Credit Agreements: The National Credit Act 34 of 2005

1
Credit AgreementsThe National Credit Act 34 of
2005

• A Louw
• UKZN Law Faculty

2
Introduction

• What is the National Credit Act?
• Phased implementation of the Act
• Admin provisions 1 June 2006
• National Consumer Tribunal established 1 Sept
  2006
• New consumer rights to come into force 1 June
  2007
• Background to the Act characteristics of the
  credit market
• Significant inequalities
• Regulatory framework outdated
• Vicious circle access to credit
  over-indebtedness
• Credit bureaux negative perception practices
  like blacklisting and redlining
• Micro-lenders e.g. Everett Financial Services
  case (2006)

3
Introduction (cont.)

• Far-reaching effects of Act?
• E.g. costs of implementation (e.g. banks)
• Property industry
• Training of judicial officers
• Necessary framework in place for full
  implementation?? E.g. debt counsellors
• Act open to future (constitutional) testing????

4
Introduction (cont.)

• Objectives of the Act
• Regulation of credit information
• National Credit Regulator to assess compliance
• General prohibition on discrimination in credit
  allocation right to request dominant reasons for
  refusal of credit
• Access to info and disclosure (e.g. of costs and
  interest rates)
• Provide mechanisms to address over-indebtedness
• Purpose of the Act section 3
• To improve access to credit and prevent unfair
  business practices
• E.g. impact on advertising of credit

5
The legislation replaced by the NCA

• Usury Act 1968
• Credit Agreements Act 1980
• Exemption notices under the Usury Act (1999 and
  2005)
• Usury Act
• Regulated financial aspects of credit agreements
• Applied to credit transactions (sale and use of
  movables/services), lease agreements (movables),
  money lending transactions
• Limited to money lending transactions less than
  R500 000 lease agreements under R100 000

6
The legislation replaced by the NCA (cont.)

• Credit Agreements Act
• Regulated contractual aspects of credit
  agreements
• Limited application only to sale of goods on
  credit NOT services
• Only applied to certain categories of goods
  (Minister, Regulation)
• Movables
• Otherwise common law of contract
• Application credit agreements credit
  transactions leases i.r.o. movables credit
  transactions included sale of movables on credit
  hire purchase or instalment sale agreements

7
The legislation replaced by the NCA (cont.)

• Credit Agreements Act (cont.)
• Transactions specifically excluded from the
  Credit Agreements Act
• Cash sales
• Sale, purchase price payable in lump sum
• Purchaser not end consumer
• Things purchased for certain purposes (mining,
  construction, road construction, engineering, for
  use in manufacturing processes)
• State credit grantor

8
The legislation replaced by the NCA (cont.)

• Credit Agreements Act (cont.)
• Act specifically applied to
• Goods specifically mentioned in Regulations
  (durable and semi-durable goods e.g. cars,
  furniture, household electrical appliances,
  jewellery, photographic equipment, TV and video)
• Goods sold and leased not services rendered on
  credit
• Duration of agreement more than 6 months
• Cash price below R500 000

9
The legislation replaced by the NCA (cont.)

• Credit Agreements Act (cont.)
• Act prescribed requirements (e.g. i.r.o.
  deposits) and formalities for agreements
• Writing, signed by both parties
• Amount of initial payment (deposit or rental
  payable)
• Instalment sale agreements conditions re
  passing of ownership
• Instalment sale and lease agreements
  restitution of goods
• Reference to credit receivers cooling off right

10
The legislation replaced by the NCA (cont.)

• Credit Agreements Act (cont.)
• Rights and obligations of parties
• Credit receiver
• Maximum finance charges under Usury Act
• Copy of contract and quarterly reports on state
  of account
• Protection in case of his/her breach e.g. sec.
  11 sec. 12
• Right to pay debt off earlier (90 days-provision)
• Credit agreement only binding once initial
  deposit paid
• Any alleged waiver of rights void

11
The legislation replaced by the NCA (cont.)

• Credit Agreements Act (cont.)
• Rights and obligations of parties
• Credit grantor
• Sec. 18 automatic interdict
• Preferential claim in case of credit receivers
  insolvency

12
The legislation replaced by the NCA (cont.)

• The exemption notices to the Usury Act
• Micro-finance industry
• Micro Finance Regulatory Council
• Transactions below R10 000 exempted from Usury
  Act
• Aim to incentivise lenders to make these small
  loans access to credit
• Problem transactions exempted from measures
  meant to protect consumers (e.g. interest rate
  ceilings)

