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The quagmire of the NCA
The NCA was promulgated primarily with the intention of regulating the credit industry, as well as ensuring the protection of consumers in accessing credit. However, despite the laudable intention of the legislature, the NCA is amongst the most convoluted pieces of legislation making interpretation an arduous process for practitioners let alone lay-persons.
Perhaps Judge Willis put it best in the 2010 Gauteng South case of Firstrand Bank t/a First National Bank v Syffrets & Another and three similar cases 2010 (6) SA 419 (GSJ ) at [10] B-D, where in reference to the NCA it was stated that:
“A court is forced to go round and round in loops from subsection to subsection, much like a dog chasing its tail.”
The convolution of the NCA notwithstanding, it is important for both consumers and credit providers to understand their respective rights and obligations as contained therein, particularly with respect to incidental credit agreements.
When does an agreement constitute incidental credit?
Although a business owner’s primary business may not centre on the provision of credit to consumers, an agreement may still constitute incidental credit if such agreement falls within the ambit of the NCA.
Section 8(1) (a)-(d) of the NCA lists the classification and categories of credit agreements, and although incidental credit is not specifically listed under the umbrella terminology of ‘credit agreement’, it does fall under the sub-category of ‘credit transaction’.
Section 8(4) of the NCA addresses credit transactions and the various types of transaction that fall under this sub-category, and section 8(4)(b) includes incidental credit agreements.
Section 1 of the NCA defines an incidental credit agreement as being an agreement where an account was tendered for goods or services provided (or to be provided) to a consumer over a period of time and either or both of the following conditions apply:
- a fee, charge, or interest becomes due and payable when payment of an amount charged is not made on or before a stipulated date; and/or
. - two prices were quoted for settlement of the account, the lower price being applicable if the account is paid on or before a determined date and the higher being applicable if tendered after said date. This type of agreement is also known as a discount transaction.
Accordingly, if the standard terms and conditions of an agreement provides for the charging of interest, or even if the invoice or account that is tendered to a customer provides for interest or late penalties, such agreement would fall under the ambit of the section 8(4)(b).
Incidental credit agreements expanded:
Section 5 of the NCA provides for a limited application of the NCA with respect to incidental credit agreements. Crucially, providers of incidental credit agreements do not have comply with the Chapter 5 Part B provisions pertaining to pre-agreement statements and quotations.
Section 5(2) of the NCA further acts a deeming provision with respect to incidental credit agreements, which states that an incidental credit agreement is formed twenty (20) days after either:
- The supplier of goods or services first charges a late payment fee or interest; or
. - A pre-determined higher price for full settlement first becomes applicable.
Furthermore, Section 103(2) of the NCA provides that an interest charge may be payable or debited at any time after the day to which it applies i.e. on the day immediately following the payment deadline.
Section 101 of the NCA delineates the various costs that may be charged to the consumer, which include initiation and services fees, costs of credit insurance, default administration charges, and collections costs all of which must be levied in the prescribed form and may not exceed the prescribed maximum amount. Section 101(1)(d) of the NCA, specifically addresses the issues of interest payments, which interest:
- must be expressed in percentage terms as an annual rate calculated in the prescribed manner; and
. - must not exceed the maximum prescribed rate.
In terms of regulation 42(1) (contained in GN R489 of GG 28864 of 31 May 2006), the maximum prescribed rate of interest is capped at 2.00% (Two Per Centum) per month, calculated daily and added to the deferred amount monthly.
Although the multiplicity of inter-related provisions appears daunting at first glance, the best way to navigate the quagmire of the NCA is to apply the provisions to a characteristic scenario. Typically, a service provider would transmit an invoice to a customer for services rendered, and would make provision for a payment period as to when payment is due, usually in the form of a 30-day settlement period. In such a circumstance a service provider would be entitled to charge interest or a late penalty fee only on day 31 (in terms of section 101(d)). The interest charged to the consumer would be capped in terms of regulation 42(1) at 2.00% per month (i.e. at 24.00% per annum). In terms of the section 5(2) deeming provision, the incidental credit agreement would only be formed twenty days after the service provider first charges interest.
It is important to note, however, that although an agreement may fall under the definition of incidental credit, that agreement would still be subject to the general application clause of the NCA contained in section 4(1) which specifically excludes consumers who are juristic persons, with an annual turnover, or asset value of One Million Rand or more (in terms of Regulation 2 contained in GN 713 of GG 28893 of 1 June 2013).
Furthermore the recent 2015 amendments to section 40 of the NCA now requires all persons and entities to register with the NCR where the total principal debt owed to that credit provider under all outstanding credit agreements, other than incidental credit agreements, does not exceed the threshold as determined by the Minster. Regulation 2 of GN 513 in GG 39981 of 11 May 2016 now set the minimum threshold at NIL (R 0).
Implications for business owners:
Accordingly, if an agreement falls under the definition of incidental credit in terms of the NCA a business owner is not required to register with the National Credit Regulator, provided it is only incidental credit that is being supplied to the consumer. A provider of incidental credit is permitted to charge a maximum of 2.00% interest per month when the consumer defaults on their payment obligations, and must further ensure that they comply with the section 129 notice procedure when enforcing the debt.
Should an agreement (or an invoice) be silent on the levying of interest on an overdue account, the agreement would not fall under the definition of incidental credit, and the creditor would be entitled to charge mora interest at 3.5% above the Repo Rate, in terms of section 1(2)(a) of the Prescribed Rate of Interest Act 55 of 1975.
Prepared by:
Ashley Adriaans | Director | Dispute Resolution: Litigation and Arbitration Kshethra Naidoo | Candidate Attorney | Dispute Resolution: Litigation and Arbitration
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. Errors and omissions excepted (E&OE)