Is an acknowledgment of debt regulated by the National Credit Act?

consumer credit
07 Jun 2018

The purpose of the National Credit Act, No.34 of 2005 (“NCA”) is to promote a fair and non-discriminatory marketplace for access to consumer credit and in order to achieve such aims, the strict regulation of consumer credit and improved standards of consumer information is paramount.

The NCA places the onus on the credit providers to ensure that its substantive and procedural requirements are met. The application of the NCA to acknowledgments of debts (“AOD”) has, however, caused much debate.

An AOD is a written contract entered into between a debtor and creditor in terms of which they agree that the debtor accepts an unequivocal admission of liability towards the creditor in respect of the amount advanced by the creditor to the debtor. The debtor acknowledges that he or she is indebted to the creditor for a particular sum of money advanced and on the payment terms agreed between the debtor and the creditor.

Section 8(1) of the NCA provides that an agreement constitutes a “credit agreement” if it is, inter alia, a “credit transaction”. Waters start to get muddied when considering the definition of a “credit agreement” as prescribed in the NCA and whether an AOD falls within the ambit of such a definition. If an AOD meets the definition of a “credit agreement” for the purposes of the NCA, the AOD would thus have to be fully compliant with the requirements set out in the NCA, and the failure by the creditor to meet the requirements could lead to the court rendering the AOD void. Furthermore, if the AOD is indeed to be found a “credit agreement”, in consequence it carries with it an obligation on the part of the creditor to be registered as a credit provider in terms of section 40 of the NCA.

The courts have finally ruled in the case of Friend v Sendal [2012] that a simple AOD is a credit agreement as envisaged in section 8 of the NCA, provided that the creditor is in the practice of lending and has not entered into an AOD with a debtor on one isolated instance.

The implication of the ruling in Friend v Sendal [2012] is that the creditor then needs to register as a credit provider in terms of section 40 of the NCA. Moreover, given the Department of Trade and Industry’s announcement on 11 May 2016, which provided that the threshold required in terms of section 42(1) of the NCA is reduced from R500 000 to nil (R0), the essence of which being that the newly set threshold requires any person who grants credit within the ambit of the NCA, irrespective of the amount of credit provided, must apply to be a registered credit provider with the National Credit Regulator before giving a loan.

The fact, however, remains that an individual giving a once-off loan of any amount greater than the threshold in the form of an AOD who does not intend on entering into consecutive AODs does not need to be a registered credit provider.

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(This article is provided for informational purposes only and not for the purpose of providing legal advice. For more information on the topic, please contact the author/s or the relevant provider.)

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