13
The NCA

• Still problems with the existing legislation
• NCA aims to
• Ensure fair access to credit
• Consumers get sufficient information re costs etc
  of credit
• Restricting terms upon which credit agreement may
  be concluded
• Rights and duties for parties
• Credit providers required to register with NCR
• Prohibited marketing practices
• Reckless credit prohibited
• Courts empowered to intervene and provide relief
  in cases of over-indebtedness

14
The NCA

• Our discussion will evaluate the Act by focusing
  on 3 main topics
• 1) Acts application (types of agreements
  parties exemptions)
• 2) Regulatory framework and entities
• 3) Scheme of credit policy under the Act (esp.
  consumers rights debt enforcement procedures
  courts powers)

15
APPLICATION of the Act

• Section 4
• Not retrospective agreements entered into before
  1 June 2007 valid and enforceable (and e.g.
  reckless credit provisions wont apply)
• Parties credit provider and consumer
  definitions sec. 1
• Meaning of credit
• Deferral of payment of money/promise to defer
  payment owed to another OR
• Promise to advance or pay money to or at the
  discretion of another person
• Generally Credit agreement granting of
  credit by one party in return for payment of
  interest or some other charge

16
APPLICATION of the Act (cont.)

• Section 4(1)
• Act applies to
• 1) every credit agreement entered into
• 2) between parties dealing at arms length
• 3) made within or having effect within the RSA
• Except sec. 4(1)(a)-(d)
• See position as to juristic persons as consumers
  certain parties as credit providers

17
APPLICATION of the Act (cont.)

• CREDIT AGREEMENT
• A credit agreement (all must be in writing
  form prescribed in sec 93) a credit facility, a
  credit transaction or a credit guarantee (or any
  combination of these).
• A credit agreement is NOT a
• policy of insurance
• lease of immovable property
• transaction between a stokvel and a member of
  that stokvel in terms of the rules of the stokvel
  (stokvel defined in sec. 1)

18
APPLICATION of the Act (cont.)

• DEALING AT ARMS LENGTH
• Dealing at arms length not specifically
  defined in the Act, but see sec 4(2)(b) as to
  what does NOT constitute dealing at arms length
• Shareholder loan or credit agreement between
  juristic person and shareholder with controlling
  interest, where the juristic person is the
  consumer
• Shareholder loan or credit agreement between
  juristic person and shareholder with controlling
  interest, where the juristic person is the credit
  provider
• A credit agreement between persons who are in a
  familial relationship and where these persons
  are co-dependent on each other or one is
  dependent on the other
• Any other arrangement where each party is not
  independent of the other and consequently does
  not necessarily strive to obtain the utmost
  possible advantage from the transaction OR is a
  transaction that is of a type that has been held
  in law not to be one of persons dealing at arms
  length.

19
APPLICATION of the Act (cont.)

• A small credit agreement a pawn transaction or a
  credit facility or any other credit transaction
  where the credit limit or principal debt R15
  000 or less
• An intermediate agreement a credit facility
  where the credit limit is more than R15 000 or
  any other credit transaction where the principal
  debt falls between R15 000 and R250 000
• A large agreement a mortgage agreement or any
  other credit transaction where the principal debt
  is R250 000 or more

20
APPLICATION of the Act (cont.)

• Therefore, credit agreements include the
  following 3 main types of agreements
• Credit facility
• Credit transaction
• Credit guarantee

21
APPLICATION of the Act (cont.)

• 1) CREDIT FACILITY
• Credit provider provides goods or services to the
  consumer (or pays an amount or amounts to the
  consumer) and
• Defers the consumers obligation to pay OR
• Bills the consumer periodically
• AND a charge, fee or interest is payable by
  consumer for the deferment of payment
• E.g. credit card arrangement with a bank
• Does not include a continuous service

22
APPLICATION of the Act (cont.)

• 2) CREDIT GUARANTEE
• An agreement where a person undertakes or
  promises to satisfy on demand any obligation of
  another consumer in terms of a credit facility or
  a credit transaction
• E.g. a surety agreement
• See e.g. position of juristic persons natural
  person signs surety if underlying agreement
  exempt (sec. 4(1)), then credit guarantee
  (surety) also exempt

