NATIONAL CREDIT ACT OF 2006 SUMMARY
1 Introduction 2 Purpose Of The Act 3 Definition Of Credit Agreement 4 Application 5 Consumer Credit Institutions and Industry Regulation 5.1 Registration Of Credit Providers 5.2 Registration Of Debt Counsellors And Credit Bureaux 5.3 Temporary Suspension Of Registration Requirement Of Credit Providers And Credit Bureaux. 6 Consumer Credit Policy 6.1 Consumer Rights 6.2 National Credit Register 6.3 Reporting Of Information To The Register 6.4 Credit Bureaux And Debt Counsellors 6.5 Over-Indebtedness And Reckless Credit Agreements 6.6 Disclosure 6.7 Interest, Charges And Fees (Not Applicable To 6.8 Statements Of Account 6.9 Termination And Rescission Of Credit Agreements 6.10 Application Of Act To Pre-Existing Agreements 7 Collection, Repayment, Surrender and Debt Enforcement 7.1 Debt Enforcement By Repossession Or Judgment 7.2 Dispute Settlement other than Debt Enforcement
The Act comprises the following key areas:
1. Purpose, Definition and Application
2. Consumer Credit Institutions and Industry Regulation
3. Consumer Credit Policy
4. Consumer Credit Agreements
5. Collection, Repayment, Surrender and Debt Enforcement
6. Dispute Settlement other than Debt Enforcement
7. Transitional Provisions
The Act will be implemented from 1 June 2006.
Purpose Of The Act
The purpose of the Act has been at the forefront of political debate for some time now and it is universally accepted that the alleviation of over-indebtedness of consumers and provision of a regulated credit supplying industry are at its core.
Definition Of Credit Agreement
A Credit Agreement is defined as a:
* Credit Facility;
* Credit Transaction;
* Credit Guarantee; or
* any combination of the three.
An agreement is a credit facility if:
* the credit provider undertakes to supply goods or services, and
* either defers the consumer's obligation to pay, or
* bills the consumer periodically,
* Any charge, fee or interest is payable to the credit provider in respect of:
* any amount deferred, or
* any amount billed and not paid within the time provided in the agreement.
If no interest or other cost is levied for late payment, then no credit facility has been provided.
A credit transaction is any one of the following:
* a pawn or discount transaction;
* an incidental credit agreement;
* an instalment agreement;
* a mortgage agreement or secured loan;
* a lease of movable property; and
* any other agreement, which is not a Credit Facility, but in terms whereof payment is deferred and any charge, fee or interest is payable. This includes any interest bearing loan.
A credit guarantee is defined as an agreement in terms of which a person undertakes or promises to satisfy upon demand any
obligation of another consumer in terms of a credit facility or credit transaction.
The Act requires all Credit Agreements to be in writing.
Specifically excluded from the definition of a Credit Agreement are:
* a policy of insurance;
* a lease of immovable property; and
* a transaction between a stokvel and a member of that stokvel in terms of the rules of the stokvel.
It should be noted that ordinary sales and/or the provision of services on credit/account are excluded from the Act if no interest or fee is charged for late payment.
Developmental credit agreements and public interest credit agreements are two classes of agreement that enjoy certain exemptions from the Act.
The Act applies to all written credit agreements between parties dealing at arm's length and concluded within the Republic, with the following exceptions:
* when the consumer (borrower) is a juristic person whose asset value or annual turnover at the time that the agreement is concluded equals or exceeds R1-million. This means that credit agreements concluded with most companies, close corporations, partnerships and trusts will be excluded. (A juristic person under the Act includes a partnership and unincorporated association, but not a sole proprietor);
* when the consumer is either the State or an organ of State;
* if the agreement is a large agreement (mortgage agreement or other credit agreement (except a pawn transaction or credit guarantee) for a value above R250 000) and the consumer (borrower) is a juristic person whose asset value or annual turnover does not, at the time the agreement is concluded, exceed R1 m;
* when the credit provider is the SA Reserve Bank; and
* when the credit provider is situated outside the Republic. This exemption only applies upon successful application by the consumer (borrower) to the Minister.
Exclusion of Juristic Consumers
Over and above the exemptions above, certain sections of the Act are not applicable to juristic consumers (borrowers). These sections are those which deal with:
* over-indebtedness and reckless credit provisions (specifically the powers of Courts to suspend credit agreements and alleviate over-indebtedness). This means that credit providers are absolved from conducting in depth assessments when granting loans or credit to companies, CC's, partnerships, trusts etc.
