# Regulatory Compliance Category > National Credit Act Forum >  Does the NCA affect all agreements?

## Xander

Does the NCA affect all agreements after 1 June 2007? :Frown:

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## Eugene

Xander, the answer is no. The NCA specifically excludes agreements that are not credit agreements. Section 8 defines credit agreements as being those agreements where goods and/or services are provided and the consumer's obligation to pay is deferred or is repaid in instalments AND there is a fee that is levied (typically, interest) for the ability to repay later or in instalments. 

The NCA also excludes all leases of immovable property (note that movable property is included), credit agreements between people who are not contracting at arm's length (such as a loan by a son to his mother), credit agreements where consumer is a company or CC whose asset value or turnover is over a million rand and credit agreements where the consumer is the South African Reserve Bank, the state or an organ of the state (note that when the state/Reserve Bank is the lender, the NCA is not excluded).

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## Dave A

One thing I'm trying to figure out is trade debtors and "casual" debtors.

How does the NCA affect the way we treat:
Regular debtors with an ongoing accountOnce off debtors (provide service - send bill and they tend to pay within 7 - 30 days)
The other aspect is where a COD discount is offered - as opposed to paying at, for example, 30 days.

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## Eugene

Dave, good question. These could be considered as incidental credit agreements. Say for instance you have a number of incidental credit agreements where the debtor has agreed to pay these accounts off over time (for instance if I am a doctor and have bad debtors), would you have to register as a Credit Provider? I think the answer is no: The debt still arises from an incidental credit agreement and thus you are exempt from having to register as a Credit Provider (see section 40(1)(b) of the NCA). This does not, however, mean that you do not have to comply with all the sections of the NCA that relate to incidental credit agreements - it simply means you don't have to register as a Credit Provider.

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## Eugene

I believe that the crux of the matter is the charging (and regulating fees or interest charged). As a general rule of thumb, if the intention of the person was not to levy interest or an additional charge, it will not be seen as a incidental credit agreement. An incidental credit agreement comes into being 20 business days after the consumer was due to pay provided that there is interest being charged if the consumer doesn't pay. For this reason many of my collegue attorneys have indicated that they would prefer not to charge interest as not charging interest would remove these agreements from the ambit of the NCA.

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## Dave A

> For this reason many of my collegue attorneys have indicated that they would prefer not to charge interest as not charging interest would remove these agreements from the ambit of the NCA.


I think that is one of the more critical points for business to consider when developing a debtors control strategy around the NCA.

Thanks Eugene.

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## duncan drennan

Do you think that there is a possibility that COD discounts will fall away as a result of this? In the same way that it might be better to avoid interest charges, it could be better to avoid COD discounts? Obviously this is not necessarily good for the consumer....

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## Dave A

> Obviously this is not necessarily good for the consumer....


Not that hot for cashflow of the business either.

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## Eugene

Duncan / Dave

I believe that the working of the COD (Cash on delivery) type of account will not be impacted by the NCA as it does not constitute a credit agreement, nor was it the intention of the parties to form a credit agreement. The fact that you offer a discount on early payment, I believe will not have an affect at all. (But the question still arises: if the consumer cannot pay the full settlement amount upon delivery and makes arrangements to pay it off in say, 2 instalments: this would then create and incidental credit agreement and the transaction would fall under the workings of the NCA).

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## duncan drennan

From the NCA definitions,




> *"incidental credit agreement"* means an agreement, irrespective of its form, in terms of which an account was tendered for goods or services that have been provided to the consumer, or goods or services that are to be provided to a consumer over a period of time and either or both of the following conditions apply:
> 
>     (a) a fee, charge or interest became payable when payment of an amount charged in terms of that account was not made on or before a determined period or date; or
> 
> _(b) two prices were quoted for settlement of the account, the lower price being applicable if the account is paid on or before a determined date, and the higher price being applicable due to the account not having been paid by that date._


Surely a COD discount is an example of (b)?

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## Eugene

Duncan, I'm not sure if I fully agree. The part (section (b)) that you are referring to states that "...or goods or services that are to be provided to a consumer *over a period of time* and either or both of the following conditions apply" and the one being acceptance of the lesser amount when making early payment(s). As I understand, the second part of the definition suggests a continuation of payments happening "over a period of time". Thus, if you engage in an agreement with monhtly payments (with an incentive of a lesser amount when paid by the due date) it would fall under teh ambit of the NCA. If however I buy something (once-off) and get discount when paying before the due date, it cannot be regarded as a credit agreement or incidental credit agreement: that would mean chaos!

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## duncan drennan

> that would mean chaos!


