An Overview of the National Credit Act

The National Credit Act, 2005 (Act No. 34 of 2005) is part of a comprehensive legislation overhaul designed to protect the consumer in the credit market and make credit and banking services more accessible. The Act was introduced to: promote a fair and non-discriminatory marketplace for access to consumer credit and for that purpose to provide for the general regulation of consumer credit and improved standards of consumer information; promote black economic empowerment and ownership within the consumer credit industry; prohibit certain unfair credit and credit-marketing practices; promote responsible credit granting and use and for that purpose to prohibit reckless credit granting; provide for debt reorganisation in cases of over-indebtedness; regulate credit information; provide for registration of credit bureaus, credit providers and debt-counselling services; establish national norms and standards relating to consumer credit; promote a consistent enforcement framework relating to consumer credit; and establish the National Credit Regulator and theNational Consumer Tribunal.

The Purpose of the National Credit Act

The purposes of the National Credit Act are to promote and advance the social and economic welfare of South Africans; promote a fair, transparent, competitive, sustainable, responsible, efficient, effective and accessible credit market and industry; and protect consumers, by:

• Promoting the development of a credit market that is accessible to all South Africans, and in particular to those who have historically been unable to access credit under sustainable market conditions.
• Ensuring the consistent treatment of different credit products and different credit providers.
• Promoting responsibility in the credit market by encouraging responsible borrowing, avoidance of over-indebtedness and fulfilment of financial obligations by consumers; and discouraging reckless credit granting by credit providers and contractual default by consumers.
• Promoting equity in thecredit market by balancing the respective rights and responsibilities of credit providers and consumers.
• Addressing and correcting imbalances in negotiating power between consumers and credit providers by providing consumers with education about credit and consumer rights; providing consumers with adequate disclosure of standardised information in order to make informed choices; and providing consumers with protection from deception, and from unfair or fraudulent conduct by credit providers and credit bureaus.
• Improving consumer credit information and reporting and regulation of credit bureaus.
• Addressing and preventing the overindebtedness of consumers, and providing mechanisms for resolving over-indebtedness based on the principle of satisfaction by the consumer of all responsible financial obligation.
• Providing for a consistent and accessible system of consensual resolution of disputes arising from credit agreements.
• Providing for a consistent and harmonised system of debt restructuring, enforcement and judgment, which places priority on the eventual satisfaction of all responsible consumer obligations under credit agreements.

Protection of consumer credit rights

• A credit provider must not, in response to a consumer exercising, asserting or seeking to uphold any right set out in the National Credit Act or in a credit agreement: discriminate directly or indirectly against the consumer, compared to the credit provider’s treatment of any other consumer who has not exercised, asserted or sought to uphold such a right -
  • 1. penalise the consumer;
  • 2. alter, or propose to alter, the terms or conditions of a credit agreement with the consumer, to the detriment of the consumer; or
  • 3. take any action to accelerate, enforce, suspend or terminate a credit agreement with the consumer.
• If a credit agreement, or any provision of such an agreement is, in terms of the National Credit Act, declared to be unlawful or severed from the agreement, the credit provider who is a party to that agreement must not, in response to that decision:
  • - directly or indirectly penalise another party to that agreement when taking any action contemplated in Section 61(1);
  • - alter the terms or conditions of any other credit agreement with another party to the impugned agreement, except to the extent necessary to correct a similarly unlawful provision; or
  • - take any action to accelerate, enforce, suspend or terminate another credit agreement with another party to the impugned agreement.

