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National Credit Act

An overview

The National Credit Act aims to increase access to credit to as many consumers as possible, while simultaneously preventing over-indebtedness.

National Credit Act

In general terms, the National Credit Act (the Act) aims to transform the South African credit market and all consumer credit providers are required to comply with the Act. While the Act aims to give effect to every consumer’s right to access to credit, it guards against over-indebtedness. Only those consumers that can afford credit should be allowed access to credit.

Application
The Act applies widely to ALL consumer credit agreements. There is a misconception that only registered credit providers need to comply with the provisions of the Act. This is incorrect. Even though the Act requires certain credit providers to register with the National Credit Regulator (see below), ALL credit providers are obliged to comply with the Act.

The Act applies where a credit provider enters into a credit agreement with a consumer. In order to determine to which transactions the Act applies, one needs to consider two definitions. Firstly, who would be a ‘consumer’ for purposes of the Act, and secondly, which agreements are classified as ‘credit agreements’ in terms of the Act.

Consumer
The Act defines a ‘consumer’ to include ALL natural persons, as well as some juristic persons. With respect to natural persons, the Act regulates all credit agreements with natural persons, irrespective of the amount involved. With respect to juristic persons, the Act determines that only small enterprises will enjoy the protection afforded by the Act. As such only juristic persons with an asset value or annual turnover of less than R1m are classified as ‘consumers’ for purposes of the Act.

Credit agreement
A credit agreement has two main characteristics: Firstly, there must be some deferral of repayment, or a prepayment and secondly, the credit provider must impose a fee, charge or interest with respect to deferred payments or the credit provider must give a discount with respect to prepayment.

Three types of credit agreements are distinguished in the Act:

  • A credit facility, for example a credit card, line of credit, overdraft protection;
  • A credit transaction, which sub-divides into several “sub-species” of agreement, for example, a mortgage (of immovable property), lease of personal property, secured loan (secured by pledge of personal property), instalment account, discount account, pawn transaction, incidental credit agreement, i.e. a prepaid transaction or outstanding account, or any other similar transaction like an unsecured loan; and
  • A credit guarantee.
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