KRG CREDIT AGREEMENTS NOTES
CHAPTER 12
What is credit and its function?
This is essentially a deferral of payment, pay off the amount in installments with interest &
other costs (service, initiation fees)
Allows a person to obtain something NOW although the person can’t afford it
Powerful tool in economy
Consumer protection is required and why?
The playing field between the financial institutions or credit provider and individuals is very
unfair
User of credit (consumer) vs. credit provider -> legislation is required
The national credit act: consumer credit enactment
THE NCA 34 OF 2005
- Regulates the contractual and financial aspect of credit agreements (contract)
- Application as follows
GENERAL RULE:
Every credit agreement (is it recognized by the act?)
Between parties dealing with each other at arm’s length (is it concluded at arm’s
length)
Made within or having an effect in the republic (in South Africa)
Unless exemption is required
Common law only (where the NCA is inapplicable) or common law and NCA (where act is
applicable)
CREDIT AGREEMENTS SUBJECT TO NCA:
1. Credit facility: undertaking by credit provider to:
Supply of goods and services
amount of money (over draft, credit cards)
Payment deferred
Interest levied
Revolving credit involved (sale of movable goods) – 3rd credit facility
Means that payment of installments by the consumer creates new
credit which can be used again by the consumer
In store card transactions: don’t have to pay for goods in store
immediately
Can only use the limit of R10000 but if you use and then pay back
R4000, the new limit is R4000 and so forth
All credit facilities work on the same principles
Facility that the consumer can use on a revolving basis
, 2. Credit transaction (8 different transactions)
Pawn transaction
Pawn shop transaction or borrowing
They require security
Pay back with interest and in agreed time period -> receive security
If not – keep security and keep proceeds
Discount transaction
Goods or services at a lower or higher price
Granted to consumer for paying at a sooner stage
Indirect form of interest is the difference between higher and lower
price
Incidental credit agreement
- Example of auditor
- Credit is extended incidentally
- Auditor grants services but the client is not expected to pay for
services immediately, will bill the client later (statement of account)
- Auditor can do the following:
o NCA provides that this only comes into being after
20 business days after which interest is charged by
the credit provider for the first time
o Incidental credit agreement will come into being
- You do not have to register as a credit provider in terms of the act
Instalment agreement
Contract of sale of movable property with ownership reservation
clause
To purchase more expensive consumer goods with (cars, furniture)
This agreement will have a clause telling consumer when they will
become owner of the goods
Consumer only owner = on payment of final instalment
Ownership reservation clause
Essentially security
Mortgage agreement
Credit agreement secured by registration of bond over immovable
property in the Deeds office
Financial institutions want security
Register a bond in the deeds office to serve as security for
repayment of loan
sale of immovable property -> receive proceeds from sale
secured loan
CHAPTER 12
What is credit and its function?
This is essentially a deferral of payment, pay off the amount in installments with interest &
other costs (service, initiation fees)
Allows a person to obtain something NOW although the person can’t afford it
Powerful tool in economy
Consumer protection is required and why?
The playing field between the financial institutions or credit provider and individuals is very
unfair
User of credit (consumer) vs. credit provider -> legislation is required
The national credit act: consumer credit enactment
THE NCA 34 OF 2005
- Regulates the contractual and financial aspect of credit agreements (contract)
- Application as follows
GENERAL RULE:
Every credit agreement (is it recognized by the act?)
Between parties dealing with each other at arm’s length (is it concluded at arm’s
length)
Made within or having an effect in the republic (in South Africa)
Unless exemption is required
Common law only (where the NCA is inapplicable) or common law and NCA (where act is
applicable)
CREDIT AGREEMENTS SUBJECT TO NCA:
1. Credit facility: undertaking by credit provider to:
Supply of goods and services
amount of money (over draft, credit cards)
Payment deferred
Interest levied
Revolving credit involved (sale of movable goods) – 3rd credit facility
Means that payment of installments by the consumer creates new
credit which can be used again by the consumer
In store card transactions: don’t have to pay for goods in store
immediately
Can only use the limit of R10000 but if you use and then pay back
R4000, the new limit is R4000 and so forth
All credit facilities work on the same principles
Facility that the consumer can use on a revolving basis
, 2. Credit transaction (8 different transactions)
Pawn transaction
Pawn shop transaction or borrowing
They require security
Pay back with interest and in agreed time period -> receive security
If not – keep security and keep proceeds
Discount transaction
Goods or services at a lower or higher price
Granted to consumer for paying at a sooner stage
Indirect form of interest is the difference between higher and lower
price
Incidental credit agreement
- Example of auditor
- Credit is extended incidentally
- Auditor grants services but the client is not expected to pay for
services immediately, will bill the client later (statement of account)
- Auditor can do the following:
o NCA provides that this only comes into being after
20 business days after which interest is charged by
the credit provider for the first time
o Incidental credit agreement will come into being
- You do not have to register as a credit provider in terms of the act
Instalment agreement
Contract of sale of movable property with ownership reservation
clause
To purchase more expensive consumer goods with (cars, furniture)
This agreement will have a clause telling consumer when they will
become owner of the goods
Consumer only owner = on payment of final instalment
Ownership reservation clause
Essentially security
Mortgage agreement
Credit agreement secured by registration of bond over immovable
property in the Deeds office
Financial institutions want security
Register a bond in the deeds office to serve as security for
repayment of loan
sale of immovable property -> receive proceeds from sale
secured loan
