CML2010S – BUS LAW II
SECTION 1: CREDIT AGREEMENTS
1. Terminology & Concepts
− National Credit Act 34 2005 (NCA)
(Vula – Resources – Legislation)
− What is a credit agreement?
o An agreement where credit is granted by one party to another usually in return for part of
interest or a free or charges (or combination of these)
o Credit agreement (broad overview) can take different forms:
▪ 1 party lending / advancing to another
E.g. John borrows look from big bank & he has to repay in monthly instalment with interest
o John gets credit card from B bank
o The parties agree that amount owed by 1 party to another (for g/s) will be delayed to future
date
E.g.
o J has account at bookstore/pharmacy & fees or interest rates are charged for late part
o J opens up account at Edgars (store card)
o J needs a 1 year of physiotherapy, he sees physio once a week and billed at the end of the
month.
o J buys a car from B motors for R500k. He pays deposit upfront and balance in monthly
instalment with interest and charges.
− Credit provider = the party that grants the credit (bank, physio, lawyer)
− Consumer (debtor) = party that receives credit
Aims & Objectives of NCA
Recent legislation
− to “promote & advance the social and economic welfare of South Africans… and a fair (and)
transparent … credit market and industry, and to protect consumers by.” (Section 3)
− NB: protect consumer
− By:
o Stop reckless lending – i.e. to people who may not be able to repay the loan or will be
overburdened (over-indebted) by the loan or credit;
o Balancing the rights of credit providers and consumers;
o Promoting the development of credit market that is accessible to all South Africans, in
particular those who have been historically unable to access credit.
o More disclosure & information provided to consumers;
▪ e.g. how interest is calculated on mortgage
o Dealing with over-indebtedness of the consumer
, 2. Scope & Application of the NCA
General Rule:
− The Act applies to every credit agreement conclusion in SA, on with an effect in SA
o (E.g. instalments paid in SA) with a few exceptions.
Excluded Transactions (i.e. not covered in Act)
Section 4 – this is where consumer is not protected by NCA
1) A credit agreement in which the consumer is the state/or an organ of state
2) A credit agreement in which the consumer is a juristic person whose monetary asset value or
annual turnover exceeding or equal to R1m at time the agreement is made (see also Sec 7)
▪ NB: Juristic person in Act can include a partnership or trust
(definition different from comp. law)
3) A “large agreement” where the consumer is any juristic person
▪ i.e. any juristic person – does not matter what asset value are annual turnover
▪ a “large agreement” is a credit agreement secured by a mortgage bond (regardless of
the amount) OR any other credit transaction with debt of R250 000 or more
4) Credit agreement in which credit provider is the reserve bank.
5) Credit agreement where credit provider is located outside Republic & from which consumer has
applied for an exemption.
6) Insurance policies (might be included soon)
7) Leases of immoveable property
8) Where the parties are not at “arms length”.
o Parties are NOT considered to be dealing at “arms length” IF:
▪ one is juristic person in which the other has a controlling interest rates
▪ they are family on one or each of them is dependent on the other
▪ one is not independent of the other & so will not seek the max advantage out of the
transaction
9) Stokvels (see later)
▪ these are rotating credit association largely run on an informal basis.
▪ but billions and billions of rands circulate in stokvels
3. Classification of Credit Agreements covered by the Act
(Section 8)
− The Act has 3 different broad categories of credit agreements, sometimes they may overlap.
− NB of the distinctions between 3 categories ∵certain provisions of the Act only apply to certain types
of Credit Agreements
− (Section 8)
➢ CREDIT FACILITY
● An agreement where the credit provider supplies goods or services to the consumer or lends
money to the consumer
● Consumer doesn’t pay for the goods or services immediately or doesn’t repay the loan
immediately. In return, the credit provider charges fees and/or interest.
