CHAPTER 17:

CREDIT AGREEMENTS

2024 www.vut.ac.za

1
CONTENT
1. INTRODUCTION
2 2. PURPOSE
3. APPLICATION
4. TYPES OF CRDIT AGREEMENT
5. NATIONAL CREDIT REGULATOR
6. NATIONAL CONSUMER TRIBUNAL
7. REGULATION
8. CONSUMER RIGHTS
9. CREDIT REGISTER
10. CREDIT RECORDS
11. CREDIT MARKETING PRACTICES
12. RECKLESS CREDIT
13. DEBT REVIEW
14. MAGISTRATE COURT
15. UNLAWFUL PROVISIONS
16. PROTECTION
17. TERMINATION
PURPOSE OF THE NATIONAL CREDIT ACT 34 OF 2005
• The purposes of the Act are to promote a fair, competitive and accessible
credit market, and to protect consumers.
• It does this by:
1. Prohibiting certain unfair credit marketing practices, and
2. Promoting responsible credit granting and use.
3. To prevent the reckless provision of credit by institutions to people who cannot
afford it.
Information must be disclosed to consumers to enable them to make
informed choices, and to protect them from deception and unfair conduct by
credit providers.
The Act also provides for an accessible system to resolve disputes and for
debt re-organization in cases of over-indebtedness.
CREDIT AGREEMENT DEFINED

• The NCA defines three categories of credit agreements, credit facility, credit
transaction and credit guarantee

• Look at the definitions at page 206

Credit Facility
Credit Transaction
Credit Guarantee
APPLICATION OF THE NATIONAL CREDIT ACT (NCA)

• The NCA applies to every credit agreement in South Africa except the
following:
a) The consumer is single juristic person, or a number of related juristic
entities, with an asset value or annual turnover of more than R1 million.
b) The consumer is the State
c) The agreement is a large credit agreement, such as mortgage, or credit
facility or credit transaction (excluding a pawn transaction) of more than
R250 000.
d) The credit provider is the South African Reserve Bank.
e) The credit provider is located outside the Republic of South Africa.
THE NCA DOES NOT APPLY TO ANY OF THE FOLLOWING:

a) A cheque that is dishonoured

b) The supply of utilities, for example electricity, water, gas, telephone
c) An insurance policy.
d) A lease of immovable property.
e) A transaction between members of a stockvel.
A stockvel consists of two or more persons in a voluntary association, each of
whom has pledged support to the others.
A stockvel raises funds by member subscription, and grants credit to and on
behalf of members.
Members share in profits and nominate management of the scheme, and rely
on self-imposed regulation.
TYPES OF CREDIT AGREEMENTS. THREE TYPES

Category Monitory Value Types of transactions

Small Credit agreement R1 – R15,000 • Pawn transaction, credit

transaction
• Except: Mortgage loans or credit
guarantee

Intermediate credit agreement R15,001 – R 250,000 • Credit facility or credit

transaction
• Except: a pawn transaction or
mortgage

Large credit agreement Above R250,000 • Mortgage agreements, or credit

facility
• Except: pawn transactions
THE NATIONAL CREDIT REGULATOR (NCR)

• Functions of the NCR:

1. Develop an accessible credit market for historically disadvantaged persons
and low income earners.
2. Investigates alleged contraventions of the Act, and negotiates undertakings
and consent orders.
3. Maintain a register for credit providers, credit bureaus & debt counselors
4. Investigate alleged contraventions of the Act
5. Negotiate undertakings and consent order
6. Issue and enforce compliance notices
THE NATIONAL CONSUMER TRIBUNAL (NCT)

• Functions of the NCT:

1. Adjudicate any application that may be made in terms of the Act

2. Determine whether prohibited conduct has occurred

3. Impose remedies together with orders of cost

REGULATION OF THE CONSUMER CREDIT INDUSTRY

A) Registration as a credit provider: The NCA requires anyone who had provided
credit in 100 or more credit agreements or total debt owed if more than
R500 000, such person to apply as credit provider
B) Registration of credit bureau: A juristic person may apply if it is business to:
(i) investigate credit applications, agreements, payment history or patterns,
or consumer credit information.(ii) Compile and maintain data from credit
reports (iii) Issue credit reports concerning consumers.
C) Registration of debt counsellors: look at the education, experience or competency
and must be registered in accordance with the Act

