Unlawful credit agreements
08 Jun 2020
The majority of South Africans are using some form of credit or have access to some form of credit, whether by way of credit cards, clothing account credit cards, personal loans, etcetera. The National Credit Act 34 of 2005 (hereinafter referred to as “the NCA”) purports to achieve a healthy and balanced credit market in South Africa by seeking to effectively address the unequal bargaining power of consumers, to curb malpractice in the commercial world and to curb the exercise of certain contractual remedies amongst other intentions.
In terms of the NCA, for an agreement to constitute a credit agreement, there has to be money lent, payment of an amount owed by one person to another being deferred, and interest levied since interest is the cost of the privilege to lend money. The NCA finds its applicability to every credit agreement concluded within or given effect to in South Africa provided that no exclusion applies.
List of unlawful credit agreements
In terms of Section 89(2) of the NCA, a credit agreement is unlawful in the following circumstances:
- Agreements which entail negative option marketing;
- Agreements concluded by an unregistered credit provider;
- Agreements where an unassisted minor (who is not emancipated) is the consumer;
- Agreements where the consumer is mentally unfit or does not have the mental capacity to conclude such an agreement;
- Agreements where the consumer’s estate is under administration and the consumer has not obtained the consent of the administrator to conclude the agreement;
- Agreements concluded by a credit provider who is subject to final notice from the National Credit Regulator to withdraw from the credit market.
Consequences of Unlawful credit
Any credit agreement which a Tribunal or the Court finds to be unlawful, that Tribunal or Court can make the following orders:
- The agreement can be declared void;
- No party may claim performance;
- The performance which has already been delivered cannot be reclaimed on grounds of unjustified enrichment; the person in possession has a stronger right over the performance if both parties are equally guilty to the unlawfulness of the agreement (par delictum);
- The court can relax the par delictum rule in order to avoid injustice between the parties in accordance with the common law rule;
- The consumer’s money is to be refunded;
- The rights of the credit provider to recover funds from the consumer are to be cancelled.
In providing credit to consumers in terms of the NCA, it is imperative for both credit providers and consumers to be aware of the NCA and the effects thereof to avoid blameworthiness and the credit agreement being declared and unlawful.
- A brief look at consumer rights in terms of the Consumer Protection Act
- “The Debt Intervention Bill” signed into law
- Drafting loan agreements in consideration of the National Credit Act