When does the National Credit Act apply?

The objective of the National Credit Act No. 34 of 2005 (“the Act”) is, amongst other, to:

• promote the social and economic well-being of South African residents;
• to promote a fair, transparent, competitive, sustainable, responsible, effective and accessible credit market; and
• to protect consumers.

The onus is on credit providers to ensure compliance with the requirements of the Act. It is therefore important to know who is a credit provider and when the requirements of the Act must be met.

The Act:

The Act, with certain exemptions, regulates all credit provided to consumers by credit providers under a credit agreement within the Republic of South Africa. Section 8 of the Act defines what a “consumer” and a “credit agreement” are.

“Consumer”

The Act defines a consumer as all natural persons as well as certain legal entities. Only legal entities that qualify as small businesses (companies with an asset value or annual turnover of less than R1 million) will enjoy protection as a consumer in terms of the Act. Specifically excluded from the definition of a consumer are organs of state.

“Credit Agreement”

In terms of the Act, an agreement must have two features before it qualifies as a credit agreement, namely:

• There must be some form of postponement of payment or there must be some form of prepayment; and
• The credit provider must impose a fee, charge or interest with reference to the deferred payment, or the credit provider must provide a discount with reference to the prepayment.

However, the Act distinguishes between three types of credit agreements, namely:

1. a credit facility, e.g. A credit card;
2. a credit transaction, e.g. A mortgage loan;
3. a credit guarantee; or

Any combination of the above.

Registration as a credit provider

The Act requires persons to register as a credit provider if the principal debt under all outstanding credit agreements exceeds the prescribed limit. This limit was R 500 000 at the promulgation of the Act but was amended with effect since 11 November  2016, where the monetary limit was reduced to zero.

However, this does not mean that every person or business has to register as a credit provider. The following must still be taken into account:

• Is it a credit agreement as defined in terms of the Act?
• Is the credit agreement concluded or effective within the borders of the Republic of South Africa?
• Does any of the possible exclusions apply e.g. credit is provided to a legal entity with an asset value of R1 million or more and thus does not qualify as a consumer?

Requirements in terms of the Act:

When a credit provider provides credit to a consumer in terms of a credit agreement, the Act requires the credit provider to comply with certain requirements. The credit provider must –

• Provide a quotation to the consumer with all the costs of the credit (in other words, monthly administration fee, interest rate as well as one-off costs).
• Determine if the consumer can afford the credit (reckless credit test).
• Provide a written agreement to the consumer containing all the prescribed terms of the Act.
• Do not charge fees and interest exceeding the prescribed maximum.
• Interest calculated in terms of the Act and according to the rules of the Act.
• Provide regular statements of the account to the consumer.
• Comply with the requirements of the Act when a consumer fails to comply with the terms of the credit agreement (in other words, the prescribed procedure for letters of demand, etc.).

If a credit provider fails to register in terms of the Act or fails to comply with the requirements of the Act, the credit agreement may be declared unlawful and invalid. It is therefore important for credit providers to comply with the requirements of the Act.