● Examples:
o Loan granted by bank/other person
o Credit card facility
o A retail store card facility
,
, ➢ CREDIT TRANSACTION: can be any one of the following:
● Pawn transactions:
o the credit provider lends money to the consumer and at the same time, takes moveable
goods as security
o value of the goods > loan
o if consumer defaults, the credit provider sells the goods and keeps all the proceeds
● Discount transactions:
o goods or services are provided to the consumer over a period of time
o a discount price is offered, if the account is paid before a certain date
● Incidental credit agreement:
o an account is rendered for goods or services provided over a period of time AND
o if the account is not paid before a certain date
▪ then: some charge/fee or interest becomes payable and/or
▪ two prices are quoted, the lower price applies if the account is settled before a
certain date
NOTE:
∗ the incidental credit agreement is deemed to be concluded only 20 days after the provider first
charges a late fee or interest (or when the lower rate becomes applicable) and it only becomes a
credit agreement under the NCA at that point
∗ Before this, it is a valid contract, but it is not governed by NCA.
▪ John has physio once a week for 4 months.
He gets billed at the end of the each month on the 25th.
If he doesn’t pay by the 7th of the month, then the physio charges interest.
He pays on the 28th.
The physio doesn’t charge interest because he pays before the 7 th.
This doesn’t fall under NCA but it is a valid agreement.
▪ John has physio once a week for 4 months.
He gets billed at the end of each month on the 25th.
If he doesn’t pay by the 7th of the month, then the physio charges interest.
He pays on the 15th (1 week late).
She charges interest from the 8th.
The contract between John and the physio becomes a credit agreement under the NCA 20 days after the 8 th
(20 working days from day she charges interest).
● Instalment agreement:
o moveable property is sold to a consumer
▪ it is delivered to the consumer immediately but the purchase price is payable in
instalments
o interest and/or fees become payable each month
o ownership remains with the credit provider until the late instalment and interest and
fees is paid
o OR: ownership is transferred immediately to the consumer but as soon as the consumer
defaults (misses an instalment) ownership reverts to the credit provider.
● Mortgage agreement: to be covered in detail in Section 3
o credit provider lends money to the consumer and the consumer’s immoveable property
is used as security for the loan
SECTION 1: CREDIT AGREEMENTS
1. Terminology & Concepts
− National Credit Act 34 2005 (NCA)
(Vula – Resources – Legislation)
− What is a credit agreement?
o An agreement where credit is granted by one party to another usually in return for part of
interest or a free or charges (or combination of these)
o Credit agreement (broad overview) can take different forms:
▪ 1 party lending / advancing to another
E.g. John borrows look from big bank & he has to repay in monthly instalment with interest
o John gets credit card from B bank
o The parties agree that amount owed by 1 party to another (for g/s) will be delayed to future
date
E.g.
o J has account at bookstore/pharmacy & fees or interest rates are charged for late part
o J opens up account at Edgars (store card)
o J needs a 1 year of physiotherapy, he sees physio once a week and billed at the end of the
month.
o J buys a car from B motors for R500k. He pays deposit upfront and balance in monthly
instalment with interest and charges.
− Credit provider = the party that grants the credit (bank, physio, lawyer)
− Consumer (debtor) = party that receives credit
Aims & Objectives of NCA
Recent legislation
− to “promote & advance the social and economic welfare of South Africans… and a fair (and)
transparent … credit market and industry, and to protect consumers by.” (Section 3)
− NB: protect consumer
− By:
o Stop reckless lending – i.e. to people who may not be able to repay the loan or will be
overburdened (over-indebted) by the loan or credit;
o Balancing the rights of credit providers and consumers;
o Promoting the development of credit market that is accessible to all South Africans, in
particular those who have been historically unable to access credit.
o More disclosure & information provided to consumers;
▪ e.g. how interest is calculated on mortgage
o Dealing with over-indebtedness of the consumer
, 2. Scope & Application of the NCA
General Rule:
− The Act applies to every credit agreement conclusion in SA, on with an effect in SA
o (E.g. instalments paid in SA) with a few exceptions.