23
APPLICATION of the Act (cont.)

• 3 CREDIT TRANSACTION
• Includes the following
• Instalment agreement
• A pawn or discount transaction
• Incidental credit agreement
• Mortgage agreement or a secured loan
• A lease of movable property
• Any other agreement that is not a credit
  facility, but in terms of which payment is
  deferred and a charge, fee or interest is payable
  (including an interest bearing loan)
• See definitions in sec. 1

24
APPLICATION of the Act (cont.)

• Instalment agreement
• Sale of movable property, in terms of which
• all or part of the price is deferred and to be
  paid by periodic payments
• possession and use of the property is transferred
  to the consumer
• ownership of the property passes to the consumer
  when the agreement is fully complied with OR
  immediately but subject to the right of the
  credit provider to repossess the property in the
  event that the consumer fails to satisfy all his
  obligations under the agreement
• interest, fees or other charges are payable to
  the credit provider.
• Commonly known under the old Credit Agreements
  Act as the hire-purchase agreement or
  instalment-sale agreement

25
APPLICATION of the Act (cont.)

• Lease agreement
• Temporary possession of movable property is
  delivered to the consumer payment for such
  possession is to be made periodically or deferred
  in whole or part interest, fees or other charges
  are payable to the credit provider and at the
  end of the term of the agreement ownership of the
  movable property passes to the consumer
  immediately or upon satisfaction of certain
  conditions set out in the agreement.

26
APPLICATION of the Act (cont.)

• Mortgage agreement
• A credit agreement that is secured by a pledge
  of immovable property ( registration of a
  mortgage bond over immovable property)

27
APPLICATION of the Act (cont.)

• Discount transaction
• An agreement in terms of which goods or services
  are to be provided to a consumer over a period of
  time and more than one price is quoted for the
  goods and services the lower or lowest price is
  applicable if payment is made on or before a
  determined date the higher price is applicable
  if payment is made after that date or
  periodically during the term of the agreement.

28
APPLICATION of the Act (cont.)

• NB Also see sec. 4(6)(a) and 4(6)(b)
• Application to e.g. motor vehicle dealers and
  municipalities
• Relevance of incidental credit (see incidental
  credit agreements below)

29
APPLICATION of the Act (cont.)

• NB INCIDENTAL CREDIT AGREEMENT (or ICA)
• Any agreement in terms of which a charge is
  levied for payment of an invoice after a specific
  date OR where 2 prices are quoted to the consumer
  and the lesser applies to payment on or before a
  specific date and the higher applies for payment
  after such date therefore an extra charge for
  late payment.
• Act contains certain exemptions in respect of
  ICAs
• No registration for credit provider
• Reckless credit provisions do not apply
• Form and content requirements do not apply

30
APPLICATION of the Act (cont.)

• NB INCIDENTAL CREDIT AGREEMENT (or ICA) cont.
• Definition wide probable very wide application
• E.g. also municipalities for overdue amounts on
  service accounts
• ICA deemed to have been concluded 20 business
  days after (i) fee for late payment was levied or
  (ii) the date a pre-determined higher price for
  full settlement of account first becomes
  applicable unless account is fully paid by
  consumer before that date
• Obligations under an ICA may be re-arranged by a
  court upon application by debt counsellor if
  consumer over-indebted
• See application of sec. 130 re debt-enforcement
  by credit providers

31
APPLICATION of the Act (cont.)

• Credit agreements subject to less stringent
  requirements
• Developmental credit agreements
• Public interest credit agreements

32
APPLICATION of the Act (cont.)

• Developmental credit agreements
• E.g. an agreement concluded to develop a small
  business an educational loan agreement made to
  acquire, build or expand low income housing etc.
• E.g. educational loan
• a school loan
• a student loan or
• a credit agreement concluded for purposes related
  to consumers adult education.
• NB The credit provider must at time of conclusion
  of the agreement hold a supplementary
  registration certificate issued in terms of sec.
  41.

33
APPLICATION of the Act (cont.)

• Public interest credit agreements
• An agreement declared as such by the Minister
  e.g. to promote the availability of credit during
  a natural disaster or in any circumstances
  considered by the Minister to be in the public
  interest.

