Tag Archives: National Credit Act

Consumer Law

THE INTERPLAY BETWEEN THE CONSUMER PROTECTION ACT AND THE NATIONAL CREDIT ACT, AND THE POSSIBILITY OF PENALTIES WITH EARLY SETTLEMENT OF CREDIT AGREEMENTS

A4_BMr Black buys a BMW car in terms of a hire purchase agreement and the financing is done through BMW Finance. After a few months Mr Black inherits a huge sum of money and decides that he wants to settle the outstanding amount. Mr Black’s concern is whether the credit provider is entitled to charge a penalty fee for early settlement of the outstanding finance amount.

The first step in answering the abovementioned question will be to determine which laws regulate the situation. The legislation that applies here will be the National Credit Act 34 of 2005 and the Consumer Protection Act 68 of 2008.

In the above scenario a distinction should be drawn between the scope of each of these Acts, as the one pertains to the credit agreement itself and the other to the goods, being the BMW car. Section 5 of the Consumer Protection Act lists the situations in which this Act will apply. Section 5(2)(d) is of particular interest to Mr Black as it excludes credit agreements which are regulated by the National Credit Act. However, the goods or services provided in terms of the credit agreement are included and will be regulated by the Consumer Protection Act, whereas credit agreements as contemplated in the National Credit Act, specifically section 8(4)(c), includes hire purchase agreements (instalment agreements) in the ambit of the National Credit Act.

Mr Black’s situation illustrates the position as stated in Article 5(2)(d) of the Consumer Protection Act. The implication of this section is that all credit agreements that are subject to the National Credit Act will be governed by the National Credit Act, but the goods and services in terms of the agreement will fall within the scope of the Consumer Protection Act. It is here that the above acts overlap with each other. The overlap actually lies in that both acts can apply to one agreement. The credit agreement must comply with the National Credit Act, but the goods and services must comply with the Consumer Protection Act. If there is a defect in the quality of the goods or the service the Consumer Protection Act will provide the appropriate remedy, but if it is about the credit agreement itself, then the National Credit Act will apply.

Section 2(9) of the Consumer Protection Act deals with the interpretation of the Act and more specifically on how the law has to be interpreted in cases where there are discrepancies between the Consumer Protection Act and any other law. The Consumer Protection Act should be read in harmony with other legislation as far as possible, but if it is not possible, then the law that offers the most protection to the consumer shall apply.

The two sections in the National Credit Act which deals with the early settlement of credit agreements are sections 122 and 125 of the Act. According to section 122 of the National Credit Act, a consumer may terminate the credit agreement at any time. The consumer can do this by paying the settlement amount as calculated in accordance with section 125 of the National Credit Act.

Section 125 states that a consumer is entitled to cancel a credit agreement at any time with or without prior notice to the credit provider. The settlement amount will be the sum of the following amounts:

  • The outstanding balance of the principal debt / capital amount.
  • All rates and charges up to and including the settlement date. For example, if the outstanding amount can be settled after 3 months, then 3 months’ interest would be charged. The interest will be calculated on the principal amount borrowed.

In the case of a large credit agreement (R250 000.00 or more) the outstanding amount will be calculated as above, but with additional interest, known as an early settlement fee. The fee may not exceed an amount equal to three months’ interest on the capital amount. 

Conclusion:

Therefore, if the BMW that Mr Black bought was worth more than R250 000.00 the credit provider will be entitled to charge a penalty fee of not more than 3 months’ interest on the capital amount. In the event that the purchased item’s worth is less than R250 000.00 the credit provider will not be entitled to charge a penalty fee.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice.

Consumer Law, Uncategorized

THE INTERPLAY BETWEEN THE CONSUMER PROTECTION ACT AND THE NATIONAL CREDIT ACT, AND THE POSSIBILITY OF PENALTIES WITH EARLY SETTLEMENT OF CREDIT AGREEMENTS

A4Mr Black buys a BMW car in terms of a hire purchase agreement and the financing is done through BMW Finance. After a few months Mr Black inherits a huge sum of money and decides that he wants to settle the outstanding amount. Mr Black’s concern is whether the credit provider is entitled to charge a penalty fee for early settlement of the outstanding finance amount.

The first step in answering the abovementioned question will be to determine which laws regulate the situation. The legislation that applies here will be the National Credit Act 34 of 2005 and the Consumer Protection Act 68 of 2008.

In the above scenario a distinction should be drawn between the scope of each of these Acts, as the one pertains to the credit agreement itself and the other to the goods, being the BMW car. Section 5 of the Consumer Protection Act lists the situations in which this Act will apply. Section 5(2)(d) is of particular interest to Mr Black as it excludes credit agreements which are regulated by the National Credit Act. However, the goods or services provided in terms of the credit agreement are included and will be regulated by the Consumer Protection Act, whereas credit agreements as contemplated in the National Credit Act, specifically section 8(4)(c), includes hire purchase agreements (instalment agreements) in the ambit of the National Credit Act.

