BER 210

SU6 Credit agreement

CREDIT LAW
HISTORICAL BACKGROUND
- Credit plays an important role in the economy.

- Credit is money that is lent and borrowed as monetary loan or as any part of the purchase or lease price of
goods or services not paid immediately, but deferred for later settlement.

- The main aim of consumer credit legislation is to protect the consumer from exploitation.

- The objectives of this type of legislation can be summarized as follows:

- (a) It must address the imbalance between the bargaining power of credit granters and consumers interalia by
requiring disclosure of consumer obligations.

- (b) It must combat malpractices in the commercial world by identifying and prohibiting them with the necessary
sanctions.

- (C) It must limit the free exercise of legal remedies.

CREDIT LAW
Consumer Credit Legislation

- Usury Act 1926 was the first attempt to consolidate consumer credit laws on a national basis.

- The Act applied to money lending transactions only, which meant that instalment transactions relating
movable goods were not statutorily regulated.

- Hire-Purchase Act 36 of 1942 addressed the need to protect consumers who concluded instalment
contracts.
- The National Credit Act 34 of 2005 is the main legislation that is currently applicable in respect of credit
agreement.
- The National repealed the Credit Agreements Act and the Usury Act and came into operation in 2006.
- Alienation of Land Act is still application in respect of contract on the purchase of land.
CREDIT AGREEMENT
12.12 – 12.20

- Read par 12.01 – 12.11 for background.

- Credit provider: entity/business that grants credit to consumer and supplies goods and
services;
- Consumer: recipient of goods and services.

Application of NCA
- Every credit agreement concluded at arm’s length;
- Made within the Republic;
- If NCA doesn’t apply = common law rule applies.
CREDIT AGREEMENT
12.12 – 12.20

Application of NCA
- Applies to credit provider whether in or outside SA;
- Entity is an organ of state;
- Entity created by public regulation;
- Credit provider is the Land and Agricultural Development Bank.
Credit Agreement
CREDIT AGREEMENT

An agreement constitute a Credit Agreement to which the Act applies if it qualifies as a:

• credit facility, credit transaction, a credit guarantee or a combination thereof.

1 Credit facility:

(a). An agreement constitute a credit facility if a credit provider undertakes to supply goods or services or to pay an amount
or amounts to a customer.

(b) To either:
(I) defer payment of the cost( or part thereof) of such goods or services or to defer repayment of any part of such amount.

(II) Bill the consumer periodically for any part of such costs or amount and

any charge, fee or interest is payable to the credit provider in respect of such agreement, deferred payment or amount
billed and not paid within the time provided in the agreement.
Credit agreement
Examples:

- Credit facility = revolving credit

- Revolving credit: credit account where money is borrowed subject to set limit. Consumer can pay back
at any time.
- Example of credit facility: credit card; instore card.

_ The difference between a credit facility and an instalment agreement that is also a contract of sale of
movable goods and lies in the transfer of ownership.

- The definition of an instalment agreement requires the agreement between the parties to address the
issue of transfer of ownership.

- The definition of a credit facility does not have a similar requirement.

CREDIT AGREEMENT
12.12 – 12.20

2 Credit transactions
- Pawn transaction: These are agreements in terms of which a party advances money or
grants credit to another and takes possession of goods as a security for the money
advanced or credit granted.

- Either the estimated resale value of the goods exceeds the value of the money advanced
or credit granted or a charge, fee, or interest imposed.

- On expiry of a defined period the party who took possession of the goods as security is
entitled to sell the goods and retain all the proceeds of the sale in settlement of the
consumer’s obligations.

- .
CREDIT AGREEMENT
CREDIT TRANSACTIONS

Discount Transactions : These are agreements in terms of which goods or services are to be provided to a
consumer over a period of time and where a lower and a higher price is quoted for the goods or services.

_ The lower price is payable if the account is settled on or before a determined date.

- If payment occurs after that date or is paid periodically, during the period, the higher price(s) will apply.
Credit Agreement
Credit Transactions

Instalment Agreements : These entail the sale of movable property where payment of the price or part
thereof is deferred.

- The contract either contains an ownership reservation clause in terms of which the consumer becomes
the owner of the property, once the contract is fully complied with.
- Or it allows the ownership to pass to the consumer immediately subject to the right of the credit provider
to repossess the property.

- For example cars are usually bought on this type of credit agreement.
Credit Agreement
Credit Transactions

- Mortgage agreement: registration of mortgage bond by registrar of deeds over immovable property.

