As is so often the case in our legal system, intention and practice are far removed from each other. The extent of the National Credit Act (35 of 2005) is a prime example of misunderstanding which accidently or purposely crept into our everyday lives. Was the intention of the act to protect every borrower or just the ill-informed and those less inclined to be able to be protected from unscrupulous lenders?
More relevant to our business at Debtsource is the question often raised by parties relating to a credit application, and here, even legal practitioners differ: Does the NCA require all your clients to complete and sign a credit application form?
We receive so many emails from our clients, their debtors advising that they will not sign credit application forms as they do not fall under the ambit of the NCA. Perhaps it is time to have a re-look at the NCA from the intention of the regulator, hence this article.
In terms of the NCA, entities with a turnover or asset value of more than R1 000 000 fall outside of the ambit of the NCA. Very often therefore, we receive letters/queries from such debtors alleging that they do not need to complete credit application forms nor do they need to adhere to the specifications contained in the NCA. Especially the section that deals with “reckless lending” is often misconstrued.
Let us put the NCA aside for now and have a look at the specifications for ALL credit agreements. All credit agreements must be in writing. So, whenever there is an extension of credit by a supplier, a written agreement needs to incorporate the terms and conditions that the parties agree to. This is not only applicable to credit agreements under the ambit of the NCA but also to all service and supplier agreements whereby credit is extended.
The NCA was designed to serve as a guideline for good and fair credit practices. As a credit grantor, I would like to believe that I have given my client a fair and true reflection of our mutual agreement.
To say that one does not need to complete a credit application form or that reckless lending is allowed because one does not fall under the ambit of the act, is in total contrast to best practices the act is attempting to promote.
One needs to look beyond the literal requirements of the NCA and rather consider the relationship between the parties. In the instance where there is no written service level agreement or credit agreement in place, the completion of a credit application form, read together with terms and conditions of the granting of such credit, is paramount.
Well-structured and legally binding terms and conditions are therefore necessary in order to govern both the relationship between the parties and provide solid grounds for recourse should the need arise. The NCA provides a stable basis for this.
In closing, the National Credit Act is part of a comprehensive legislation overhaul designed to protect all consumers in South Africa. Should we not rather than taking a compliance approach and doing just enough to not fall foul of the consequences of the Act move to that of an outcomes approach of viewing it as a code or guideline for good lending practice?