Credit Agreements

Options for the court with unlawful agreements and provisions
1. Unlawful Agreements
  1. Not automatically void UNLESS declared to be so by a court
  2. Court may declare CA void
  3. Order refund of all payments made by consumers ito CA AND
  4. Prohibit CP from claiming from consumer AND
2. Unlawful provisions
  1. ‘Sever’ (cut out) provision from agmt OR
  2. Alter agmt/provision OR
  3. IF neither is possible, declare whole CA void
Consumers Rights
1. Right to apply for credit without discrimination
2. Right to information and documents in official and plain language
3. Right to confidentiality
4. Rights regarding information held by Credit Bureaux
  1. CBs & CPs must remove all adverse info re consumer, once all debts paid in full
5. Cooling off period
  1. Consumer may (without reason) rescind INSTALMENT AGREEMENT OR LEASE within 5 business days of signing contract
Overview
1. Regulated by the National Credit Act
2. Requirements to qualify as a Credit Agreement?
  1. Credit extended either by (1) one party advancing money to another party, or (2) parties agree that payment of money owed by one party to the other will be deferred to a future date
  2. There is a cost to the debtor for the advancement of money/deferral of payment in the form of interest, fees or charges
3. Types of credit agreements
  1. Credit facility
    1. Agreement where CP supplies goods/services OR pays amount to Consumer
      1. Defers payment to future date (or all or any part of money owed) OR bills consumer periodically for repayment
        Charges interest, charges or fees for deferred payment/amounts not paid
  2. Credit Transactions
    1. Pawn transactions
      1. CP gives money to consumer in exchange for goods as security.
    2. Discount transactions
      1. Goods/services provided over period of time AND discounted price payable IF debt(s) repaid early.
    3. Incidental credit agreements
      1. Account rendered for goods/services AND if not paid by X date, interest/charges becomes payable OR 2 prices are put forward depending on date of payment
    4. Instalment Sale Agreements
      1. MOVEABLE PROPERTY, eg. car
      2. Sale of MOVEABLE property: delivery takes place & price payable in instalments (with interest/fees charged)
      3. Ownership remains vested in CP until paid in full OR reverts to CP in case of default
    5. Mortgage Agreements
      1. IMMOVABLE PROPERTY
      2. Where consumer takes out loan to buy house & bank / lender registers mortgage bond as security
    6. Secured Loans
      1. Security: MOVEABLE PROPERTY
      2. Money lender secures loan bmo pledge over movable property
    7. Leases
      1. NOT SEEN AS A CONTRACT OF SALE, eg. cellphone contract
      2. Movable (IMMOVABLE LEASES EXCLUDED) goods lent to consumer AND rent payable in instalments OR at later date AND interest / fees payable AND ownership passes to consumer on settlement of debt NB OVERLAPS with instalment sale agreements
  3. Credit guarantees
    1. Contract ito which one person (guarantor) undertakes to satisfy (on demand) another consumer’s obligation ito credit facility OR credit transaction
4. Size of Credit Agreements
  1. Small credit agreement <15k
  2. Intermediate credit agreement 15k – 250k
  3. Large credit agreement >250k
5. NCA ONLY applicable to agmts concluded in SA or with an effect in SA
6. Exluded agreements
  1. Insurance policies
  2. Leases of immovable property
  3. Where state is the consumer
7. NCA ONLY applicable if:
  1. Consumer is a natural person
  2. Consumer is a juristic person (partnerships included) with annual turnover that is lower than that prescribed in the goverment gazette, and agreement is NOT a large agreement (>250k)
Institutions under the NCA
1. National Credit Regulator
  1. Bears primary responsibility for promoting & realising purposes of the NCA & monitoring credit market
2. National Consumer Tribunal
  1. Functions like a court: Adjudicates complaints and may issue fines, cancel registrations of CPs, prohibit further extensions of credit
3. Debt Councellors
  1. NATURAL PERSON
  2. Registered, qualified, natural persons Investigate & make recommendations to courts regarding alleged instances of reckless credit and/or over-indebtedness