Excluded Transactions (i.e. not covered in Act)
Section 4 – this is where consumer is not protected by NCA
1) A credit agreement in which the consumer is the state/or an organ of state
2) A credit agreement in which the consumer is a juristic person whose monetary asset value or
annual turnover exceeding or equal to R1m at time the agreement is made (see also Sec 7)
▪ NB: Juristic person in Act can include a partnership or trust
(definition different from comp. law)
3) A “large agreement” where the consumer is any juristic person
▪ i.e. any juristic person – does not matter what asset value are annual turnover
▪ a “large agreement” is a credit agreement secured by a mortgage bond (regardless of
the amount) OR any other credit transaction with debt of R250 000 or more
4) Credit agreement in which credit provider is the reserve bank.
5) Credit agreement where credit provider is located outside Republic & from which consumer has
applied for an exemption.
6) Insurance policies (might be included soon)
7) Leases of immoveable property
8) Where the parties are not at “arms length”.
o Parties are NOT considered to be dealing at “arms length” IF:
▪ one is juristic person in which the other has a controlling interest rates
▪ they are family on one or each of them is dependent on the other
▪ one is not independent of the other & so will not seek the max advantage out of the
transaction
9) Stokvels (see later)
▪ these are rotating credit association largely run on an informal basis.
▪ but billions and billions of rands circulate in stokvels
3. Classification of Credit Agreements covered by the Act
(Section 8)
− The Act has 3 different broad categories of credit agreements, sometimes they may overlap.
− NB of the distinctions between 3 categories ∵certain provisions of the Act only apply to certain types
of Credit Agreements
− (Section 8)
➢ CREDIT FACILITY
● An agreement where the credit provider supplies goods or services to the consumer or lends
money to the consumer
● Consumer doesn’t pay for the goods or services immediately or doesn’t repay the loan
immediately. In return, the credit provider charges fees and/or interest.
● Examples:
o Loan granted by bank/other person
o Credit card facility
o A retail store card facility
,
, ➢ CREDIT TRANSACTION: can be any one of the following:
● Pawn transactions:
o the credit provider lends money to the consumer and at the same time, takes moveable
goods as security
o value of the goods > loan
o if consumer defaults, the credit provider sells the goods and keeps all the proceeds
● Discount transactions:
o goods or services are provided to the consumer over a period of time
o a discount price is offered, if the account is paid before a certain date
● Incidental credit agreement:
o an account is rendered for goods or services provided over a period of time AND
o if the account is not paid before a certain date
▪ then: some charge/fee or interest becomes payable and/or
▪ two prices are quoted, the lower price applies if the account is settled before a
certain date
NOTE:
∗ the incidental credit agreement is deemed to be concluded only 20 days after the provider first
charges a late fee or interest (or when the lower rate becomes applicable) and it only becomes a
credit agreement under the NCA at that point
∗ Before this, it is a valid contract, but it is not governed by NCA.
▪ John has physio once a week for 4 months.
He gets billed at the end of the each month on the 25th.
If he doesn’t pay by the 7th of the month, then the physio charges interest.
He pays on the 28th.
The physio doesn’t charge interest because he pays before the 7 th.
This doesn’t fall under NCA but it is a valid agreement.
▪ John has physio once a week for 4 months.
He gets billed at the end of each month on the 25th.
If he doesn’t pay by the 7th of the month, then the physio charges interest.
He pays on the 15th (1 week late).
She charges interest from the 8th.
The contract between John and the physio becomes a credit agreement under the NCA 20 days after the 8 th
(20 working days from day she charges interest).
● Instalment agreement:
o moveable property is sold to a consumer
▪ it is delivered to the consumer immediately but the purchase price is payable in
instalments
o interest and/or fees become payable each month
o ownership remains with the credit provider until the late instalment and interest and
fees is paid
o OR: ownership is transferred immediately to the consumer but as soon as the consumer
defaults (misses an instalment) ownership reverts to the credit provider.
● Mortgage agreement: to be covered in detail in Section 3
o credit provider lends money to the consumer and the consumer’s immoveable property
is used as security for the loan