Protection against discrimination in respect of credit

• Relative to the treatment of any other consumer or prospective consumer, a credit provider must not unfairly discriminate directly or indirectly against any natural person, juristic person or association of persons on one or more grounds set out in Section 9(3) of the Constitution, or one or more grounds set out in Chapter 2 of the Promotion of Equality and Prevention of Unfair Discrimination Act, 2000 (Act No. 4 of 2000), when:
  • - assessing the ability of the person to meet the obligations of a proposed credit agreement;
  • - deciding whether to refuse an application to enter into a credit agreement, or to offer or enter into a credit agreement;
  • - determining any aspect of the cost of a credit agreement to the consumer;
  • - proposing or agreeing the terms and conditions of a credit agreement;
  • - assessing or requiring compliance by the person with the terms of a credit agreement;
  • - exercising any right of the credit provider under a credit agreement, the National Credit Act or applicable provincial legislation;
  • - determining whether to continue, enforce, seek judgment in respect of, or terminate a credit agreement; or
  • - determining whether to report, or reporting, any credit information or record.
• Subsection (1), read with the changes required by the context, applies equally to:
  • - a credit bureau when offering its services to the public, and when accepting, compiling, analysing, modifying or reporting any credit information or record;
  • - the ombud with jurisdiction or alternative dispute resolution agent, when offering or holding out the ability to resolve a dispute or assist in the resolution of a dispute between a credit provider and a consumer in terms of the National Credit Act, or in accepting or refusing a referral of such a matter, or in delivering any such service to credit providers and consumers;
  • - a debt counsellor when offering or holding out the ability to serve as a debt counsellor in terms of the National Credit Act, or in accepting or refusing a referral of such a matter, or in delivering any such service to consumers; and
  • - any employer or trade union, when acting in terms of Section 75(3) or Section 75(4).
• Subsection (1) and subsection (2) apply in respect of a consumer or prospective consumer that is an association or juristic person to prohibit unfair discrimination against that association or juristic person to prohibit unfair discrimination against that association or juristic person based on the characteristics of any natural person who is a member, associate, owner, manager, employee, client or customer of that association or juristic person.
• It is not discrimination on the basis of age to:
  • - refuse to receive or consider an application for credit from an unemancipated minor; or
  • - refuse to offer an unlawful credit agreement to, or enter into an unlawful credit agreement with, an unemancipated minor.
• A credit provider may determine for itself any scoring or other evaluate mechanism or model to be used in managing, underwriting and pricing credit risk, provided that any such mechanism or model is not founded or structured upon a statistical or other analysis in which the basis of risk categorisation, differentiation or assessment is a ground of unfair discrimination prohibited in Section 9(3) of the Constitution.
• In respect of an alleged contravention of this section, any person contemplated in Section 20(1) of the Promotion of Equality and Prevention of Unfair Discrimination Act may either:
  • - institute proceedings before an equality court, in terms of Chapter 4 of the Promotion of Equality and Prevention of Unfair Discrimination Act; or
  • - Make a complaint to the National Credit Regulator in terms of Section 136, which must refer the complaint to the equality court, if the complaint appears to be valid.
• A court may draw an inference that a credit provider has discriminated unfairly against a consumer or prospective consumer if that credit provider:
  • - knew or reasonably could have known that the consumer or prospective consumer, or a natural person contemplated in subsection (3), was a historically disadvantaged person;
  • - has made a decision contemplated in Section 62(1)(a) through Section 62(1)(d), with respect to that consumer or prospective consumer; and
  • - has refused, or failed without reasonable cause, to respond to a request made in terms of Section 62 in respect of that decision.

Right to apply for credit

• Every adult natural person, and every juristic person or association of persons, has a right to apply to a credit provider for credit.
• Subject to Section 61 and Section 66, a credit provider has a right to refuse to enter into a credit agreement with any prospective consumer on reasonable commercial grounds that are consistent with its customary risk management and underwriting practices.
• Subject to Section 61and Section 92(3), nothing in the National Credit Act establishes a right of any person to require a credit provider to enter into a credit agreement with that person.

Right to reasons for credit being refused

• On request from a consumer, a credit provider must advise that consumer in writing of the dominant reason for:
  • - refusing to enter into a credit agreement with that consumer;
  • - offering that consumer a lower credit limit under a credit facility than applied for by the consumer, or reducing the credit limit under an existing credit facility;
  • - refusing a request from the consumer to increase a credit limit under an existing credit facility; or
  • - refusing to renew an expiring credit card or similar renewable credit facility with that consumer.
• When responding to a request in terms of subsection (1), a credit provider who has based its decision on an adverse credit report received from a credit bureau must advise the consumer in writing of the name, address and other contact particulars of that credit bureau.
• On application by a credit provider, the National Consumer Tribunal may make an order limiting the credit provider’s obligation in terms of this section if the tribunal is satisfied that the consumer’s requests for information are frivolous or vexatious.