That's exactly what I'm worried about!




> means an agreement, irrespective of its form, in terms of which an account was tendered for goods or services that have been provided to the consumer, *or* goods or services that are to be provided to a consumer over a period of time and either or both of the following conditions apply


There are two items in that definition which are separated by an or

Account tendered for goods or services, ORGoods or services provided over a period of time

So if either of those are true, and either (a) or (b) are true....  :EEK!: 

Again, the scary bit is that we are going to have to wait and see what happens.

PS. Eugene, thanks for your amazing input on these topics — it really adds an immense amount of value for everyone accessing this forum (and hopefully it will add value to your business  :Wink:  ). We (all) appreciate your time and effort. Thanks so much

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## Brett Bentley

I agree with what Eugene has said and to answer your question dsd, I believe a COD account would fall under subsection (b) of the defintion of incidental credit agreements that you referred to.

In addition there were concerns by some creditor providers that giving trade discounts for early payment would push a credit provider under the "general credit agreement" provisions, as opposed to being an incidental credit provider. However the subsection (b) referred to ensures, in my opinion, that such a transaction remains under the definition of an incidental credit transaction.

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## Eugene

I just has a legitimate enquiry from one of my clients regarding the normal "acceleration clauses" that we normally find in a contract. My enquiry was based on an interpretation of section 129 when a letter of demand has to be sent out only for the arrears of the account and not the full contract amount i.r.o. the acceleration clause. So I called up the toll free number of the NCR and spoke to 8 people explaining my enquiry. After forming new four lettered works starting with the letter "F", I decided to draft an e-mail to the NCR (Gabriel Davel himself and a couple of his sidekicks).

This is how it went:

My e-mail to them:

*Good day Sirs!

I am an attorney from the Western Cape specializing in debt collection within the retail industry. I have been asked the following question by my clients and was unable to give them a clear answer in terms of the NCA. Could you please assist as a matter of urgency.

Question: What is commonly referred to in credit management, as an acceleration clause is a clause in which a creditor granting a debtor the right to repay a debt in instalments agrees the right to proceed for the full debt in the event of the debtor defaulting in the payment of any instalment. Could a credit provider still make use of such a provision in their agreement with a consumer?

Your reply is awaited.

Regards

Eugene Opperman*


Their reply:

_Dear Sir,

We have noted your e-mail enquiry which was sent to various people within this organisation and surprisingly, also to the CEO, on the basis that you require an urgent reply! Kindly note that this office, and in particular the CEO, is not in a position to respond to every attorney, or other member of the public for that matter, as a matter of urgency every time someone has a question about the Act or some related topic.

We will try to assist persons who approach us, but within reason. I am of the view that a credit provider would be entitled to demand repayment of the full amount outstanding under a credit agreement, if the client is in default and the credit provider seeks to enforce his rights in terms of the agreement in a court. The requirements of the Act and specifically sections 129 and 130 must be complied with Ã¢â¬â or any other section if applicable to the specific type of agreement. I suggest you consider all the sections dealing with termination and enforcement etc.

Please note that this is only my understanding of the legal position and should not be regarded as a formal legal interpretation of the Act by the NCR.

Yours faithfully,
National Credit regulator
Legal Advisor_ 

My final reply to them:

Thank you very much for your reply. I fully understand your predicament with the number of enquiries received by your offices regarding the practical implications of the Act. The main reason for sending the e-mail to various people within the NCR is that we really needed some guidance from the NCR as after a couple of phone calls to your offices no-one was in a position to understand our enquiry, not to mention offering some advice. While attending one of the courses on the NCA, I was brought under the direct impression that the NCR would welcome input and questions as to clarify any issues arising Ã¢â¬â my apologies if I was brought under a misconception of the willingness, or lack thereof on the side of the NCR.  I appreciate your answer though and getting back to me.

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## Dave A

Given the snail's pace at which these things get through court, Section 129 (3) looks rather troublesome.

The response from the national credit regulator is pretty much my point in establishing this forum. Imagine how much easier it would be if we had an easily accessible library of Q&A's with the regulator's input.

My thanks to all who are contributing to this knowledge base.

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## Eugene

Within the scope of debt collection practise I have received 14 applications for debt review during June. Considering that there are ony 55 (might be more to date) registered debt counsellors, the amount of applications received are quite high.  All is fair, but a new tendency is starting to develop in the collection industry where non-registered entities, holding themself out as "para-legal advisors", "debt guidance officers" etc. are bombarding our offices with an informal proposal for debt re-structuring. My opinion is that these guys are treading on thin ground as the NCA prohibits these type of conducts.

