The majority of South Africans are using some form of credit or have access to some form of credit, whether by way of a credit agreement, credit cards, clothing account credit cards or personal loans. The National Credit Act 34 of 2005 (hereinafter referred to as “the NCA”) purports to achieve a healthy and balanced credit market in South Africa by seeking to effectively address the unequal bargaining power of consumers, to curb malpractice in the commercial world and to curb the exercise of certain contractual remedies amongst other intentions.

https://www.mondaq.com/southafrica/contracts-and-commercial-law/947472/unlawful-credit-agreements

If the following criteria is met, an agreement is constituted to be a credit agreement:

• Money needs to be lent;
• Payment of the amount owned needs to be deferred from one person to another;
• Interest is levied.

The NCA is applicable to every credit agreement concluded within South Africa provided that no exclusion applies.

List of unlawful credit agreements

In terms of Section 89(2) of the NCA, an illegal credit agreement is characterized as such in the following circumstances:

1. Agreements which entail negative option marketing;
2. Agreements concluded by an unregistered credit provider;
3. Agreements where an unassisted minor (who is not emancipated) is the consumer;
4. Agreements where the consumer is mentally unfit or does not have the mental capacity to conclude such an agreement;
5. Agreements where the consumer’s estate is under administration and the consumer has not obtained the consent of the administrator to conclude the agreement;
6. Agreements concluded by a credit provider who is subject to final notice from the National Credit Regulator to withdraw from the credit market.

Consequences of Unlawful credit

Any credit agreement which a Tribunal or the Court finds to be an illegal credit agreement, that Tribunal or Court can make the following orders:

1. The agreement can be declared void;
2. No party may claim performance;
3. The performance which has already been delivered cannot be reclaimed on grounds of unjustified enrichment; the person in possession has a stronger right over the performance if both parties are equally guilty to the unlawfulness of the agreement (par delictum);
4. The court can relax the par delictum rule in order to avoid injustice between the parties in accordance with the common law rule;
5. The consumer’s money is to be refunded;
6. The rights of the credit provider to recover funds from the consumer are to be cancelled.

(Par Delictum.[Latin, In equal fault.] A descriptive phrase that indicates that parties involved in an action are equally culpable for a wrong.)

Conclusion

In providing credit to consumers in terms of the NCA, it is imperative for both credit providers and consumers to be aware of the NCA and effects thereof to avoid blameworthiness and the credit agreement being declared and unlawful.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

https://www.mondaq.com/southafrica/contracts-and-commercial-law/947472/unlawful-credit-agreements

The National Credit Act, 2005 (Act No. 34 of 2005) Chapter 5, Part A, Sections 89 – 91 apply to unlawful agreements and provisions – Found here.

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