34
APPLICATION of the Act (cont.)

• NB Types of agreements that are NOT credit
  agreements
• Debt owed on cheque subsequently dishonoured
• Debt owed on a charge against credit facility
  provided by 3rd person subsequently refused
• Acceptance of partial or full payment for
  goods/services through a charge against a credit
  facility provided by 3rd party
• Agreement with supplier of utility or continuous
  service
• A policy of insurance extended solely to maintain
  payment of premiums on a policy of insurance
• Lease of immovable property
• Transaction between stokvel and a member of that
  stokvel (sec. 8(2)(c))

35
APPLICATION of the Act (cont.)

• Exemptions from the provisions of the Act
• Juristic persons
• Distinguish completely exempted vs Act applies
  but exempted from certain parts/provisions

36
APPLICATION of the Act (cont.)

• In the following instances where juristic persons
  are consumers under credit agreements, such
  agreements are exempted completely from the
  application of the Act
• Sec. 4(1)(a)(i) Where the consumer is a juristic
  person whose asset value or annual turnover,
  together with the combined asset value or annual
  turnover of all related juristic persons, at the
  time the agreement is made, equals or exceeds the
  threshold value determined by the Minister
  (currently R1 million)
• Sec. 4(1)(b) The credit agreement is a large
  agreement (sec. 9(4)) in terms of which the
  consumer is a juristic person with annual
  turnover / asset value below the threshold set by
  the Minister.
• Remember A large credit agreement is a
  mortgage agreement or other agreement (except a
  pawn transaction or credit guarantee) for a value
  above R250 000

37
APPLICATION of the Act (cont.)

• In all other cases where a juristic person is the
  consumer under a credit agreement, the agreement
  is exempt from the following parts of the Act
  (sec. 6)
• Chapter 4, Part C credit marketing practices
• Chapter 4, Part D reckless credit and
  over-indebtedness
• Chapter 5, Part A sec 89(2) unlawfulness of
  negative option marketing
• Chapter 5, Part A sec 90(2)(o) unlawful
  provisions relating to variable interest rates
  charged on the principal debt and
• Chapter 5, Part C consumers liability,
  interest, charges and fees.
• (END application of the Act)

38
Regulatory Framework put in place by the Act

• Act establishes certain entities to enforce and
  implement the provisions
• Also requires certain bodies/persons/actors in
  the credit market to register in order to
  provide a compliance assessment and enforcement
  mechanism
• Courts also of course empowered to enforce the
  Act possibly much of the Acts protections etc
  will need to be fleshed out in practice through
  judicial review of these given content through
  the courts judgments

39
Regulatory Framework put in place by the Act

• National Credit Regulator (NCR, on the web at
  www.ncr.org.za)
• See sections 12- 18 as to the NCRs functions
  most important registration (sec 14) and
  enforcement (sec 15) functions.
• NCR empowered to register credit providers (sec
  40), credit bureaux (sec 43) and debt counselors
  (sec 44)
• NCR must receive complaints on alleged
  contraventions of the Act
• NCR must monitor the credit market to ensure that
  prohibited conduct is prevented, detected and
  prosecuted.

40
Regulatory Framework put in place by the Act

• 2 National Consumer Tribunal
• Section 26
• Tasked with adjudicating any applications made in
  terms of the Act and adjudicating allegations of
  prohibited conduct and making orders in terms of
  the Act

41
Regulatory Framework put in place by the Act

• Bodies/persons who have to register with the NCR
  in terms of the Act
• 1 Credit Providers
• 2 Credit Bureaux
• 3 Debt Counsellors

42
Regulatory Framework put in place by the Act

• Bodies/persons who have to register with the NCR
  in terms of the Act (cont.)
• 1 Credit providers (sec 40)
• Who must register?
• A credit provider who has concluded at least
  100 credit agreements to which the Act applies
  (excluding incidental credit agreements)
• OR
• The total principal debt under all outstanding
  credit agreements (excl. incidental agreements)
  exceeds R500 000.

43
Regulatory Framework put in place by the Act

• Bodies/persons who have to register with the NCR
  in terms of the Act (cont.)
• Who may NOT register as a credit provider?
• Certain persons may not register as credit
  providers, namely
• an unrehabilitated insolvent
• a party/person who has been removed from an
  office of trust because of misconduct concerning
  fraud or the misappropriation of money
• a juristic person or association of persons
  (other than a bank or mutual bank) controlled or
  managed by a natural person who is disqualified
  from individual registration.

