Article was written by Stef de Gouveia, Candidate Attorney, checked by Sean Buskin, Candidate Attorney, and released by Keane Robertson, Senior Partner at Schindlers Attorneys.
30 June 2021
INTRODUCTION
The National Credit Act No.34 of 2005 (the “NCA”) was signed into law by the president on 15 March 2005, with the intention of governing the application and maintenance of all credit granted by a credit provider to a consumer within the Republic of South Africa.
The purposes of the NCA are, inter alia, the following:
- 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; and
- to protect consumers by promoting the development of a credit market that is accessible to all South Africans, and in particular to those who have historically been unable to access credit under sustainable market conditions.[1]
THE CREDIT PROVIDER – CONSUMER RELATIONSHIP
A consumer is defined in the NCA[2] as:
- the party to whom goods or services are sold under a discount transaction, incidental credit agreement or instalment agreement;
- the party to whom money is paid, or credit is granted, under a pawn transaction;
- the party to whom credit is granted under a credit facility;
- the mortgager under a mortgage agreement;
- the borrower under a secured loan;
- the lessee under a lease, not for immovable property;
- the guarantor under a credit guarantee; and
- the party who receives money or credit under any other credit agreement.
A credit provider is defined in the NCA[3] as:
- the party who supplies goods or services under a discount transaction, incidental agreement or instalment agreement;
- the party who extends credit under a credit facility;
- the mortgagee under a mortgage agreement;
- the lender under a secured loan;
- the lessor under a lease, not for immovable property;
- the party to whom an assurance or promise is made under a credit guarantee;
- the party who advances money or credit under any other credit agreement; and
- any person who acquires the rights of a credit provider under a credit agreement, whether it be a credit grantor or cessionary.
A credit provider is also required to be registered with the National Credit Regulator. Section 40(1) of the NCA provides that a person must apply to be registered as a credit provider if the total principal debt owed to that credit provider exceeds the prescribed threshold, which has been amended to be any amount greater than Nil. In effect, anyone who concludes a credit agreement in terms of which any amount of money is owed to them is now required to be registered as a credit provider.
However, there are exceptions to this rule and a credit provider does not have to be registered in circumstances such as:
- incidental credit agreements;
- interest free credit agreements; and
- agreements between persons who are not at arm’s length.
Once it is clear that the parties to a transaction are either a consumer or a credit provider, as defined in the NCA, then it is necessary to determine whether the NCA applies to the transaction in question by answering the two-fold question of:
- Does the agreement fall within section 4 of the NCA; and
- Does the transaction fall within the definition of credit agreement as set out in Section 8 of the NCA?
CREDIT AGREEMENTS AND TRANSACTIONS
The construction of Section 4 is such that if the answer to the first question above is negative, then there is no need to proceed to the second question because the NCA will not be applicable.
Section 4(1) of the NCA states:
“Subject to sections 5 and 6, this Act applies to every credit agreement between parties dealing at arm’s length and made within, or having an effect within, the Republic, except –
(a) a credit agreement in terms of which the consumer is-
(i) a juristic person whose asset value or annual turnover, together with the combined asset value or annual turnover of all related juristic persons, at the time the agreement is made, equals or exceeds the threshold value determined by the Minister in terms of section 7(1);
(ii) the state; or
(iii) an organ of state;
(b) a large agreement, as described in section 9(4), in terms of which a consumer is a juristic person whose asset value or annual turnover is, at the time the agreement is made, below the threshold value determined by the Minister in terms of section 7(1); “
The current threshold is an annual turn-over or asset value exceeding R1 000 000.00 in terms of Section 7(1)(a) while a large agreement is R250 000.00 or over in terms of Section 9(4).
If the agreement does fall within the scope of section 4, then one needs to consider section 8 of the NCA. Section 8 defines what credit agreements are and separates the definition into four categories, namely:
- credit facilities, as described in subsection (3);
- credit transactions, as described in subsection (4);
- credit guarantees, as described in subsection (5); or
- any combination of the above.
While the four categories are broad and are required to be read carefully with reference to the terms mentioned in each subcategory, it must also be noted that section 8(2) expressly excludes the following from the ambit of the NCA:
- insurance policies;
- leases of immovable property; and
- stokvel agreements.
It should also be noted that incidental credit agreements fall within the broader category of credit transactions as described in section 8(4)(b) but are subject to section 5 and therefore not fully impacted by the NCA. To understand the applicability of the NCA to credit transactions more simply, one can essentially break down transactions as being one of the three categories:
- Transactions that fall outside the scope and ambit of section 4 and therefore also outside the scope and ambit of the NCA;
- Transactions that are incidental credit agreements and therefore the NCA has a limited impact on the transaction (focusing on the limits imposed by section 5); or
- Transactions that fall squarely within the scope and ambit of the NCA and are therefore regulated more onerously.
CONCLUSION
While the NCA has been criticised for being ambiguous with regards to its application to credit transactions, it remains imperative that credit providers or suppliers operating within South Africa be fully aware of the impact of the NCA on the transactions that they are party to. Failure to comply with the NCA or being aware of the NCA’s applicability to certain transactions may result in severe consequences for credit providers
VALUE
Understanding how and when the NCA applies to credit transactions and the implications of the NCA.
[1] Section 3 of the NCA
[2] Section 1 of the NCA
[3] Ibid