* agreements determined to be unlawful (amongst others, concluded in terms of negative option marketing schemes - as addressed more fully at paragraph 3.4 hereof);
* illegality of variable interest rates, except if pegged to a reference rate such as the prime overdraft rate; and
* limitations on credit charges (particularly the prohibition on interest not exceeding the capital sum owing).
Incidental Credit Agreements
Incidental credit agreements also enjoy certain exemptions. An incidental credit agreement is any agreement in terms of which a charge is levied for payment of an invoice after a specific date, or where two prices are quoted to the consumer, the lesser applying if payment is made on or before a certain date, and the higher for payments thereafter. In other words, an extra charge is levied for 'late payment'.
Consumer Credit Institutions and Industry Regulation
The Act creates certain bodies to monitor and enforce its application, they are:
* The National Credit Regulator ("The Regulator"); and
* The National Consumer Tribunal ("The Tribunal").
Registration Of Credit Providers Top
All Credit Providers have to be registered with the Regulator if:
* they have concluded at least 100 credit agreements to which the Act applies (other than incidental credit agreements); or
* the total principal debt of all outstanding credit agreements concluded by the credit provider to which the Act applies (other than incidental credit agreements) exceeds R500,000.
Registration is peremptory if the credit provider falls into one of the categories above.
A credit provider that is required to be registered cannot extend credit to a consumer unless it is duly registered.
Any agreement concluded by such a credit provider while not registered is unlawful and accordingly potentially void and unenforceable.
Registration Of Debt Counsellors And Credit Bureaux
All credit bureaux and debt counsellors have to be registered with the Regulator. There is no additional qualification threshold as for credit providers. This is dealt with in more detail at paragraph 3.4 in this document.
Temporary Suspension Of Registration Requirement Of Credit Providers And Credit Bureaux.
A credit provider or credit bureau is required to register with the Regulator within 40 business days after the date upon which the Act comes into operation. During the first year of the Act being operative, this requirement will be temporarily satisfied with effect from the date upon which the credit provider applies for registration until the Regulator has issued a final decision with respect to that application. At present, it seems that registration must be applied for by 1 August 2006.
The Act does not compel a credit provider to enter into a credit agreement with a consumer. Rather, the consumer may not be refused credit if it complies with the reasonable commercial criteria that are consistent with the customary risk management and underwriting practices of the credit provider.
Consumer Credit Policy
Specific rights of consumers are entrenched. These are the:
* protection against discrimination in respect of credit;
* right to reasons for credit being refused;
* right to information in official language;
* right to information in plain and understandable language;
* right to receive documents.
National Credit Register
A National Credit Register ("the Register") may be established, under instruction from the Minister to the Regulator, which shall keep a record of all credit agreements. The registration requirement of credit agreements shall however only commence once the Minister has instructed the Regulator to create the Register.
Reporting Of Information To The Register Top
All credit providers (whether they are required to be registered or not) must report the following information to either the Register or a credit bureau when concluding or amending a credit agreement to which the Act applies:
* the credit provider's name, principal business address, and registration number (if any);
* the name, address and ID/ passport number/ registration number of the consumer;
* if the credit agreement is a credit facility, the credit limit and the expiry date of the facility;
* if the credit agreement is a credit transaction or credit guarantee, the following information must be provided:
* the principal debt;
* the particulars of previously existing credit agreements that were terminated or satisfied in connection with the making of the new agreement;
* the amount and payment schedule due under the agreement, and
* the date upon which the consumer will be released from its obligations in the event of the agreement having been fulfilled.
The credit provider must report the termination or fulfillment of all credit agreements concluded by it.
Credit Bureaux And Debt Counsellors
A credit bureau is defined as a person (other than a credit provider) who engages, for payment, in the business of receiving, compiling, maintaining or issuing reports on, or investigating:
* credit applications;
* credit agreements;
* payments history or patterns; or
* other consumer credit information relating to a person's credit history.
A debt counsellor, although not defined in the Act, must be a natural person. Debt counselling is utilised as an intermediary step in the enforcement of credit agreements. Before a credit provider can approach a Court or tribunal for assistance in the enforcement of the credit agreement, it has to first refer the consumer to a debt counsellor. This is addressed in more detail in paragraph 5 dealing with the enforcement of credit agreements.
* A debt counsellor may accept payment from a consumer for his/her services, but not from a credit provider.
* All credit bureaux and debt counsellors must be registered with the Regulator.
