The National Credit Act 34 of 2005 (hereinafter referred to as “the NCA”) came into effect on the 1st of June 2007. The purpose of the NCA is to ensure the advancement of social and economic welfare by promoting a fair marketplace for access to consumer credit. Shortly, the NCA protects consumers who enter into credit agreements with credit providers. The term “credit agreement” refers to credit transactions, credit guarantees, and credit facilities.
According to its preamble, the NCA aims:
- “…to provide for the general regulation of consumer credit and improved standards of consumer information,
- to promote black economic empowerment and ownership within the consumer credit industry,
- to prohibit certain unfair credit and credit-marketing practices,
- to promote responsible credit granting and use for that purpose to prohibit reckless credit granting,
- to provide for debt organisation in cases of over-indebtedness,
- to regulate credit information,
- to provide for registration credit bureaux; credit providers and debt counselling services, and
- to promote a consistent enforcement framework relating to consumer credit.”
The NCA also established the National Credit Regulator to regulate the credit market, as well as the National Credit Tribunal to adjudicate matters related to the NCA.
When does the NCA apply?
The NCA applies to all credit agreements between credit providers and natural persons (in other words individuals or sole proprietors), as well as small juristic entities (such as companies, closed corporations, trusts or partnerships) with an annual turnover or asset value of less than R1 million. Credit providers include banks, retailers, micro-lenders, as well as juristic entities providing loans, charging interest on overdue accounts, or doing business on credit.
Thus, the NCA is not applicable to instances where:
- the creditor is the South African Reserve Bank,
- the debtor is an organ of the state,
- the juristic entity has an annual turnover or asset value of more than R1 million, or
- a transaction took place between individuals not at arm’s length (where the two parties are not independent from each other, such as informal loans between family members subject to no interest or nominal interest rates).
A transaction between a stokvel and a member of that stokvel, an insurance policy, or a lease of immovable property is not regarded as a “credit agreement”.
Protection of the Consumer’s Rights
The NCA entrenches fundamental human rights which include:
- protection against discrimination,
- the right of the consumer to be provided with reasons for the refusal of credit,
- receiving all relevant information regarding the credit agreement in a language understandable to the consumer, which includes providing the consumer with a pre-agreement statement and detailed written quotation valid for five business days prior to entering into a credit agreement,
- protection against the abuse of power, and
- receiving the credit agreement in simple and plain terms, in a language understandable to the consumer.
Naturally, unlawful credit agreements are unenforceable. A credit agreement is unlawful in cases where the consumer is a minor, mentally unfit, under debt review, or entered into the agreement due to negative option credit marketing. Consequently, such an agreement would be void.
The consumer will not be required to return any money or goods received from the credit provider, and the credit provider will be required to return all money received from the consumer either to the State or the consumer.
It is also unlawful to grant a consumer credit where the credit provider is not registered as such at the time of granting the credit. Consequently, such an agreement would also be void.
Where certain provisions in the agreement are unlawful, the court is authorised to deem these provisions void. If the provisions that are disregarded by the court, result in the entire agreement not being understandable, the court has the authority to nullify it in its entirety.
Any person suspecting a credit provider of contravening the NCA may lodge a complaint to the National Credit Regulator.
Notice of Default in terms of Section 129(1)(a) of the NCA and Possible Remedies
There is a required process to follow prior to enforcing a credit agreement. The credit provider is required to furnish the consumer with a notice of default in terms of section 129(1)(a) of the NCA. The notice must refer to the exact amount in arrears, as well as a list of possible remedies as to how the consumer may remedy the default if unable to pay the specified amount.
These remedies include debt counselling, alternative dispute resolution, or referring the matter to a consumer court or ombud with jurisdiction to resolve the dispute. Legal proceedings may not be instituted if the credit provider failed to provide the consumer with a note in terms of section 129(1)(a), either by registered mail or by hand to an adult person at the specified location.
A consumer who is overindebted may consider approaching a debt counsellor for review of debt. The purpose of debt counselling (or debt review) is to assist over-indebted individuals to regain control over their finances. This is generally achieved through a structured repayment plan and/or suspension of credit agreements. When placed under debt review, credit providers are not allowed to take further legal action against the consumer. However, the consumer must comply with the debt rearrangement plan to enjoy legal protection.
Informal Cash Lenders
A recent ruling confirmed that all lenders that charge interest are required to register as credit providers, no matter how insignificant the transaction might seem. In Du Bruyn NO and Others v Karsten 2019 (1) SA 403 (SCA), the Supreme Court of Appeal held that:
“…the requirement to register as a credit provider is applicable to all credit agreements once the prescribed threshold is reached, irrespective of whether the credit provider is involved in the credit industry and irrespective of whether the credit agreement is a once-off transaction.”
This judgment has dire consequences for informal cash lenders (commonly referred to as “loan sharks”). Loan sharks are not registered credit providers, usually have high-interest rates, and grant credit to people who are unable to afford it.
Since loan sharks are unregistered credit providers, any credit agreement between them and a consumer will be void, and the lender will be unable to recover the debt from the consumer in terms of the National Credit Act.