4.4 The National Credit Act
4.4.3 Credit transactions regulated by the NCA
The Act applies to all written credit agreements between parties dealing at arm's length and concluded within the Republic. The NCA regulates the following types of credit agreements (Section 8-9): Mortgage agreements; credit facilities like store cards, bank overdrafts, credit cards, garage cards; personal loans; instalment sales; lease of movable property; pawn and
(suretyships) (Kelly-Louw, 2007). Automatic increases in facilities will no longer be allowed (Chipeta & Mbululu, 2012).
In addition, the National Credit Amendment Act (NCAA) introduced affordability assessment regulations with an aim of assisting credit providers to effectively assess the consumer’s ability to repay credit and to also protect consumers from reckless lending. These regulations require credit providers to verify consumers’ income before granting credit. With the limitations of this study, all the exceptions or exemptions cannot be covered however it is important to note the exemptions which are deemed more relevant considering my research topic. The most relevant exclusion is where the consumer is a juristic person/company whose annual turnover or net asset value at the time that the agreement is concluded is over R1 million (Turner et al., 2008).
According to Raath (2018), the NCA has an extended definition of “juristic person”; it includes partnerships, associations and a trust with three or more individual trustees or if a trustee is itself a juristic person. Some credit agreements with juristic persons as consumers are fully exempt from the NCA (due to the R1 million threshold or because they are large agreements), whilst others are subject to the Act (below the R1 million threshold and not a large agreement).
A non-juristic person according to Raath (2018) is; an individual (sole proprietor), a trust with one or two natural persons as trustees, and a stokvel who are, in principle, fully subject to the NCA provisions relating to affordability assessments,over-indebtedness and reckless lending [note s78 and Regulation 23A(2) for a few exemptions not relevant here].
What is unclear from the above; is where a company applies for an overdraft facility and at the time the turnover and/or asset value is ≤ R1 million, the NCA will apply. If the company however applies for an increase in the overdraft facility at a later stage, and at this point the turnover is now, for example, in excess of R1 million, based on the interpretation it would seem that the NCA now no longer applies, even though the NCA did apply at the time when the first overdraft facility amount was granted. This could create some confusion for banks from an interpretation and implementation perspective. However, according to Raath (2018) a credit agreement with a juristic person as consumer, irrespective of whether the agreement is fully exempt from or subject to the NCA, is always specifically exempt from the NCA provisions relating to affordability assessments, over indebtedness and reckless lending [s6]. One could then question what the aim of the distinction is for the split for juristic persons, considering all the exemptions, all it seems to create is complexity in understanding the Act.
Other than from a bank’s perspective, small business owners should also have an in-depth understanding of the Act, as some businesses may need to comply with the Act depending on whether the business charges its customers fees, charges, or interest for late payment in the event of incidental agreements (Coetzee, 2009).
With the introduction of the NCA in June 2006, there was a large focus on large credit providers registering with the National Credit Regulator and ensuring compliance with the NCA. There was however very little, if any, attention given to small and medium businesses on the impact of the NCA on the daily operations of the business. The onus was left to the business owners to educate themselves. One would question whether business owners are even aware of the implications of the NCA on their daily business operations. Some business owners may have the incorrect perception that as long as the business does not give credit, and that all debtor accounts are payable within 30 days, that the NCA does not apply to their business (Van Heerden & Boraine, 2015).
Where the business operations involve the delivery of goods and/or services and the customer’s payment is deferred, usually, for thirty days, these transactions are potentially credit transactions or incidental credit agreements, which are both regulated by the NCA (Coetzee, 2009). There is however exemptions, for example, where shareholder loans are automatically exempt from the NCA, but employee loans are not. Depending on the volume and collective value of any employee loans, the business may need to register as a credit provider, even if the business is not in the business of providing credit to customers (Coetzee, 2009).
More prominently the NCA implication is where the customer does not pay the business immediately or is invoiced on a month-to-month bases. For example, when an account is tendered for payment for goods and/or service, that has been provided by the business to the customer once-off, or over a period of time, and one or both of the following conditions apply:
if the account is not paid in full before a certain date an extra charge, fee or interest is added to the account; and/or; where two prices are quoted, a lower price if the account is paid before a certain date, and a higher price if the account is paid thereafter (Van Heerden & Boraine, 2015). In terms of Section 5(2) of the NCA, these types of agreements are considered to only come into existence 20 business days after the business has first levied the extra charge, fee or interest to the customer’s account. Furthermore, if the business obtains an acknowledgment of debt, it may also fall within the ambits of the NCA depending on certain requirements, and if there are fees/charges and/or interest payable (Section 8(4)(f)) (Van Heerden & Boraine, 2015).
It must, however, be noted that the NCA has certain exemptions in place to protect businesses where stipulated, for example, an Incidental Credit Agreement is, amongst others, exempted from certain provisions in the Act, for example, reckless lending (Van Heerden, 2011:658).