D) Registration of payment distribution agents

E) Disqualified persons: See page 211
CONSUMER RIGHTS

1. Right to apply for credit

2. Right to reasons for credit being refused

3. Right to information in official language

4. Right to information in plain simple language

5. Right to receive documents

6. Right to confidentiality
CREDIT RECORDS

• Credit bureaux keep credit information about a consumer concerning:

• A person’s identity

• Credit and financial history

• Education

• Employment
REMOVAL OF RECORD OF DEBT ADJUSTMENT OR JUDGMENT
There are two ways that adverse information can be removed:
a) On application by the consumer
b) Automatic after settlement
CREDIT MARKET PRACTICES
• A credit provider must not cause a consumer to enter into a credit agreement by notifying the
consumer that there will be an automatic credit agreement unless the consumer expressly
refuses the offer.
• A credit provider must not increase the credit limit under the credit facility: unilateral and/or
automatically
• A credit provider must give the consumer the opportunity to refuse annual credit limit increases
if the agreement is a credit facility and to be excluded from any telemarketing campaign.
• A credit provider must not enter into a credit agreement at a private dwelling except if pre-
arranged
• A credit provider must not visit a person’s place of employment to induce the person to apply
for or obtain credit.
• Adverts may contain statements of comparative credit costs, but any such statement must show
costs for each alternative
PREVENTION OF RECKLESS CREDIT
• A consumer will be over-indebted if unable to meet their obligations under all credit agreements.
• The credit provider must not enter into a reckless credit agreement with a prospective consumer.
• The credit provider must first take reasonable steps to assess the proposed consumer general understanding of the risks
and costs of credit, understanding of the rights and obligations under a credit agreement, debt repayment history and
financial means.

• What is reckless credit?

• If, however, a consumer is over-indebted at the time of applying for credit, and the credit provider was
aware of the consumer’s financial situation and still proceeded to approve the credit agreement, this
agreement is likely to be declared “reckless credit” by an order of the Court, with severe consequences for
the credit provider.

The court may order:

• The facility to be suspended,

• The facility maybe partially or fully wiped

• SEE the case of FNB at the end of these slides.
APPLICATION FOR DEBT
REVIEW
• What is over-indebtedness?

• A consumer is considered “over-indebted” when s/he is unable to meet all their

monthly household expenses and credit obligations from the income earned.
Monthly household expenses will take into account all of a consumer’s
commitments and obligations, which includes the following:

• Statutory expenses (tax, garnishee/court orders);

• Pay slip expenses (medical aid, UIF);

• Personal debt expenses (bank, micro-lender, retail accounts, insurance)

• Cost of living expenses (food, transport, school fees.

•
APPLICATION FOR DEBT REVIEW

• DEBT COUNSELLOR: See at page 215 see how can a consumer apply for
debt review
• Magistrates’ Court at page 216
• Unlawful credit agreements at page 216
• Unlawful provisions of credit agreements at page 217
• Further protections for consumer and credit providers at page 218
TERMINATION OF A CREDIT
AGREEMENT
1 Payment:
Credit agreement will be terminated on payment of the full settlement amount and
satisfaction of all conditions
2 Rescission:
Withdrawal from the agreement is known as rescission.
3 Early settlement:
The consumer can terminate the agreement at any time by payment of the full settlement
amount, or surrender of goods, and payment of the remaining amount.
4 Surrender of goods:
A consumer may request the credit provider to sell the goods, or the goods may be
returned to the credit provider’s place of business during ordinary working hours within five
business days.
DEBT ENFORCEMENT BY REPOSSESSION OR COURT
JUDGMENT
• If a consumer has been in default under a credit agreement for at least 20 business days,
the credit provider must provide a notice to the consumer. (See how must this notice be
served at page 220)
• The credit provider must wait 10 business days from the date the notice was delivered
before being able to apply to court for an order to enforce payment

• The court may decide the matter only if satisfied that:

a) The procedures under the Act have all been complied with.
When the provider applied to court the matter was not before a debt counsellor
When the provider approached the court, the consumer had not already surrendered
property that had not yet been sold.
RECKLESS CREDIT AN EXAMPLE
• Ludick v First National Bank, A Division of FirstRand Bank Limited
(NCT/112239/2018/141(1)(b)) [2019] ZANCT 28 (27 February 2019)

