          is that any security held will be realised, including any bonded
          property, to repay the outstanding debt.

         Where applicable, the consumer carries the risk of increases to
          the repayment resulting from increases in the relevant reference


         The consumer must pay the required repayment reflected in the
          credit agreement and may not deduct any amount which the
          bank may owe or which may become owing to the consumer.
          The consumer shall repay the principal debt to THE CREDITOR
          in such repayments (and on such dates) as are specified.

         Where the credit agreement is a mortgage loan, the consumer
          shall maintain for the duration of the agreement:

        Insurance cover in respect of the property for all risks against
          which any such property will normally be insured in an amount
          equal to the full replacement value of the property by an
          insurance company and in terms of a policy acceptable to THE
          CREDITOR. If the consumer takes out an insurance policy with
          an institution of his/her own choice in respect of the property,
          he/she must ensure that all premiums due thereunder are at all
          times paid in full on the due date and that the policy does not
          lapse at any time for the duration of the agreement.        The
          consumer shall advise THE CREDITOR forthwith if such
          insurance policy should lapse or if the insurance policy is
          cancelled or the consumer takes out replacement insurance
          with another registered insurer. Any new/replacement policy is

         to be provided to THE CREDITOR for approval prior to taking
         out the new policy.

       Where life cover is mandatory in terms of a credit agreement,
         Life Assurance and any specified additional cover (e.g.
         disability) must be maintained in an amount equal to the total of
         the consumer’s outstanding obligations to THE CREDITOR in
         terms of the agreement.

        The consumer must ensure that any payment mechanism used
         to effect repayments (e.g. fixed debit order, stop order, salary
         deduction) is sufficient to cover the minimum repayment due at
         all times. It is recommended that a Due-Amount Debit Order is
         used, which adjusts automatically whenever the repayment
         amount changes.


        The consumer shall be required to pay any legal fees and
         disbursements relating to the drawing, execution, stamping of
         any security required for the agreement including, if applicable,
         registration of a power of attorney, a covering mortgage bond,
         as well as the cancellation fees for any existing mortgage bond
         when the property is being sold again, including powers of
         attorney and other documents necessary for that purpose.

        Services fees – A monthly fee charged in connection with the
         routine administration costs of maintaining a credit agreement.

         The monthly service fee will be included in the consumer’s
         monthly repayment.

        Interest – Will be calculated on a daily balance on the loan at
         the specified interest rate, whether variable or fixed, and debited
         monthly in arrears to the loan account on the day that the
         repayment is due.

        If the consumer defaults on any payment obligation under this
         agreement, THE CREDITOR will levy (and the consumer will
         pay) default administration charges in respect of each letter
         THE CREDITOR or its attorneys issues to communicate with
         the borrower in terms of the NCA.

        Collection costs incurred by THE CREDITOR in collecting any
         amount(s) due and/or payable in terms of the agreement will be
         levied against the consumer.

I/We confirm that the contents of this document, as well as the Mortgage
Loan Agreement, have been discussed with me/us as set out and I/we
understood the same.

Signed at ____________________ on____________________________

Name of Consumer ___________________________________________
Signature ___________________________________________________
Identity Number _____________________________________________


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