By SIZIPHIWE YUZE, Rhodes University Law Clinic
Have you always wondered what the National Credit Act’s purpose is and who it is meant for? If you have, then this article is for you.
Credit transactions are those where there is a deferral or delay of payment of a sum of money to another person or a promise to pay money in future, rather than payment being made immediately for cash. Loans are another common form of credit transaction. Such transactions are dangerous, as they generally involve extra payments (interest and other costs) in return for access to the credit.
Many people do not understand how credit works. As a result, people end up drowning in debt. They are exploited by credit providers, become over-indebted, and many cannot pay their debts. A country’s economy cannot function properly if too many people are over-indebted. This situation led to the establishment of the National Credit Act (NCA) in 2005. The National Credit Act (NCA) was established to create an accessible, regulated and affordable credit market, putting in place mechanisms to protect consumers from unscrupulous lending and over-indebtedness.
The NCA protects consumers in the credit market and makes credit and banking services more accessible. It was introduced to promote and advance the social and economic welfare of South Africans. In particular, it aims to promote a fair, transparent, competitive, sustainable, responsible, efficient, and accessible credit market and credit industry, and especially to protect consumers who are generally not well versed in how credit works.
You might wonder how the NCA protects consumers. It generally ensures that how information is disclosed in credit agreements is simplified and standardised. The Act makes sure that credit products are handled the same way by different credit providers. It also aims to regulate the entire credit market by establishing the National Credit Regulator, which oversees the credit industry, and the National Consumer Tribunal, which adjudicates matters of dispute relating to the NCA. While the Consumer Protection Act generally attempts to codify consumer rights (see the articles on this Act published in 2021), the NCA, by contrast, has a narrower focus, as it applies only to transactions on credit.
The NCA affects everyone operating within the credit industry, including credit providers, consumers and intermediaries (e.g. debt counsellors and credit bureaux). Credit providers include banks, microlenders, retailers such as furniture and clothing shops, and all businesses, companies, close corporations, partnerships and individuals who do business on credit, provide loans or charge interest on overdue accounts. Consumers include parties to whom goods and services are sold under a discount transaction, incidental credit agreement or instalment agreement; parties to whom money is paid, or credit granted, under a pawn transaction; the mortgagor under a mortgage agreement; and the borrower under a secured or unsecured loan, to name a few.
It is important to note that the NCA excludes certain agreements from its scope. These include transactions between a stokvel and its members (a stokvel is a voluntary association involving a rotating financial scheme with entertainment, social or economic functions); an insurance policy; a lease of immovable property; an agreement where the credit provider and the consumer are related (e.g. where a husband lends money to his wife); an agreement where a director of a company lends money to his company; an agreement where a government institution lends to or borrows money from any other source, such as the South African Reserve Bank.
The NCA is ultimately designed to provide a comprehensive framework for how transactions on credit that fall under the Act are regulated. While the Act recognises that consumers are responsible for the debts they owe, it also recognises that credit providers also have a responsibility not to exploit or abuse their customers. So the Act puts in place extensive provisions to protect consumers.
The articles in this year’s series on consumer credit law will explore in more detail how the Act regulates this significant industry, worth billions of Rands per year, and which affects almost all of us, whether we are using a credit card, taking out a car or home loan, buying a piece of furniture on credit, or accessing personal loans through banks or moneylenders.