The usage of credit among South Africans is insurmountable. The vast majority of our people are making use of some form of credit whether it is by way of clothing account credit cards, personal loans or credit cards provided by banking institutions etc. The National Credit Act 34 of 2005 (from now on referred to as “the NCA”) sets out to regulate and uphold a healthy and stable credit market in South Africa by alleviating any form of unequal bargaining power of consumers, to curtail malpractice in all relevant sectors and to regulate contractual remedies that are associated with credit agreements.
For an agreement to be classified as a ‘credit agreement’, as prescribed by the NCA, money must have been lent, and payment of that amount is deferred. It is owed by one person to another, and interest is duly added to the amount of money lent (the interest being the fee for the ‘privilege’ or ‘favour’ to lend money).
Section 89(2) of the NCA prescribes the instances in which a credit agreement is unlawful. The following agreements constitute an unlawful agreement:
- Agreements where the consumer lacks the mental capacity to agree;
- Agreements entered into by a minor;
- Agreements where the consumer’s estate is under administration and the consumer did not get the required consent from the administrator;
- Agreements concluded by an unregistered credit provider;
- Agreements concluded by a credit provider who is subject to final notice from the National Credit Regulator to withdraw from the credit market; and
- Agreements which entail negative option marketing.
In the instance that any agreements entered into is found to be unlawful, the Court or Tribunal may make the following orders:
- The agreement may be rendered void;
- None of the parties may claim performance;
- The consumer’s money is to be refunded;
- Rights of the credit provider to recover funds from the consumer are to be cancelled; or
- The Court can dilute any form of a wrongful act to avoid injustice between the parties.
Considering the aforesaid, it is to everyone’s advantage to understand what constitutes an unlawful credit agreement as provided for by the NCA to avoid sticky situations with credit providers. It is also imperative that credit providers understand how to operate within the confines of the law thus ensuring compliance and adherence to the NCA and any additional legislation that may find application in credit agreements.
Should you require assistance entering a credit agreement or providing credit, do not hesitate to contact us.