The implementation of the National Credit Act has drawn a lot of attention from credit providers and the Act is often blamed for the weak market conditions in retail, motor vehicle sales and the residential property market. The Acts application is far reaching. Implementing the new National Credit Act has also been a cumbersome and expensive exercise for many.
Prior to the National Credit Act
Before the National Credit Act the credit industry was regulated by a variety of laws, which included the Credit Agreements Act, Usury Act and the so called Exemption Notice to the Usury Act. Under the old dispensation micro loans were exempt from the Usury Act, which meant that for loans of less than R10,000.00 and a repayment period of no more than 12 months there was no limit as to what the consumer could be charged as far as interest rates were concerned. Microlenders could charge any interest rates, and loans charging rates of 30% per month common. If a lender did not fall within the framework of the Exemption Notice, the restrictions of the Usury Act applied.
Repeal of old Legislation
Section 172 of the National Credit Act has removed the the Credit Agreements Act and the Usury Act from our statute books and their provisions do not apply anymore.
Agreements under the National Credit Act
Section 4 of the National Credit Act sets out what types of agreements fall within the scope of the act. This is a positive list which means that agreements not included in this list fall outside of the National Credit Act.
The National Credit Act in its entirety does not apply to the following agreements:
- Shareholders loans;
- Loans by a holding company to a subsidiary;
- Loans between spouses or by parents to their children, or vice versa;
- Agreements where the parties are dependant on each other or are otherwise not at arms length;
- Loans, instalment sales or credit facilities to close corporations, companies or trusts (with at least 3 trustees) where the borrower's annual turnover is higher than R1 million or if value of the borrower's assets exceed R1 million.
- Agreements where the value of the loan is more than R250,000.00 and the borrower is a juristic person, even though the turnover or the asset value of the borrower is less than R250,000.00.
Please note that the list of exempted agreements above is not a complete list.
These exemptions apply to the loans listed irrespective of whether the credit provider is registered with the NCR. In other words, if a credit provider grants loans to individuals and is registered to do so, such credit provider may also grant exempted loans without having to comply with the requirements of the National Credit Act.
As such, the National Credit Act does not apply to the aforesaid agreements, and there are no restrictions on the maximum interest rate and other fees that may be charged by the credit provider to the consumer.