WHEN DOES THE NATIONAL CREDIT ACT APPLY?
The National Credit Act No. 34 of 2005 (“NCA” or the “Act”) is a piece of legislation that provides for consumer protection. This means that where credit transactions take place between parties, it is important for the credit provider to act in accordance with the NCA to ensure it does not prejudice the consumer. The intention of the NCA is to level the playing fields to allow consumers to feel empowered and not to be taken advantage of by large corporate entities.
The two-step test to determine whether the NCA applies to a credit agreement, is whether the consumer falls within the definition of a consumer under section 4 of the Act and whether the transaction would be considered a credit agreement under section 8 of the Act. If the first question is answered negatively then there is no need to continue to the second question as the NCA will not be applicable. It is important to note that the Act only applies to credit agreements within the Republic of South Africa.
Section 4(1) of the NCA states as follows:
“Subject to sections 5 and 6, this Act applies to every credit agreement between parties dealing at arm’s length and made within, or having an effect within, the Republic, except a credit agreement in terms of which the consumer is-
(i) 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 in terms of section 7( 1);
(ii) the state; or
(iii) an organ of state;
(b) a large agreement, as described in section 9(4), in terms of which the consumer is a juristic person whose asset value or annual turnover is, at the time the agreement is made, below the threshold value determined by the Minister in terms of section 7(1);”
The annual turnover or asset value for a juristic person as of today’s date is more than R1 million. This means that the NCA will apply to all individuals and juristic persons whose annual turnover or asset value is less than R1 million. While a large agreement is R250,000.00 or more in terms of Section 7(1)(b).
Section 8 of the NCA defines what credit agreements are and separates the definition into four categories – credit facilities, credit transactions, credit guarantees and any combination of a credit facility or credit transaction.
The NCA does not apply to the following credit agreements:
● Loans to family members, friends, or partners in an informal manner.
● Stokvel agreements
● Insurance policies
● Leasing of immovable property
What is important to note is that there is a misconception that only registered credit providers need to comply with the provisions of the NCA. This is false as the NCA applies to all credit providers and therefore unregistered credit providers should be familiar with the provisions of the NCA in order to be compliant.
If you are thinking of entering into a transaction where credit will be provided, it is important to understand whether you are required to register as a credit provider. Failure to do so may result in unexpected penalties.
Written by: Orissa Ramesar (Candidate Attorney)
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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).