What is troublesome furthermore is that registered debt counsellors are using their company letterheads, which are also prohibited by the NCA as the debt counsellor has to use his OWN letterhead reflecting the registration status and number. The problem with the use of company letterhead (usually an incorporated company or even a CC) is that they are juristic persons which are clearly prohibited as practising as debt counsellors.

At first I did not think much thereof, but when I received 2 different applications on different letterheads of the same debt counsellor, the red lights started flickering. What was seriously wrong with this particular scenario was that you had one registered debt counsellor who intends opening a couple of "franchises" offering debt counselling. The matter was referred to the NCR and they have replied that they will have to consider definte principals and guidelines regarding the "own letterhead" as contemplated in the Act, but the franchising of debt counsellors is a sure no-go, unless you have a registered debt counsellor at every office.

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## jazz

We work in an organisation that does not levy interest on arrears account , we are however classified a an incidental credit,  what impact would blackisting a client have on our organisation

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## Eugene

Jazz, I think your question was answered in another thread youposted. 

Turning to the NCA and section 70 which deals with credit bureaus it is noted that only registered credit providers (section 70(2)) may submit details to the credit bureau upon payment of a submission fee. One must bear in mind that default judgments issued by the Courts are automatically lodged at the relevant credit bureaus. The “bad paying consumer” (payment history) could only be listed if you are a credit provider and a subscriber at the bureau.

With regards to “incidental credit agreements” it would indicate that the company is not registered as a credit provider (yet) and therefore the bureau is under no obligation to accept the report (section 70(2)). Should you however reach a stage where you have more than 100 incidental credit agreements, registration as a credit provider will be imminent as required by the NCA and you would then be in a position to lodge your payment profiles of defaulting consumers to the bureau if you are a subscribed member or paid the submission fee.

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## Brett Bentley

Hi All,

Eugene if what you are saying is that only registered credit providers can list default payments with a credit bureau, then I disagree, Section 70(2) refers to a credit provider being entitled to list, not a registered credit provider. The defintion of a credit provider in terms of Section 1 does not limit credit provider to those that are registered.

So in my opinion all credit provider, registered or not, incidental or otherwise, are entitled to list on credit bureaux - provided they comply with Section 70 and related section of the NCA.

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## Eugene

Brett, when I spoke to Experian, I was told that only registered credit providers and subscribers could supply them with payment (and defaulting) details. The normal court judgments are not affected as they get listed automatically. I am still of the opinion that it is unfair and also interpreted section 70 as you do. I will clarify the issue with the NCR when we have our seminar on 31 July 2007.

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## duncan drennan

> 4. (1) Subject to sections 5 and 6 (deals with incidental credit agreements and juristic persons), this Act applies to every credit agreement between parties dealing at arm's length and made within, or having an effect within, the Republic, except-
> 
> (a) a credit agreement in terms of which the consumer is-
> 
> (i) a juristic person whose asset value or annual turnover, together with the combined asset value or annual turnover of all related juristic persons, at the time the agreement is made, equals or exceeds the threshold value determined by the Minister in terms of section 7(1) (currently set at R1 000 000.00);





> "juristic person" includes a partnership, association or other body of persons, corporate or unincorporated, or a trust if-
> 
>     (a) there are three or more individual trustees; or
> 
>     (b) the trustee is itself a juristic person, but does not include a stokvel;


I was just looking at this again. Couple of questions...

Does the NCA apply to ALL natural persons, regardless of their net worth?If a trust has only 2 trustees, but one of them is a juristic person, is it a "juristic person" under the NCA?

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## Dave A

> Does the NCA apply to ALL natural persons, regardless of their net worth?


It would seem so, yes.



> If a trust has only 2 trustees, but one of them is a juristic person, is it a "juristic person" under the NCA?


It would seem not. 

The fact that there has been some effort to define a juristic person in a manner that is inconsistent with the juristic person definition of pretty much any other piece of legislation I've come across so far is, to me, something quite interesting. It flies in the face of a directive in an ongoing legal revue process that is striving for consistency on definitions across all legislation.

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## duncan drennan

One that I find quite interesting is that a partnership, which is in essence two natural persons AND requires no formal legal registration, has the benefit of the R1mil exemption, while a natural person does not. Quite strange to me.

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## Dave A

And following that line of thought, if a husband and wife own property jointly, that would be a partnership (?)

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## duncan drennan

> And following that line of thought, if a husband and wife own property jointly, that would be a partnership (?)


Exactly what I was thinking! Are we going to see lots of little Duncan & DonnÃÂ© Lifestyle Management Partnership's popping up?