44
Regulatory Framework put in place by the Act

• Registration of credit providers (cont.)
• Consequence of not registering?
• person may not enter into a credit agreement or
  extend credit any such agreement entered into is
  unlawful and void (sec 89(2)(d) sec 40(4))
• The Tribunal can, on request by the NCR, also
  cancel the registration of a credit provider who
  repeatedly fails to comply with the Act.
• NB In case of such cancellation the obligations
  of the credit provider and of consumers survive
  such cancellation or a suspension of registration
• The Tribunal can review decisions by the NCR
  decisions by the Tribunal can be appealed or
  taken on review to the High Court (sec 59).

45
Regulatory Framework put in place by the Act

• 2 Credit bureaux (sec 43)
• Sec 43(1) when is an entity a credit bureau?
• NB a natural person not allowed to register as
  such also not a juristic person connected with a
  credit provider or debt collection agency or if
  managed by an unqualified person.
• See sec 43-requirements for registration as a
  credit bureau secs 45 and 46 re application for
  registration.

46
Regulatory Framework put in place by the Act

• 3 Debt counsellors (sec 44)
• Only natural persons see sec 44 sec 46
• Central role i.r.o. over-indebtedness provisions
  contained in chapter 4 of the Act
• END regulatory framework

47
CONSUMER CREDIT POLICY in terms of the NCA

• NCA provides for specific policy in order to
  achieve the aims and objectives of the Act
• Includes
• the provision of certain consumer rights
• the creation of a national register of all credit
  agreements
• the prohibition of certain credit marketing
  practices
• measures for dealing with reckless credit and
  over-indebtedness

48
CONSUMER CREDIT POLICY in terms of the NCA

• A) Consumer rights
• Right to apply for credit (sec. 60)
• Right to reasons for refusal of credit (sec. 62)
• Right to pre-agreement disclosure of info
  account statements
• Right to confidential treatment of info (sec. 68)
• Right to limitation of costs a credit provider
  may charge (sec. 101)
• Right to access and challenge credit record and
  info (sec. 72)
• Cooling-off period (sec. 121)

49
CONSUMER CREDIT POLICY in terms of the NCA

• A) Consumer rights (cont.)
• Right not to be unfairly discriminated against in
  the provision of credit (sec. 61)
• 1) In assessment of ability of consumer to meet
  obligations
• 2) deciding to conclude agreement/offer credit
• 3) determining any aspect of the costs of credit
• 4) terms and conditions of credit agreement
• Credit provider may determine own
  scoring/assessment model i.r.o. risk of credit
  basis may not be prohibited ground
• Unfair discrimination (direct or indirect) on any
  of the prohibited grounds contained in sec. 9(3)
  Act 108/1996 or in Chapter 2 of PEPUDA 4 of 2000
• Un-emancipated minor not unfair discrimination
• Right of recourse to equality courts or NCR

50
CONSUMER CREDIT POLICY in terms of the NCA

• A) Consumer rights (cont.)
• Chapter 4 Part B data protection provisions
• Also certain obligations on consumers
• Sec. 97 Goods sold, consumer in possession,
  ownership has not passed, must disclose location
  (and notify change of address)
• Sec. 81(1) A reckless credit provision
  prospective consumer must fully and truthfully
  answer any requests for information made by the
  credit provider
• B) National credit register
• Sec. 69
• Minister may require NCR to establish, based on
  info provided by credit providers

51
CONSUMER CREDIT POLICY in terms of the NCA

• C) Credit marketing practices
• Chapter 4 Part C
• Certain prohibited practices
• E.g. advertising of credit by party who is not a
  registered credit provider
• Advertisement that is misleading, fraudulent or
  deceptive
• Harassment of person in order to persuade him/her
  to enter into agreement
• Marketing of credit at home or workplace of
  consumer only if e.g. consumer has pre-arranged
  the visit

52
CONSUMER CREDIT POLICY in terms of the NCA

• C) Credit marketing practices (cont.)
• Negative option marketing
• E.g. where a credit provider makes an offer to
  enter into a credit agreement or induces a person
  to enter into a credit agreement on the basis
  that the agreement will automatically come into
  existence unless the consumer declines the offer
  sec. 74(1)
• See also 74(2) and (3)
• Result credit agreement is unlawful and void
  (sec. 89)
• Implications of marketing practices and rights to
  info e.g. see position of conveyancers

