I just received a email containing a legal overview of the National Credit Act from Lawsure a firm specialising in giving legal opinions.

As the email was unsolicited and free I’m sure they would not have any object to me reproducing it here and giving them credit. This particularly in light of a glib comment I have read on the net from a credit management source stating that the Act would have little impact.

“The National Credit Act 24 of 2005 has been passed into law and will take effect over the next year. The new Act will repeal the much maligned Credit Agreements Act 75 of 1980 and Usury Act 73 of 1968. These latter acts have been subjected to serious criticism over a long period of time and have been long overdue for a major overhaul. The new Act embodies the product of an intensive legal comparative project by the Department of Trade and industry and represents a major departure from the existing credit regulation regime.

Although the Act at first blush seems to be aimed at a specialised sector of the market place, the scope of the new Act is much wider than the current legislation and may come as a nasty surprise to many businesses It is therefore important that legal advisors take note of the true extent and scope of the new Act and to advise their clients accordingly.

Object of the new Act
The emphasis of the new Act has shifted from credit regulation by price control, ie setting of interest rate caps, to protection against over-indebtedness through proper disclosure. Although the Departmental memorandum to the Bill indicates that its scope of application will be narrower than the current legislation by focusing on the protection of natural persons, the new Act will in fact impact on a much wider range of transactions.
In terms of the new Act a National Credit Regulator is established. Most types of credit providers will have to register with the Regulator. A failure to register may lead to the credit agreements of the particular credit provider being regarded as null and void. (See section 89(2)(d)). The Act also creates a number of consumer rights which will have to be complied with by credit providers (see sections 60 to 66) and outlaws a number of terms which are found in the standard terms and conditions of many businesses (see section 90). For instance terms waiving any common law rights such as the liability for latent defects, terms exempting or limiting the credit providers liability for pre-contractual misrepresentation or its vicarious liability for employees may not be included in credit agreements. In addition the remedies that have been traditionally available to credit providers up to now, are seriously curtailed through a new set of procedures (see Chapter 6).

Scope of the new Act
In this review the focus will be on the scope or range of application of the new Act as the applicability of the new Act will have important and far reaching implications for the individual transactions.

In terms of section 4 the new Act applies to every credit agreement concluded between parties negotiating at arms length in the Republic. However the Act does not apply to:
(i) juristic persons with an asset value or annual turnover which exceeds certain prescribed minimum amounts (big companies). These amounts have not been set as yet but may in any event not exceed R1 million. (See section 4(1) and 7)
(ii) transactions of small companies which exceeds a minimum threshold, ie large credit agreements. This threshold has also not been set. (See section 4(1) and 7)

Although the act only applies to consumers, the term ‘consumer’ is not restricted to natural persons and has been defined in section 1 as:
(i) a party to whom goods or services have been provided in terms of a discount transaction, incidental credit transaction or an instalment agreement;
(ii) a party to whom credit has been provided in terms of a credit facility;
(iii) a party to whom money has been paid or credit granted in terms of a pawn transaction;
(iv) the mortgagor under a mortgage agreement;
(v) the borrower under a secured loan; and
(vi) the lessee under the lease of movable property where interest or fees are payable.

The scope of the act is considerably widened by the inclusion of so called ‘incidental credit agreements’ and ‘secured loans’. An incidental credit agreement is any agreement where goods are provided on open account and where interest becomes payable on default or where low prices are quoted with the lower price applying upon early settlement. Practically this means that where any business sells goods or provides services on account and its standard terms make provision for the payment of interest on late payments, then that agreement is an incidental credit agreement and the Act will become applicable to the transaction.

Secondly, if goods are provided on account and the standard terms of the seller provide that ownership of the goods will be retained until full payment has been received, and default is subject to the payment of interest, the transaction becomes subject to the Act as a secured loan.

In both instances the provisions dealing with unlawful provisions in the agreement (section 90) will apply to the transaction. In terms of this section a number of clauses which regularly feature in standard terms become unlawful and unenforceable. In addition where the transaction qualifies as a secured loan, the business will have to comply with the registration provisions of section 40.

It is therefore clear that the Act applies to a much wider range of transactions and contains some pitfalls of which many businesses may be unaware. The consequence is that each business that provides goods or services on credit will have to consider the possible implications of the Act on their particular transactions. Legal advisors need to alert their clients of these developments in order that their clients may take appropriate steps, either to avoid the application of the Act or to make provision for the requirements laid down by the Act.. This will, inter alia, require a close scrutiny of businesses’ standard terms and conditions. ”

Prof GTS Eiselen – BJuris LLB (PU vir CHO) LLD (PU vir CHO), Lecturer, Private Law, College of Law, UNISA.