- Secured loans: money/credit is advanced + creditor retains a pledge over moveable property.

- Lease: consumer has temporary use of movable property is delivered to the consumer.

- At the end of the term of the agreement, ownership of the property either passes to the consumer
absolutely or on satisfaction of a certain condition set out in the agreement.
Credit Agreement
Credit Transactions

Incidental Credit: These are agreements in terms of which an account was tendered for goods or services
that have been provided to the consumer( for goods or services that are to be provided to a consumer over
a period of time).

The following conditions apply:

(i) A fee, charge or interest became payable when payment of an amount charged in terms of that
account was not made on or before a determined period or date.

(i) A lower or higher price was quoted for the settlement of the account. If the account is settled on or
before a determined date, the lower price applies. After that date, the higher price will be payable.
Credit Agreement
Credit Transactions

Incidental Credit agreement:

Where the initial agreement is not a credit agreement but
becomes one because an account becomes overdue.

o Example: If you have 30 days to pay your account after you visited your doctor.
If you don’t pay your account, it becomes an incidental credit agreement and
interest may be charged .
-and the NCA will be applicable.
CREDIT AGREEMENT
12.20

Other agreement

- Agreement between consumer and credit provider;

- Fixed sum of money;
- Payment deferred + interest charged.

- Example: bank loan and Acknowledgement of debt.

CREDIT AGREEMENT
12.21

Credit guarantee
- Person undertakes to satisfy an obligation of another in terms of a credit transaction.
- Suretyship
CREDIT AGREEMENT
Credit Guarantee

-An agreement constitute a credit guarantee if a person in terms thereof undertakes or promises to satisfy
on demand any obligation of another in terms of a credit facility or a credit transactions to which the Act
applies.

- Certain suretyship agreements are therefore covered by this Act as well.

- The Act applies to a credit guarantee to the extent that it applies to the credit facility or credit transaction
in respect of which the credit guarantee is granted.

- Should a credit guarantee thus be concluded with regard to a lease of immovable goods , the Act does
not apply to the credit guarantee due to the fact that the Act does not apply to the lease.
CREDIT AGREEMENT
Credit agreements:

1 Small credit agreements

These are pawn transactions, a credit facility with a limit of R15000 or below or any other credit
transactions( except mortgage agreement) with a principal debt of R15000.

2 Intermediate credit agreements

Any credit facility with a credit limit of R15 000 and R250 000 or any credit transaction(except pawn
transaction or a mortgage agreement ) with a principal debt above 15000 and below 250000.

3 Large credit agreements:

Mortgage agreement or other credit transactions (except pawn transactions) with a principal debt of
250000 or above.
CREDIT AGREEMENT
12.25

Transactions specifically excluded

A. Shareholder loan agreement between consumer and credit provider where credit
provider has a controlling interest.

A. Parties are in familial relationship to each other.

A. Agreement where parties are not independent of each other. Employer v employee.
B. Lease of immovable property
C. Stokvel
D. Policy of insurance
E. Agreement where consumer is a juristic person with an asset value less than R1
million.
Credit Agreements
Unlawful consumer Credit Agreements

A credit agreement is unlawful if it interalia :

1. Was concluded with an unemancipated minor consumer who was not assisted by a guardian.

2. Is an agreement with the consumer subject to a court order holding him or her to be mentally unfit.

3. Is an agreement with the consumer subject an administration order in terms of section 74 of the
Magistrate Court Act 32 of 1944 and the administrator did not consent to the agreement.
4. results from a negative option marketing.
5. Was concluded by an unregistered credit provider.
Credit Agreements
Formalities

- The NCA states that an agreement, irrespective of its form, interalia, constitute a credit facility or credit
transaction.

- The NCA is not clear as far as writing as formality is concerned.

- However, the Act obliges the credit provider to deliver to the consumer, free of charge, a copy of a
document that records their credit agreement.

- The copy has to be transmitted to the consumer in a paper form and in printable electronic form e,g
email.
- It is therefore clear that credit agreements have to be reduced to writing should they be concluded
orally.

- The Act contains no requirements regarding signature.

Consumer Credit Institutions
The Regulator and the Tribunal

-The NCA establishes the National Credit regulator and the Consumer Tribunal.

- The primary function of the regulator are to enforce the Act and to regulate the consumer credit industry.

- The Tribunal may adjudicate in relation to any application in terms of the Act and also make any order
provided for in the Act in respect of such application.
- It may also adjudicate in respect of any allegation of prohibited conduct and also impose a remedy
provided for in the Act.