53
CONSUMER CREDIT POLICY in terms of the NCA

• Over-indebtedness and reckless credit
• Chapter 4 Part D
• Will most likely have biggest practical effect
  for consumers and credit providers alike
• Consumers protected against spiralling debt
• Credit providers rights i.r.o. enforcement of
  agreements significantly curtailed
• Courts empowered to intervene in agreements and
  their enforcement

54
CONSUMER CREDIT POLICY in terms of the NCA

• Over-indebtedness and reckless credit
• These provisions do NOT apply to the following
• Where consumer is a juristic person (sec. 6 sec.
  78(1))
• School or student loan
• Emergency loan
• Public interest credit agreement
• Pawn transaction
• Incidental credit agreement
• Temporary increase to the credit limit under a
  credit facility

55
CONSUMER CREDIT POLICY in terms of the NCA

• Over-indebtedness and reckless credit
• Scheme
• If a consumer is over-indebted (or would be
  over-indebted through conclusion of a credit
  agreement) at the time that the parties conclude
  an agreement, that agreement would constitute
  reckless credit
• In order to curtail the granting of reckless
  credit, the Act requires that the credit provider
  must, prior to concluding an agreement, make an
  assessment of the consumers financial position
  as well as whether the consumer understands the
  risks and obligations to be undertaken in terms
  of the agreement
• In the event that the consumer is over-indebted
  OR reckless credit has been provided, the courts
  are empowered to do certain things (and consumers
  are provided with certain relief) see below
  which affect the enforcement of such credit
  agreement
• Credit providers are prohibited from entering
  into a reckless credit agreement (sec. 81(3).

56
CONSUMER CREDIT POLICY in terms of the NCA

• Over-indebtedness and reckless credit
• When would a consumer be regarded as being
  over-indebted?
• A consumer is over-indebted if he/she will not be
  able to satisfy in a timely manner all the
  obligations under all the credit agreements to
  which he/she is a party sec. 79(1)
• Preponderance of available information at the
  time the determination is made

57
CONSUMER CREDIT POLICY in terms of the NCA

• Over-indebtedness and reckless credit
• What is considered in determining whether
  consumer is over-indebted (the criteria)
• The consumers financial means, prospects and
  obligations (defined in sec. 78(3) as including
  his or her income or a right to receive income
  the income of an adult person in the consumers
  immediate family or household only if the
  prospective consumer and such other person
  customarily share their respective financial
  means AND mutually bear their respective
  financial obligations and, if the consumer has a
  commercial purpose for entering into the
  particular credit agreement, the reasonably
  estimated future revenue flow from that business
  purpose)
• The consumers probable propensity to satisfy in
  a timely manner all his or her obligations under
  all his or her credit agreements
• taking into account his or her history of debt
  repayment.

58
CONSUMER CREDIT POLICY in terms of the NCA

• Over-indebtedness and reckless credit
• When is a credit agreement reckless?
• The credit provider failed to conduct the
  required assessment i.t.o. sec. 81 (see below)
• The credit provider did the assessment but
  entered into a credit agreement when the
  preponderance of information available to him
  indicated that the consumer did not appreciate
  the nature of the obligations, risks and costs of
  entering into the agreement or
• The credit provider did the assessment and
  entered into the agreement, but conclusion of the
  agreement would make the consumer over-indebted.

59
CONSUMER CREDIT POLICY in terms of the NCA

• Over-indebtedness and reckless credit
• Credit provider must assess the following at
  conclusion of the agreement (sec. 81) take
  reasonable steps to assess the prospective
  consumers
• general understanding of the risks and costs,
  obligations and rights in terms of the proposed
  credit agreement
• debt repayment history under other credit
  agreements
• existing financial means, prospects and
  obligations and
• if a consumer has a commercial purpose for
  applying for credit, whether there is a
  reasonable basis to conclude that such purpose
  may prove to be successful.

60
CONSUMER CREDIT POLICY in terms of the NCA

• Over-indebtedness and reckless credit
• Credit provider faced with an allegation that a
  credit agreement is reckless has the following
  complete defence
• If the credit provider can establish that the
  consumer failed to fully and truthfully answer
  any requests for information when the above
  assessment was done or
• A court or the Tribunal finds that the consumers
  failure to so answer requests for information
  materially affected the ability of the credit
  provider to make such assessment

61
CONSUMER CREDIT POLICY in terms of the NCA

• Over-indebtedness and reckless credit
• Effects of a reckless credit agreement The
  powers of the court
• Sections 83, 86, 85
• Section 83 Suspension of a reckless credit
  agreement
• Court may mero motu declare an agreement
  reckless
• 2 scenarios