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## Dave A

There was a time when folk were getting divorced to get around joint taxation of married couples. Do you think that little twist in the NCA could help reduce our horrific divorce rate?

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## duncan drennan

Hmmm...except that partners don't need to me married?

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## Dave A

Agreed. I don't think it'll lead to more marriages. But consider for a moment:

Traditionally, the property ends up in one or the other spouse's name (normally the one with the better housing subsidy).
Owning jointly now helps facilitate access to finance.
If the relationship hits rough waters, the partners are materially bound together just that little bit closer. And small shifts like that can produce fairly big changes.

Without going too far off-topic, I suspect a fair number of divorces nowadays are as a result of people giving up too soon. And adding a little more complexity to the act of disengaging could just be enough to disuade a few more folk from taking the "easy" option.

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## Eugene

Duncan / Dave you posted very interesting questions regarding spouses contracting with each other.

The NCA applies to every (1) credit agreement entered into between (2) parties dealing at armÃ¢â¬â¢s length (3) made within or having an effect within the RSA. Remember the exceptions contained in section 4(1)(a)-(d), eg. where the consumer is a juristic person with an annual turnover or asset value that > R1 million.

Ã¢â¬ËDealing at armÃ¢â¬â¢s lengthÃ¢â¬â¢ not specifically defined in the Act, but see sec 4(2)(b) as to what does NOT constitute dealing at armÃ¢â¬â¢s length:

Ã¢â¬Â¢           When a juristic person borrows money from a person who has a controlling interest in the juristic person.

Ã¢â¬Â¢           When a juristic person as consumer, enters into a credit agreement with a person who has a controlling interest in the juristic person

Ã¢â¬Â¢           A loan to a shareholder 

Ã¢â¬Â¢           When a juristic person lends money to a person who has a controlling interest in the juristic person.

Ã¢â¬Â¢           When a juristic person, as credit provider, enters into a credit agreement with a person who has a controlling interest in the juristic person.

Ã¢â¬Â¢           A credit agreement service, such as between persons in a familial relationship when one or both are dependent on the other.

Ã¢â¬Â¢           Any other arrangement where the parties are not independent of each other and they do not strive for their best possible advantage.

Ã¢â¬Â¢           Any other arrangement deemed by the law not to be "at arms length"

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## Dave A

OK. Let's test this a little further. Do the arm's length provisions apply to the creditor/consumer relationship, or to *any* aspect of the relationships regardless of exactly where those connections may lie?

There is ordinarily an arm's length relationship between the bank (credit provider) and the partnership forming the consumer (in this instance our happy couple alluded to above). Whilst it might seem we're kidding around a bit here, the same principle surely applies to pretty much any "mom & pop" business partnership out there.

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## Eugene

Dave when dealing with exemptions in respect of juristic persons one must distinguish between when the agreement is completely exempted from the Act versus when the Act applies, but the agreement is exempted from certain parts/provisions of the NCA. 

In the following instances *where juristic persons are consumers* under credit agreements, such agreements are exempted completely from the application of the Act:

-	Sec. 4(1)(a)(i): Where the consumer is a juristic person whose asset value or annual turnover, together with the combined asset value or annual turnover of all related juristic persons, at the time the agreement is made, equals or exceeds the threshold value
determined by the Minister (currently R1 million);
-	Sec. 4(1)(b): The credit agreement is a large agreement (sec. 9(4) ) in terms of which the consumer is a juristic person with annual turnover / asset value below the threshold set by the Minister.

In all other cases where a juristic person is the consumer under a credit agreement, the agreement is exempt from the following parts of the Act (sec. 6):

-	Chapter 4, Part C = credit marketing practices
-	Chapter 4, Part D = reckless credit and over-indebtedness
-	Chapter 5, Part A sec 89(2) = unlawfulness of negative option marketing
-	Chapter 5, Part A sec 90(2)(o) = unlawful provisions relating to variable interest rates charged on the principal debt; and
-	Chapter 5, Part C = consumerÃ¢â¬â¢s liability, interest, charges and fees.

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## TishB

What category does a non interest bearing staff loan with a 6 month repayment option fall under? is it an incidental credit agreement? do companies have the right to transfer monies into a staff members account and then ask them to sign a "staff loan form?

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## Dave A

> do companies have the right to transfer monies into a staff members account and then ask them to sign a "staff loan form?


I would expect the staff loan form should be signed *before* the money is transfered. It's also a good idea to deal with staff "emergency" loans and advances in your employment contract to allow deductions of instalments from salary and to allow deduction of the full balance owed on loans against termination settlement pay.

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