NATIONAL CREDIT ACT
The National Credit Act 34 of 2005 (“the act”) comprises of various legally binding aspects enticing both consumers and credit providers which includes, amongst others, credit agreements, incidental credit agreements, credit applications, exclusions from the act, reckless credit, registration as a credit provider with the National Credit Regulator, Credit Law and the consequences of non-registration.
It is strongly advised that any provider of credit should provide a written application for credit to be completed by any prospective consumer as a failure by the credit provider in such regard may result in severe hardship and financial loss to the credit provider.
Credit Law states that one of the main purposes of a written credit application is to enable a credit provider to obtain, amongst others, sufficient information and background of the consumer to enable the credit provider to accordingly determine whether credit can indeed be provided to such prospective consumer within the ambit of the act and to timeously ensure that it has met the requirements to prevent the pitfall of reckless credit.
Section 80(1) of the act provides that if (a) the credit provider failed to conduct an assessment as set out in section 81(2) of the act or (b) the credit provider after conducting such assessment, entered into a credit agreement with a consumer despite the fact that the information available indicated that the consumer (i) did not understand or appreciate the risks, costs or obligations under the proposed credit agreement or (ii) entering into that credit agreement would make the consumer over-indebted, the credit agreement is reckless.
In terms of section 81(2) of the act the credit provider must not enter into a credit agreement without taking reasonable steps to assess the following criteria, which criteria can to a large be canvassed in a credit application:
- the consumer’s general understanding and appreciation of the risks, costs, rights and obligations under the credit agreement;
- the consumer’s debt repayment history;
- the existing financial means, prospects and obligations of the proposed consumer.
A credit provider is required by Credit Law to conduct a further assessment in determining whether there is a reasonable basis to conclude that any commercial purpose may prove to be successful if such commercial purpose, if any, is the reason for a consumer’s application for credit.
Therefore the obligations of the credit provider, as aforesaid, comes into existence when any consumer applies for credit and diligent compliance therewith should prevent reckless credit being granted by a credit provider should such assessment be done ‘reasonably and not irrationally’.
A credit provider would be advised to develop its own procedures and/or policies in preparation of its credit application to ensure a fair and just subsequent assessment relevant to the specific credit provided to ensure compliance as courts have held that ‘reasonable steps’ alone won’t suffice and should an assessment specific to the consumer’s circumstances, therefore, be thoroughly canvassed in the credit application.
In the event of reckless credit being granted by a credit provider as a result of non-compliance with sections 80(1) and 81(2) of the act, a consumer might raise reckless credit as a defence to any legal proceedings instituted to enforce a credit agreement or approach the National Consumer Tribunal or court to have a credit agreement declared reckless.
In the event of the consumer being successful in proving that a credit agreement was concluded recklessly, such court or tribunal may in terms of section 83(2) of the act make an order setting aside all or part of the consumer’s rights and obligations under that agreement or suspend the force and effect of that credit agreement.
Section 40 of the act requires that a credit provider is registered as such with the National Credit Regulator in the event of the total principal debt owed to credit provider exceeding the threshold determined by the Minister of Trade and Industry from time to time. Prior to the recent amendment published on 11 May 2016, a provider of credit had to register as a credit provider with the National Credit Regulator if it provided credit in relation to 100 or more credit agreements or the principal debt owed to such provider of credit exceeded R500 000.00. The amendment of the aforesaid threshold published on 11 May 2016, however, came into effect as from 11 November 2016 in terms whereof any provider of credit of more than R0 (nil) is required to register as a credit provider.
The aforesaid does however not result in an obligation of a provider of credit to be registered for each and every transaction it deals with as some exceptions to the aforesaid provisions do exist and will the following factors, amongst others, have an imperative effect in determining whether registration with the National Credit Regulator is indeed required:
- Whether the transaction in question will be concluded and/or have an effect within South Africa;
- Whether the transaction will constitute an incidental credit agreement;
- Whether the transaction will be seen as a credit agreement and/or credit transaction and whether the provider of the credit will fall within the definition of a credit provider as defined in the act;
- Whether the exceptions in section 4 of the act will apply to the transaction;
- Whether the parties will be handling the transaction “at arm’s length”.
The National Credit Regulator requires certain personal- and/or entity information which includes, amongst others, detailed financial information, criminal screening confirmation and credit status to be completed as part of the application process and supplemented by required supporting documentation. It is further required that a proof of payment for the application fee, branch fee (per location/premises) and a category fee payable in accordance with the act (based on the principal debt owed to the credit provider) be submitted with the application for registration. Penalties for late registrations will also and be payable by a credit provider prior to registration.
It usually takes 10 to 12 weeks for the registration from date of formal submission with the National Credit Regulator, should no further queries and/or supplementary registrations be required by the said regulator.
Should a credit provider be required to register as such with the National Credit Regulator in accordance with the act and fail to do so, credit agreements and/or transactions concluded and/or conducted in such unregistered capacity may result in such agreement and/or transaction being declared void, unlawful and unenforceable.