4. Credit Bureaus
  1. JURISTIC PERSON
  2. Where all of the info regarding credit agreements is kept
Dispute Resolution
1. UNLESS complaint concerns debt enforcement by CP, parties to disputes about CAs must attempt to reach resolution btwn themselves before referring dispute to NCT or court
Credit Providers Duties
1. Negative option marketing is prohibited
2. Marketing & sales of credit at consumer’s home / work Say someone knocks on your door selling air freshener. It costs R10, but you cant afford it. They offer for you to pay it off over two years. THIS IS ACCEPTABLE. However it is NOT ACCESSIBLE to directly offer you credit.
3. Consumer (generally) has 5 business days to accept & (subject to certain exceptions) CP must then contract with consumer on stated terms if national interest rates change during the 5 days then bad luck
4. Obligation on CPs to take reasonable steps to assess (potential) consumer’s understanding of risks & costs; obligations ito agmt; debt repayment history AND financial means to prevent reckless credit
  1. Aim is to avoid reckless credit
Cost of Credit
1. charges/fees etc may NOT exceed unpaid balance of principal debt
2. Prohibits CPs from charging higher prices for goods or services ito CAs than that charged for cash purchases of same goods/services
Rights & duties during operation of contract
1. Duty to report location of goods
  1. Consumers who have concluded INSTALMENT AGMTS, LEASES & SECURED LOANS with CPs must notify CPs of location of goods & changes thereto OR be guilty of offence
2. Changes to CA’s (eg. Interest rates) must be signed & in writing (may be electronic) UNLESS they REDUCE consumer’s obligations
3. Requests by consumers for max credit limits (in case of credit facilities) to be reduced MUST be accepted
4. Consumers MAY make larger than necessary payments OR pay earlier than required ito CA AND CPs MUST accept such payments
Right to debt review
1. Consumers may apply to debt counsellors for debt review AND debt counsellor may investigate allegations, AND MAY:
  1. Dismiss application OR
  2. Make recommendations to consumer OR
  3. Recommend to CRT that consumer be declared over-indebted & have debts restructured/rearranged AND/OR that one/more of CAs = reckless
2. Effect of application for debt review
  1. Consumers may not incur further charges/enter into new CAs BEFORE pending applications resolved
  2. CPs who have received notice of the above (or of an application for CA to be declared reckless) may not enforce any right/security ito CA UNTIL pending applications resolved
3. "OVER-INDEBTEDNESS"
  1. 'Consumer is, or will be, unable to satisfy all obligations, under credit agreements to which she is a party, on time, having regard to the consumer’s financial means, prospects, obligations and probable propensity to do so as indicated by her history of debt repayment.’
4. 'RECKLESS CREDIT'
  1. ‘either at the time the agreement was made or at the time an amount approved under the agreement increased, the credit provider either failed to conduct any assessment at all of the consumer’s capacity to afford the credit, or increase, irrespective of what the outcome of that assessment would have been'
5. Powers of Courts
  1. Reject application
  2. Declare consumer over-indebted
  3. Declare certain CA(s) to be reckless and if so the court MUST either suspend OR set aside relevant CA(s) in whole or in part…
    1. CA set aside? Consumer released from all obligations thereunder
    2. CA suspended? Consumer need not make payments ito CA until period of suspension lapses AND no interest/fees etc may be charged for that period
  4. Rearrange consumer’s obligations
    1. Consumer may not enter into further CAs UNTIL terms of re-arrangement / order met AND CP may not enforce CAs UNLESS consumer defaults ito re-arrangement
Credit provider’s rights on consumer’s breach
1. Where agmt = instalment agmt, lease or secured loan, CP may take possession of relevant property (think of a car), subject to cancelling CA & obtaining court order.

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Credit Agreements

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	Created by Daniel Freedman about 9 years ago