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NCA Q's and A's: Credit providers - II

28 June 2007

Questions

Q1. If an agreement is forfeited to the state, can the state collect the payments on the bond?

Q2. Post 1 June, if the Seller provides credit to the buyer (ie friends/family) does the seller have to register as a credit provider?

Q3. If the Seller who provides this credit to the buyer does not have any added charges or receive any interest, will they be excluded from NCA?

Q4. Must a translator be an agent of the bank?

Q 5. A client - a company - lent money to one of its employees to buy a house. The loan was for about R500,000.00 and the mortgage loan agreement was concluded on or about 2 June 2006. A first mortgage bond was registered by the employee over the property in favour of the company on 14 June 2006. The employee, who was recently dismissed, has failed to comply with his obligations in terms of the loan agreement by failing to pay the monthly installments. The company is not a registered credit provider, despite having provided similar credit to at least fifteen other employees over the last few years. The total outstanding balance on 1 June 2006 was more than one million rand. - 31 May

Q 6. From when does the five day period in which the consumer has a right to accept or decline the quotation begin? - 31 May

Q 7. Must the mortgage originator fees be declared in the loan agreement? - 5 July



Q1. If an agreement is forfeited to the state, can the state collect the payments on the bond? - 28 June

A. Yes. S92(5)(c)(ii) indicates that any "purported" rights that would have stemmed from the Credit Agreement would be forfeit to the state if the consumer was unjustly enriched.



Q2. Post 1 June, if the Seller provides credit to the buyer (ie friends/family) does the seller have to register as a credit provider? - 28 June

A. If the Seller provides credit to people who are not at arms length, such as dependants (see s4(2)(b), then the Credit Agreement will be excluded from the ambit of the NCA. If the buyer is at arms length (for example in the case of a friend) then the Seller would have to register as a credit provider if the loan exceeds R500 000 or the Seller has more than 99 Credit Agreements.



Q3. If the Seller who provides this credit to the buyer does not have any added charges or receive any interest, will they be excluded from NCA? - 28 June

A. An essential part of a Credit Agreement as defined by the Act is that there is a deferred charge/interest that is levied. If there is no charge/interest for later payment then it would not be seen as a credit agreement and consequently would be outside of the scope of the NCA.



Q4. Must a translator be an agent of the bank? - 28 June

A. No. The attorney could contract with an independent translator to represent the firm and to translate the document.



Q 5. A client - a company - lent money to one of its employees to buy a house. The loan was for about R500,000.00 and the mortgage loan agreement was concluded on or about 2 June 2006. A first mortgage bond was registered by the employee over the property in favour of the company on 14 June 2006. The employee, who was recently dismissed, has failed to comply with his obligations in terms of the loan agreement by failing to pay the monthly installments. The company is not a registered credit provider, despite having provided similar credit to at least fifteen other employees over the last few years. The total outstanding balance on 1 June 2006 was more than one million rand.

The following questions now arise:
(1) How is the NCA going to impact on this transaction come 1 June 2007? I have issued summons against the debtor and my priority is to obtain judgement before 1 June 2007 when section 89 of the NCA comes into operation.
(2) Am I misguided when advising my client that the transaction will be invalid and unenforceable after 1 June 2007?
(3) Is the act in other words retrospective?
- 24 May

A. The responsibility to register as a credit provider came into operation 40 business days after 01 June 2006 (about 27th July). In terms of the transitional provisions of the NCA (see schedule 3), sections 89 and 90 only apply to the extent that the common law/national law applied beforehand. So for example, a contract with an unemancipated minor (s89(2)(a)) was void before the implementation of NCA anyway and so s89 would apply to a pre-existing credit agreement with an unemancipated minor. Thus the question is:

"Was a credit provider obliged to register as a credit provider in terms of the Credit Agreements Act or Usury Act before 01 June 2007, failing which any loan he entered into would be deemed to be void?"

To the best of my knowledge the answer is "no". Thus, because the loans were entered into at a time when that sanction did not apply elsewhere in law (such as in the Usury Act or Credit Agreements Act), one should be fine. The question does occasion some concern because the other possibility - that all credit agreements entered into by an unregistered credit provider between 27th July and now would be void - was so alarming that we couldn't believe that result was possible.

In this particular case, the fact that the credit agreement was entered into in June (i.e. before the deadline expired - the client's need to register as a credit provider (in terms of the transitional provisions - see Schedule 3 section 2)) would be a further defence against a claim that the contract was void.

Thus to answer the questions:

(1) How is the NCA going to impact on this transaction come 1 June 2007? I have issued summons against the debtor and my priority is to obtain judgement before 1 June 2007 when section 89 of the NCA comes into operation.

For the above reasons I do not consider that the credit agreement that your client entered into is likely to be affected by s89. In my view the credit agreement would need to be entered into after 01 June 2007 for s89 to be an obstacle to you. Another pertinent section that you might want to consult is s129, which provides that a letter of demand MUST be sent and MUST contain a reference to the rights of the consumer or else you can't send out a summons. Once again, since you have already issued the summons before 01 June 2007, I do not consider that this would be pertinent to you, but I would caution you that if you haven't issued a summons before 01 June 2007 then you will be required to comply with s129 irrespective of whether the credit agreement was entered into before 01 June 2007 (i.e. s129 applies retrospectively to debt collection for credit agreements entered into before 01 June 2007 where you attempt to recover the debt after 01 June 2007).

(2) Am I misguided when advising my client that the transaction will be invalid and unenforceable after 1 June 2007?

For the above reasons I would say that you would still be able to recover the debt after the 01 June 2007 as the credit agreement was entered into before 01 June 2007. If your client enters into any further credit agreements after 01 June 2007 and is still not registered then of course he/she/it would run a very real risk of not being able to recover their loan from the debtor as s89(5) indicates. (But see s89(4)(a) which gives you 30 days' grace if your client does enter into a credit agreement after 01 June 2007 without being registered).

(3) Is the act in other words retrospective?

While s89 is retrospective, it is only partly retrospective. I argue that the particular instance which makes a credit agreement void (i.e. not being registered as a credit provider) was not a sanction present before 01 June 2007 and thus is not retrospective.



Q 6. From when does the five day period in which the consumer has a right to accept or decline the quotation begin? - 31 May

A. The five day period starts when the quote is communicated to the consumer. The word in the Act is "presented", looking at the Oxford dictionary this seems to say that the thing happens 'now'. The emphasis is thus on when the consumer actually gained constructive knowledge (either in person or though his agent, who could be a mortgage originator) of the existence of the quotation.


Must the mortgage originator fees be declared in the loan agreement? - 5 July

A. No. The mortgage originator is not the agent of the bank and the responsibility is on the mortgage originator to declare any commission that is earned by him/her in terms of s163 of the NCA.

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