62
CONSUMER CREDIT POLICY in terms of the NCA

• Over-indebtedness and reckless credit
• Section 83 Suspension of a reckless credit
  agreement
• If declared reckless because
• CP did not conduct the assessment OR
• Assessment done, but there were indications that
  Consumer did not understand obligations
• Court may order SETTING ASIDE PART/ALL
  CONSUMERS OBLIGATIONS UNDER AGREEMENT or
  SUSPENSION OF FORCE AND EFFECT OF AGREEMENT
• If declared reckless because there were
  indications that agreement would make the
  consumer over-indebted
• Court may order SUSPENSION and RE-STRUCTURING OF
  CONSUMERS OBLIGATIONS UNDER ANY OTHER CREDIT
  AGREEEMENTS (sec. 87)

63
CONSUMER CREDIT POLICY in terms of the NCA

• Over-indebtedness and reckless credit
• Effects of a declaration of the suspension of a
  credit agreement
• During the period while such an agreement is
  suspended
• the consumer is not required to make any payments
  in terms of the agreement
• no interest, fee or other charge may be charged
  under the agreement and
• the credit provider may not enforce any of his
  rights under the agreement.
• After the suspension has come to an end, all the
  rights and obligations of both parties are
  revived and fully enforceable (and the credit
  provider may not then make any charges, fees,
  interest etc that it was unable to charge during
  the suspension).

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CONSUMER CREDIT POLICY in terms of the NCA

• Over-indebtedness and reckless credit
• Section 86 Application for debt review
• Consumer may apply to a debt counsellor
• To be declared over-indebted
• NB not once CP has instituted proceedings to
  enforce the agreement i.t.o. sec. 129 see below
• Debt counsellor may make recommendation to court
  to order
• Suspension of 1 or more credit agreements AND/OR
• That 1 or more of consumers obligations be
  re-arranged
• If debt counsellor finds consumer is not
  over-indebted consumer may apply to court
• Sec. 86(7) debt re-arrangement may include an
  order whereby
• the period of the agreement is extended (and the
  amount of each payment due is therefore reduced)
  and/or
• the due dates for payments under an agreement may
  be postponed for a specified time

65
CONSUMER CREDIT POLICY in terms of the NCA

• Over-indebtedness and reckless credit
• Sec. 85 Orders to relieve or declare
  over-indebtedness
• It may be alleged in any court proceedings in
  which a credit agreement is being considered that
  the consumer is over-indebted. The court may then
• refer the matter to a debt counselor with a
  request to make recommendations to the court on
  whether the consumer is in fact over-indebted or
• declare the consumer over-indebted and make an
  order in terms of section 87 (namely make an
  order i.t.o. sec. 83 that a credit agreement is
  reckless, or make an order for debt
  re-arrangement i.t.o. sec. sec. 86(7) or both).

66
CONSUMER CREDIT POLICY in terms of the NCA

• Over-indebtedness and reckless credit
• Effect of the above proceedings on the rights of
  the credit provider section 88(3)
• A credit provider who receives notice of court
  proceedings for the suspension of a reckless
  credit agreement (sec. 83), of an application for
  debt review (sec. 86) or of court proceedings in
  terms of sec. 85 (orders to declare or relieve
  over-indebtedness) may not exercise or enforce by
  litigation any right or security under the
  agreement UNTIL
• The consumer is in default under the agreement
  AND
• The debt counselor rejects the application (to
  declare the consumer over-indebted) or
• The court has determined that the consumer is NOT
  over-indebted or
• All the consumers obligations under re-arranged
  credit agreements are fulfilled.

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Unlawful agreements and provisions

• Chapter 5
• Sec. 89 (unlawful agreements) read
• Agreement void
• CP must refund to consumer any money paid under
  agreement plus interest
• All purported rights of CP to recover money paid
  or goods delivered are either
• Cancelled, unless court concludes this would
  unjustly enrich the consumer or
• Forfeit to the state, if court concludes that
  cancellation of such rights would unjustly enrich
  the consumer
• Sec. 90 (unlawful provisions) read
• Void, a court may
• Sever or
• Declare whole agreement void or
• Make any other just and reasonable order

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Debt enforcement provisions and the courts

• Required procedures in debt enforcement by credit
  providers sec. 129 and 130
• Sec. 129