* Credit bureaux are required to report to the Register all information given to them.
The operation of credit bureaux is strictly regulated and they may hold only certain information relating to a consumer. Although regulated, every person has the right to the removal of records of debt adjustments or judgments, and the right to challenge credit records and information. The right to challenge information creates a potential difficulty for credit providers in that a credit bureau must immediately remove any information which is challenged for not less than 30 days while it attempts to verify the correctness thereof. Credit providers relying on the credit bureau's information while assessing the creditworthiness of a prospective borrower during such period will not have access to the adverse information listed against the borrower's name.
Negative Option Agreements
A credit provider may not make an offer or induce a consumer to enter into a credit agreement on the basis that the agreement will automatically come into existence unless the consumer declines the offer. This is known as a negative option, and agreements concluded upon this basis are unlawful and void. As stated in paragraph 1 .3 above, this prohibition does not apply to juristic consumers.
Offering credit at home or workplace Top
A credit provider may not offer unsolicited credit to a consumer at his/her home or workplace. There are certain exceptions to this prohibition.
The credit provider must ensure that its employees or agents are trained in respect of the matters to which the Act applies.
Over-Indebtedness And Reckless Credit Agreements
The provisions of the Act relating to these matters apply only to consumers who are natural persons.
Over-Indebtedness - a definition
A consumer is over-indebted if the preponderance of available information at the time a determination is made indicates that the particular 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.
Reckless Credit Agreement - a definition
A credit agreement is reckless if, at the time that the agreement was concluded, or when the amount approved in terms of the agreement is increased:
* the credit provider failed to conduct an assessment as required by the Act, irrespective of what the outcome of such an assessment might have been at the time;
* despite the credit provider having conducted an assessment, it concluded the agreement when the preponderance of information available to it indicated that:
- the consumer did not generally understand or appreciate the consumer's risks, costs or obligations under the proposed agreement; or
- entering into the agreement would render the consumer over-indebted.
Obligations of Credit Providers prior to the conclusion of Credit Agreements
Credit providers are obliged to take reasonable steps to assess the proposed consumer's:
* understanding and appreciation of the risks and costs of the proposed credit and of the rights and obligations of a consumer under the proposed credit agreement;
* debt re-payment history as a consumer under credit agreements;
* existing financial means, prospects and obligations;
* whether there is any reasonable basis to conclude that any commercial purpose may prove to be successful, if the consumer has such a purpose for applying for that credit agreement (e.g. setting up a business enterprise).
Consumers must provide credit providers with correct information. Where the consumer does not truthfully provide the information requested by the credit provider, this constitutes a complete defence to any allegation that a credit agreement is reckless. We do not believe that the credit provider may simply rely blindly on patently incorrect information given to it by the consumer.
Unenforceability of Reckless Credit Agreements
A court which finds a credit agreement to be reckless may set aside all or part of the consumer’s obligations in terms of the agreement, or suspend the agreement, or make any other order it determines to be just and equitable.
If a credit agreement is suspended, no interest may run against the consumer under the agreement for the period of suspension.
Any credit agreement that does not comply with the requirements of the Act is unlawful.
Conclusion and Administration of Consumer
Quote before extending credit
A credit provider must provide a written pre-agreement (or quote) to the consumer before the prospective credit agreement is concluded.
Consumer must be supplied with a copy of the Credit Agreement A copy of any credit agreement concluded must be delivered to the consumer, without charge, in paper form or in printable electronic form.
Interest, Charges And Fees (Not Applicable To Juristic Consumers)
Prices of cash versus credit sales Top
No differentiation may be made between the costs of goods or services purchased/ rendered on credit versus cash. In other words, a credit provider may not offer goods at a lower price if they are paid for in cash than goods purchased on credit. This must not be confused with a credit provider allowing a discount to a consumer on a credit agreement, which is allowed.
Regulation of interest charges
* Interest rates and other charges are capped in terms of regulations promulgated by the Minister.
* The interest levied on the principal debt may not exceed the value of the principal debt.
* An interest rate may not vary unless it is pegged to a determinable reference rate, such as the prime overdraft rate.
* Any change of interest rate, credit fee charge or frequency or time of payment of a credit fee charge will not be allowed unless the credit provider has delivered written notice thereof to the consumer.
Statements Of Account
A credit provider is required to provide a monthly statement of account in respect of each credit agreement concluded between it and the consumer. Standardised forms are provided by the Regulator to facilitate uniformity.
