Unlawful Credit Agreements: Is My Loan Legal in South Africa?

Credit cards, store accounts, vehicle finance and personal loans are part of everyday life in South Africa. But what happens if the credit agreement you signed does not comply with the law?

The National Credit Act (NCA) was introduced to regulate the credit industry and protect consumers from unfair and unlawful credit practices. It sets rules for credit providers and consumers and can have serious consequences when those rules are broken.

But there is an important distinction: not every problem with a credit agreement makes the entire agreement unlawful.

Here is what ordinary South Africans need to know.

What is a Credit Agreement?

A credit agreement is broadly an agreement covered by the NCA in which credit is provided to a consumer. This can include things such as a credit facility, instalment agreement, lease or credit transaction, depending on the circumstances.

Examples can include:

The NCA applies to credit agreements that fall within its scope, although there are exceptions and exclusions.

When Can a Credit Agreement Be Unlawful?

Section 89 of the NCA identifies circumstances in which a credit agreement is unlawful.

This can include situations where:

1. The Credit Provider Was Required to Be Registered but Wasn’t

A credit provider that is required to register under the NCA may not provide credit without registration.

The registration threshold for credit providers was set at R0, meaning the registration requirement is extremely broad. However, there are statutory exceptions and exclusions, so it is not technically correct to say that every person who ever lends money must automatically register with the NCR.

Where the NCA requires registration and the credit provider was unregistered when the agreement was concluded, the agreement can be unlawful under section 89. The Supreme Court of Appeal confirmed in 2025 that such an agreement is unlawful by operation of law and can be void from the outset.

2. The Consumer Was an Unemancipated Minor

A credit agreement can be unlawful where, at the time it was made, the consumer was an unemancipated minor who was not assisted by a guardian.

It is therefore too simplistic to say that every agreement signed by somebody under 18 is automatically unlawful. The exact circumstances and the NCA’s requirements matter.

3. The Consumer Was Subject to a Court Order Finding Them Mentally Unfit

Section 89 also deals with a consumer who was subject to an order of a competent court holding that person to be mentally unfit when the agreement was made.

This is more specific than simply saying that someone “didn’t understand the contract”. A person’s ordinary lack of understanding or financial sophistication does not, by itself, make a credit agreement unlawful under this provision. (SAFLII)

4. The Consumer Was Under an Administration Order

An agreement can also be unlawful where the consumer was subject to an administration order under the Magistrates’ Courts Act, the administrator did not consent to the agreement, and the credit provider knew or could reasonably have determined that the consumer was subject to the order.

5. The Credit Provider Had Been Ordered to Stop Providing Credit

Section 89 also covers circumstances where the credit provider was subject to a notice from the National Credit Regulator or a provincial credit regulator requiring it to stop offering, making available or extending credit, and the relevant appeal or review process had been exhausted.

What About Sneaky “Opt-Out” Credit Offers?

The NCA also prohibits certain forms of negative-option marketing.

In simple terms, a credit provider cannot make a prohibited credit offer that effectively becomes an agreement merely because the consumer fails to reject it.

This is different from an ordinary credit agreement that a consumer actively applies for and signs.

Importantly, section 74 is not a blanket rule saying that every automatically offered extra service, fee or credit-limit change makes an entire credit agreement unlawful. The actual circumstances must be examined.

Where a credit agreement results from an offer prohibited by section 74(1), section 89 treats that agreement as unlawful.

What Happens When a Credit Agreement Is Unlawful?

This is where things get interesting.

If a credit agreement is unlawful under section 89, a court must make a just and equitable order, which can include declaring the agreement void from the date it was entered into.

The Supreme Court of Appeal has confirmed that an agreement falling within section 89 can be unlawful from the outset rather than only becoming unlawful later.

But there is a very important catch.

It Does NOT Automatically Mean You Get Free Money

If you borrowed R50,000, you cannot assume that an unlawful credit agreement means you get to keep the R50,000 and walk away.

South African law recognises that, depending on the circumstances, a credit provider may have a common-law claim based on unjustified enrichment for money or value that was actually transferred to the consumer.

In other words, the contractual agreement may be unenforceable, but that does not necessarily mean the consumer can keep the benefit received without any possibility of repayment.

The consequences depend on the particular facts and the order made by the court.

What If Only One Clause Is Illegal?

This is another important distinction.

A credit agreement can contain an unlawful provision without the entire agreement necessarily being unlawful.

Section 90 deals with unlawful provisions. For example, a term that attempts to defeat the purposes or policies of the NCA can potentially be unlawful.

Section 90(3) provides that an unlawful provision is void from the date it purported to take effect. A court can then consider whether the unlawful provision should be severed from the agreement or whether, in the circumstances, the entire agreement should be declared unlawful.

So don’t assume that one dodgy clause automatically wipes out your entire loan.

What About Excessive Interest and Fees?

The NCA and its regulations place limits and requirements on interest, fees and other charges that can be imposed under regulated credit agreements.

If you believe a lender is charging amounts that are not permitted by the NCA or regulations, that does not automatically mean that your entire credit agreement disappears.

The specific charge or provision must be examined against the applicable NCA rules, the type of credit agreement and the circumstances.

What About Reckless Credit?

There is another important protection that should not be confused with an unlawful credit agreement.

The NCA prohibits reckless credit.

Before entering into a regulated credit agreement, a credit provider generally has to take reasonable steps to assess matters including the consumer’s understanding of the risks and costs of the proposed credit, repayment history, existing financial means, prospects and obligations.

If a credit provider fails to carry out the required assessment, or enters into credit despite the circumstances meeting the NCA’s definition of reckless credit, different legal consequences can apply.

Reckless credit and an unlawful credit agreement are not the same thing.

So, What Should You Do?

Before signing a loan, credit-card application or store account, check who you are dealing with.

Look for the credit provider’s NCR registration details where registration is required, and read the agreement carefully.

Pay particular attention to:

If something looks suspicious, don’t simply stop paying because you believe the agreement is unlawful.

Get proper advice and have the agreement assessed against the NCA and the circumstances of your particular case.

Know Your Rights Before You Sign

The National Credit Act gives South African consumers important protections, but those protections are often misunderstood.

An unregistered credit provider that is legally required to be registered can face serious consequences. Certain credit agreements can be unlawful from the outset, while an unlawful clause does not necessarily make the whole agreement unlawful.

And perhaps most importantly, an unlawful credit agreement does not automatically mean the consumer gets to keep borrowed money or goods for free.

If you suspect that your loan, credit card, store account or other credit agreement may breach the NCA, get professional advice before taking action.

Know the rules. Know your rights. And don’t sign a credit agreement you don’t understand.

Need Help Navigating Credit Agreements?

Contact us! Our experienced team can explain your rights and obligations under the NCA. We can help you understand complex agreements and ensure you enter into credit deals with confidence.