• The abovementioned case is briefly discussed in slides 20 to 24

AN EXAMPLE: CASE ON RECKLESS CREDIT SLIDE 14
• FNB zapped for reckless lending: Tribunal rescues indebted client
BY ANGELIQUE ARDÉ - 05 September 2019 - 17:03
A First National Bank consumer who was allowed to increase her credit card limit and her
overdraft to more than six times her monthly income, as well as to take out a revolving loan
of about half her income – all within eight months – is no longer liable for this new credit as
the National Consumer Tribunal had declared it reckless.
The tribunal found the bank had failed to assess whether the woman could afford to repay
the credit.
The consumer’s debt counsellor, Zero Debt, first complained to the National Credit Regulator
(NCR) in September 2016 that the consumer, Miss L, was a victim of reckless lending.
FNB denied the reckless lending allegation and after considering her complaint, in June 2018,
the regulator decided not send it to the tribunal as it appeared to be vexatious or frivolous or
without a legal remedy.
FNB CASE CONTINUES:
• The women then approached the tribunal directly.
• The tribunal issued its judgment at the end of last month finding that the credit was indeed reckless.
• In her complaint to the tribunal, Miss L alleged that the bank did not assess her income and expenditure
properly and should have realized that she could not afford to repay the credit. She asked the tribunal to
set aside all her obligations in terms of the credit granted.
• WHAT IS RECKLESS LENDING?
• Reckless lending is prohibited in terms of the National Credit Act. The Act states that a
credit agreement is reckless if, at the time that it was made, the credit provider failed to
assess whether you could afford to repay it – irrespective of what the outcome of the
assessment would have been.
• A credit agreement is also reckless if:
• * You didn’t understand the risks and costs to you of the credit or your obligations in terms
of the agreement; and
* By taking on the credit you became over-indebted or unable to pay your debt repayments
and living expenses.
FNB CASE CONTINUES
• The consumer alleged that her applications for increases to her credit card limit and overdraft facility were
made telephonically, and that she did not provide any documentation or information relating to her income
and expenses.
• Similarly, when she applied for the revolving credit loan, which was made inside a branch, she was not
required to provide any documentation or information about her income and expenses.
• She contended that had FNB done a proper affordability assessment, the bank would not have granted any
credit to her because she could not afford to repay it. She asked the tribunal to order FNB to write off her
debts and reimburse her payments made to the bank since 2016.
• The bank denied that it had entered into credit agreements recklessly, explaining that its way of assessing
the creditworthiness of applicants was consistent with the requirements on how affordability should be
assessed as set out in regulations under the Act.
• FNB said it assessed what Miss L could afford based on her average income calculated from her bank
statements, her existing credit obligations (from credit bureau data) and the monthly living expenses
derived from the Stats SA’s Household Income and Expenditure Survey, the judgment says.
• The bank worked out her income based on credits and deposits into her transactional account, excluding
inter-account transfers, it said.
FNB CASE CONTINUES

• In its analysis and findings on evidence, the tribunal says the bank was “unable to produce any affordability
assessment done” on Miss L’s applications for increases to the credit card limit or overdraft.
• FNB was also unable to produce the original credit agreement and evidence of an assessment on her
application for a revolving loan. Although the bank reconstructed the credit agreement, it reflected only the
loan amount and interest and did not contain any information relating to an affordability assessment.
• FNB is a major bank in South Africa and can reasonably have been expected to have had good systems in
place to ensure it can produce evidence of the assessment done, the judgment says. “It may have conducted
assessments but in the particular circumstances of this matter it was unable to provide adequate proof
thereof.
• It cannot be ignored that the consumer contributed to her own financial distress by continuing to
apply for credit and utilising the funds.
• National Consumer Tribunal
• The bank should have settled the matter when the complaint was reported in September 2016, the judgment
says. It, however, continued to dispute the allegations and forced the consumer to report the matter to the
tribunal.
FNB CASE CONTINUES

• “The pattern of credit applications by the consumer in 2015 clearly indicates a trend of
financial distress. A reasonable lender would have been wary of granting all the credit that
it did without further inquiry. It however cannot be ignored that the consumer contributed
to her own financial distress by continuing to apply for credit and utilizing the funds,” the
judgment says.
• In the light of this, the tribunal found it was just and reasonable to set aside all of the
consumer’s future rights and obligations under the credit agreements that the tribunal
declared reckless.
• The judgment means Miss L is no longer liable for any payments made on the three credit
agreements after September 30 2016, which is approximately when her debt counsellor
took the complaint to the regulator.
 QUESTIONS????

CREDITORS HAVE BETTER MEMORIES THAN DEBTORS.

- BENJAMIN FRANKLIN