Aside from the obligation to provide monthly statements, credit providers must, at the request of a consumer and without charge, provide a statement of all or any of the:
* current balance of account;
* amounts debited or credited during a period specified in the request;
* any amounts currently overdue; and
* any amounts currently payable.
Manner of provision of additional statements Top
The statement must be provided within 10 days of it having been requested if the information requested relates to a period of one year or less prior to the date upon which the request is made. If such period exceeds one year, the statement must be provided within 20 days of the request.
The statements may be provided orally per telephone, or via email, SMS or fax.
The credit provider is, however, only obliged to provide such statement if a period of not less than three months has elapsed since the last date upon which a statement was provided to the consumer.
Where a credit provider believes that a consumer's requests for statements are frivolous or vexatious, it may apply to the Tribunal for an order limiting the credit provider's obligations relating to the provision of the statements.
Termination And Rescission Of Credit Agreements
Any lease of movable property or instalment agreement concluded at any location other than the registered business premises of the credit provider may be terminated by the consumer within 5 business days after the date upon which the agreement was signed.
A consumer may terminate any other credit agreement by:
* at any time paying the settlement amount to the credit provider; or
* surrendering to the credit provider the goods that are the subject of that agreement (this section only applies to instalment agreements and secured loans or leases); or
* paying the remaining amount demanded if the goods are returned and sold by the credit provider, and the amount realised does not satisfy the outstanding debt.
A consumer is entitled to settle the amount due under the credit agreement at any time, with or without advance notice to the credit provider. The settlement amount comprises the unpaid balance of the principal debt plus the unpaid interest charges and all other fees and charges payable by the consumer up to the settlement date.
A credit provider may only terminate a credit agreement (which is not a credit facility) in the manner indicated in paragraph 5 below.
A credit provider may suspend a credit facility if a consumer is in default under the agreement or close the facility if 10 days’ written notice is given to the consumer.
Application Of Act To Pre-Existing Agreements
* In respect of any credit agreement to which the Act applies and which was concluded within 1 year before the date upon which the Act comes into effect, the credit provider must, within 6 months after such date, provide the consumer with:
* a statement; and
* a written copy of the credit agreement.
* Credit providers may apply to the Regulator for deadline extensions where they believe that such extensions are necessary.
Collection, Repayment, Surrender and Debt Enforcement
Debt Enforcement By Repossession Or Judgment
A consumer may apply to a debt counsellor for a review of the credit agreements to which he, she or it is a party. The debt counsellor shall then determine whether any credit agreements concluded by the consumer are reckless and make the appropriate recommendation to a relevant court.
* The debt counsellor must notify all credit providers that are listed in the application for debt review, as well as every registered credit bureau, of the review application.
* A credit provider may not enforce an agreement under review until the review process is concluded. Despite the availability of certain procedures to the credit provider to bring about the early conclusion of the debt review, the ability of the credit provider to enforce agreements remains severely restricted.
Compulsory referral to debt counsellor prior to approaching a Court or Tribunal
* A credit provider must refer a consumer to debt counselling before it is entitled to take legal steps to enforce a credit
agreement to which the Act applies or re-possess the goods sold thereunder.
* Only when a credit provider has referred a consumer to a debt counsellor, and the consumer has not responded for a period of 10 business days to the debt counsellor's notification to the consumer of the referral, and the consumer is in default of the credit agreement for a period of at least 20 business days, may the credit provider approach a court for relief.
* There is therefore an intermediary procedure which the credit provider is compelled to embark upon before it can enforce the terms of the credit agreement. The efficacy and duration of the procedure will largely depend upon the efficiency and level of administration of the debt counsellor's office. This again will have serious implications for the ability of credit providers to recover outstanding debt.
Only a Court can void a Credit Agreement
Only an order of Court can render void a credit agreement or a provision thereof.
Dispute Settlement other than Debt Enforcement
* Any person, not only the parties to a credit agreement, may initiate a complaint to the Regulator. The Regulator may also initiate a complaint in its own name, to the Tribunal.
* Ombuds (Particularly the Credit Ombud), consumer courts and alternative dispute resolution agents may hear complaints arising from the application of the Act.
* The Regulator has the power to refer any matter to the National Prosecuting Authority where it believes that an offence in terms of the Act has been committed.
* Tribunal hearings will follow similar procedures and platforms to the CCMA.
* No complaint may be referred to the Tribunal or to a consumer court more than three years after the cause of the complaint arose.