Mr Black’s situation illustrates the position as stated in Article 5(2)(d) of the Consumer Protection Act. The implication of this section is that all credit agreements that are subject to the National Credit Act will be governed by the National Credit Act, but the goods and services in terms of the agreement will fall within the scope of the Consumer Protection Act. It is here that the above acts overlap with each other. The overlap actually lies in that both acts can apply to one agreement. The credit agreement must comply with the National Credit Act, but the goods and services must comply with the Consumer Protection Act. If there is a defect in the quality of the goods or the service the Consumer Protection Act will provide the appropriate remedy, but if it is about the credit agreement itself, then the National Credit Act will apply.

Section 2(9) of the Consumer Protection Act deals with the interpretation of the Act and more specifically on how the law has to be interpreted in cases where there are discrepancies between the Consumer Protection Act and any other law. The Consumer Protection Act should be read in harmony with other legislation as far as possible, but if it is not possible, then the law that offers the most protection to the consumer shall apply.

The two sections in the National Credit Act which deals with the early settlement of credit agreements are sections 122 and 125 of the Act. According to section 122 of the National Credit Act, a consumer may terminate the credit agreement at any time. The consumer can do this by paying the settlement amount as calculated in accordance with section 125 of the National Credit Act.

Section 125 states that a consumer is entitled to cancel a credit agreement at any time with or without prior notice to the credit provider. The settlement amount will be the sum of the following amounts:

  • The outstanding balance of the principal debt / capital amount.
  • All rates and charges up to and including the settlement date. For example, if the outstanding amount can be settled after 3 months, then 3 months’ interest would be charged. The interest will be calculated on the principal amount borrowed.

In the case of a large credit agreement (R250 000.00 or more) the outstanding amount will be calculated as above, but with additional interest, known as an early settlement fee. The fee may not exceed an amount equal to three months’ interest on the capital amount.

Conclusion:
Therefore, if the BMW that Mr Black bought was worth more than R250 000.00 the credit provider will be entitled to charge a penalty fee of not more than 3 months’ interest on the capital amount. In the event that the purchased item’s worth is less than R250 000.00 the credit provider will not be entitled to charge a penalty fee.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice.

Credit law

SALE OF IMMOVABLE PROPERTY AND THE NATIONAL CREDIT ACT

SaleimmovableBut what the parties don’t keep in mind is that this agreement between the parties constitutes a credit transaction as defined in the National Credit Act (hereinafter called the Act) and that in certain circumstances the seller will have to register as a credit provider in terms of the Act.

To establish if the Act will be applicable and if the seller should register as a credit provider one should carefully consider the following:

  1. The Act will apply to all written credit agreements between parties dealing at arm’s length. This is to probably curb underhand dealings between family members at the peril of other third parties.
  2. Arm’s length transactions are not defined in the Act but they exclude, for example, transactions between family members who are dependent or co-dependent on each other and any arrangement where each party is not independent of the other and does not strive to obtain the utmost possible advantage out of the transaction.
  3. The Act does not apply where:
  • The consumer is a juristic person whose annual turnover or asset value is more than a R1m;
  • The purchaser is the State or an organ of the State;
  • A large agreement (i.e. more than R250 000, such as a mortgage) is entered into with a juristic person whose asset value or turnover is less than R1m.

A credit agreement includes a credit facility, credit transaction and credit guarantee or a combination of these. The relevance is the following:

  1. A credit facility requires fees or interest to be paid ;
  2. A credit transaction does not necessarily require interest or fees to be paid. An instalment agreement would suffice to qualify as a credit transaction .

An instalment agreement is defined and relates only to the sale of movable property.

A credit transaction also includes any other agreement where payment of an amount owed is deferred and interest or fees are charged.

A mortgage agreement qualifies as a credit transaction [Section 8(4)(d)] and the importance is that mortgage is defined in the Act as a pledge of immovable property that serves as security for a mortgage agreement.

Mortgage agreement is also defined as a credit agreement secured by a pledge of immovable property.

Section 40 of the Act requires one to register as a credit provider should you have at least 100 credit agreements as credit provider OR if the total principal debt under all credit agreements exceeds R500 000. Principal debt means the amount deferred and does not include interest or other fees.

It follows that if you sell your home to an individual in a private sale (i.e. where he does not get a bond from the bank) and you register a bond as security, you have to register as a credit provider UNLESS the principal debt is less than R500 000 or the buyer is a juristic person and the price is more than R250 000.

The implications for the seller could be far-reaching if he is not registered, as the agreement will be unlawful and void, and a court must order that:

  1. The credit agreement is void as from the date the agreement was entered into;
  2. The credit provider must refund to the purchaser any money paid by the purchaser under the credit agreement, together with interest;
  3. All the purported rights of the credit provider under the credit agreement to recover any money paid or goods delivered to, or on behalf of the purchaser in terms of the agreement, are either cancelled or forfeited to the State.

The application form to register as a credit provider and also the calculation of the registration fee that is payable to the National Credit Regulator (NCR) can be found on the NCR’s website. If the seller has not registered by the time he enters into the loan agreement he may still register within 30 days after entering into the loan agreement.

Sellers, be careful when you enter into these types of agreements as non-compliance with the Act could be a costly exercise.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice.