UNIT 6
Credit agreements
Importance of Credit
Credit plays an important role in the economy.
Credit = money lent/borrowed as a monetary loan or part of the purchase/lease price of
goods/services not paid immediately but deferred.
Purpose of Consumer Credit Legislation
Main aim: Protect consumers from exploitation
Objectives:
1. Address imbalance in bargaining power by requiring disclosure of consumer obligations.
2. Combat malpractices in commerce by identifying and prohibiting them, with necessary
sanctions.
3. Limit free exercise of legal remedies to protect consumers.
Historical Background
Usury Act 1926: First national attempt at consumer credit law; applied only to money
lending.
Hire-Purchase Act 36 of 1942: Protected consumers in instalment contracts for movable
goods.
National Credit Act (NCA) 34 of 2005: Current main legislation; repealed Usury Act and
Credit Agreements Act; effective from 2006.
Alienation of Land Act 68 of 1981: Still applies to land purchase contracts.
Parties Involved
Credit Provider: Business/entity granting credit and supplying goods/services.
Consumer: Recipient of goods/services.
Application of the NCA
Applies to all credit agreements concluded at arm’s length and within South Africa.
If not applicable, common law applies.
Applies even if:
Credit provider is outside SA.
Credit provider is an organ of state.
Entity is created by public regulation.
, Credit provider is the Land and Agricultural Development Bank.
Types of Credit Agreements under the NCA
1. Credit Facility
Provider supplies goods/services or pays an amount to a consumer.
Consumer can:
Defer payment or repayment.
Be billed periodically with interest/fees if unpaid.
Example: Credit card, in-store card (revolving credit).
No requirement for transfer of ownership.
2. Instalment Agreement (Credit Transaction)
Sale of movable goods with deferred payment.
Includes ownership clause:
Ownership passes after full compliance, or
Ownership passes immediately with repossession rights.
Example: Vehicle financing.
3. Pawn Transaction
Consumer receives credit in exchange for possession of goods as security.
On expiry of term, credit provider may sell goods to settle debt.
4. Discount Transaction
Two prices quoted: lower if paid on/before due date, higher if paid later/periodically.
5. Mortgage Agreement
Mortgage bond registered over immovable property.
6. Secured Loan
Credit is secured by pledge over movable property.
7. Lease
Temporary use of movable property.
Ownership may transfer after contract term or upon condition fulfillment.
8. Incidental Credit Agreement
Becomes a credit agreement if payment is not made on time.
Example: Doctor’s bill unpaid after 30 days → interest charged.
9. Other Credit Transactions
Fixed amount, deferred payment, interest charged.
Example: Bank loan or Acknowledgement of debt.
10. Credit Guarantee
Suretyship: someone promises to pay another’s debt if they default.
NCA applies only if the underlying agreement is also covered.
Credit Agreement Categories
1. Small Credit Agreement
Pawn transaction or credit ≤ R15,000 (excluding mortgage).
2. Intermediate Credit Agreement
Credit between R15,000 and R250,000 (excluding pawn/mortgage).
3. Large Credit Agreement
Credit agreements
Importance of Credit
Credit plays an important role in the economy.
Credit = money lent/borrowed as a monetary loan or part of the purchase/lease price of
goods/services not paid immediately but deferred.
Purpose of Consumer Credit Legislation
Main aim: Protect consumers from exploitation
Objectives:
1. Address imbalance in bargaining power by requiring disclosure of consumer obligations.
2. Combat malpractices in commerce by identifying and prohibiting them, with necessary
sanctions.
3. Limit free exercise of legal remedies to protect consumers.
Historical Background
Usury Act 1926: First national attempt at consumer credit law; applied only to money
lending.
Hire-Purchase Act 36 of 1942: Protected consumers in instalment contracts for movable
goods.
National Credit Act (NCA) 34 of 2005: Current main legislation; repealed Usury Act and
Credit Agreements Act; effective from 2006.
Alienation of Land Act 68 of 1981: Still applies to land purchase contracts.
Parties Involved
Credit Provider: Business/entity granting credit and supplying goods/services.
Consumer: Recipient of goods/services.
Application of the NCA
Applies to all credit agreements concluded at arm’s length and within South Africa.
If not applicable, common law applies.
Applies even if:
Credit provider is outside SA.
Credit provider is an organ of state.
Entity is created by public regulation.
, Credit provider is the Land and Agricultural Development Bank.
Types of Credit Agreements under the NCA
1. Credit Facility
Provider supplies goods/services or pays an amount to a consumer.
Consumer can:
Defer payment or repayment.
Be billed periodically with interest/fees if unpaid.
Example: Credit card, in-store card (revolving credit).
No requirement for transfer of ownership.
2. Instalment Agreement (Credit Transaction)
Sale of movable goods with deferred payment.
Includes ownership clause:
Ownership passes after full compliance, or
Ownership passes immediately with repossession rights.
Example: Vehicle financing.
3. Pawn Transaction
Consumer receives credit in exchange for possession of goods as security.
On expiry of term, credit provider may sell goods to settle debt.
4. Discount Transaction
Two prices quoted: lower if paid on/before due date, higher if paid later/periodically.
5. Mortgage Agreement
Mortgage bond registered over immovable property.
6. Secured Loan
Credit is secured by pledge over movable property.
7. Lease
Temporary use of movable property.
Ownership may transfer after contract term or upon condition fulfillment.
8. Incidental Credit Agreement
Becomes a credit agreement if payment is not made on time.
Example: Doctor’s bill unpaid after 30 days → interest charged.
9. Other Credit Transactions
Fixed amount, deferred payment, interest charged.
Example: Bank loan or Acknowledgement of debt.
10. Credit Guarantee
Suretyship: someone promises to pay another’s debt if they default.
NCA applies only if the underlying agreement is also covered.
Credit Agreement Categories
1. Small Credit Agreement
Pawn transaction or credit ≤ R15,000 (excluding mortgage).
2. Intermediate Credit Agreement
Credit between R15,000 and R250,000 (excluding pawn/mortgage).
3. Large Credit Agreement
