Pre-agreement statement and quotation

The NCA requires from a credit provider not to enter into a small499, intermediate,500 or

large501 credit agreement unless the credit provider has given the consumer a pre-

agreement-statement502 and a quotation503 in the prescribed format.504 Although this

statutory pre-requisite is not a determining factor as to whether a credit provider granted

credit recklessly,for the purpose of this study it is a factor to consider.

A quotation for a small credit agreement must disclose the following information505:

• credit amount;

• deposit to be paid;

• instalments;

• interest rate, and

• other fees and charges.

A quotation for an intermediate or large credit agreement is very similar in that the

following information must be disclosed506:

498

Van Heerden in Scholtz (ed) Guide to the National Credit Act (2008) 11-69, see also Horwood v

First Rand Bank Ltd. (2011) ZAGPJHC 121 (21 September 2011) at par 10, ABSA Bank Ltd. v

Lowting and others (39029/2011) [2013] ZAGPPHC 265 (decided ion 19 August 2013) par 41

499 _{s 9(2) read with GN 713 in GG 28893 of 1 June 2006} 500

s 9(3) read with GN 713 in GG 28893 of 1 June 2006

501

s 9(4) read with GN 713 in GG 28893 of 1 June 2006

502

Stoop “Disclosure as an Indirect Measure Aimed at Preventing Over-indebtedness” 2011, also see PN Stoop “’n Kritiese Evaluasie van die Toepassingsveld van die National “Credit Act” 2008 at 365-

366 and Renke et al “The National Credit Act: new Parameters for the Granting of Credit in SA”

2007 at 269

503

s 92(1)-(2)

504

Reg 28-29 sets out the prerequisite for the quotations for the different classes of credit agreements. Also see Form 20 of the regulations for the prescribed forms of the quotation.

505 _{s 92(3)(b), Reg 28 and Form 20} 506

• credit amount;

• deposit deducted;

• total of additional charges;

• instalments in respect of the total amount deferred;

• total cost, and

• interest rate.

Said quotations are binding upon the credit provider for a period of five business days,

subject to certain conditions.507 In principle, the quotation is an option created by

statute, with the prospective consumer as the option holder.508 This quotation and

statement ensures that the consumer is able to compare cost of different credit products

from different credit providers509 and places the consumer in a position to make

informed choices regarding credit.

Stoop510 argues convincingly that the pre-agreement quotation and statement

simultaneously serve as an indirect measure that can be used to prevent consumers

from concluding credit agreements that will make them over-indebted “… because

better-informed consumers are protected against taking up credit without proper thought.”

The question is whether this argument should not also apply to matters of reckless credit lending. If the credit provider complies with the NCA requirements concerning the pre-agreement quotation, and statement of all essential information about the prospective credit agreement is fully disclosed in plain and simple language that can be considered an indirect measure aimed at preventing the consumer to enter into a reckless credit lending agreement.

507

s 92(3(a) and (b), also see s 94(4)-(7)

508

Otto & Otto The National Credit Act Explained 44; Stoop “Disclosure as an Indirect Measure Aimed

at Preventing Over-indebtedness” 2011.

509 _{Stoop “Disclosure as an Indirect Measure Aimed at Preventing Over-indebtedness” 2011} 510

Should a credit provider fail to comply with the formalities in regard to the pre- agreement disclosure, the credit agreement will still be valid but the credit provider may

be fined511 for up to R1 million or 10% of its annual turnover during the preceding

financial year, whichever is the greatest.512 If the credit provider continues to contravene

the NCA and/or fails to comply with the provisions of the NCA, the NCR may request

the NCT to cancel the credit provider’s registration to practice as a credit provider.513

The consequences of failure to adhere to section 92 are severe for the credit providers, but they should not only consider the legislative consequences of disclosing the pre- agreement but also the possibilities of using the pre-agreement disclosure statement. This can be proof that the consumer knew and could appreciate the risks and costs of the proposed credit agreement that would have prevented the consumer from entering into a possible reckless credit agreement.

5.8. Conclusion

Section 81 of the NCA is possibly the most important section in the NCA because it forces the credit provider to do a three-phase assessment before entering into a credit

agreement with a consumer.514 This particular section undoubtedly requires the credit

provider to implement a comprehensive assessment mechanism or model and not

merely an affordability assessment.515 Credit providers have to design, develop, and

implement their own assessment mechanism, models, and procedures, as long as it is

fair and objective and does not discriminate.516 Prior to the Amendment Act, the credit

providers had no guideline(s) when doing so and had to rely on the courts for guidance

511

Administrative fines is discussed in more detail in par 6.4 of this study

512

s 151 and Kelly-Louw Consumer Credit Regulation in SA 206

513

s 151 and Kelly-Louw Consumer Credit Regulation in SA 147 & 206

514

Renke 2011 THRHR 223

515 _{Scholtz et al Guide to the National Credit Act 11-64; Van Heerden & Boraine 2011(Vol 2) De Jure 7} 516

in order to avoid the dire consequences of reckless credit granting.517 Subsequently, the

credit providers have some guideline(s) in the form of the assessment regulations.518

The NCA is certainly one of the most important pieces of legislation in South Africa, because it aims at protecting consumers, but also aims to balance the right of consumers with that of credit providers. Any amendment to streamline the implementation and enforcement of the NCA is appreciated, therefore the amendments as discussed in this part of the study, are much needed. However, there are many of the provisions that still need to be attended to by the legislature. For example section 89(5)(c) that has been found to be unconstitutional, as well as the gap regarding what should happen to immovable as well as movable assets during suspension periods when rights and obligations are set aside.

Three types of reckless credit lending were identified and discussed. Comparing these types with each other indicates the following:

i. A credit provider has an obligation to conduct an affordability assessment on all

credit applications in terms of section 81(2). Failure to comply with this legislative requirement will render the credit agreement reckless per se even if the consumer

was perfectly able to afford the repayment of the loan.519

ii. The second obligation is that the credit provider must explain the risk, cost and

obligations under the particular credit agreement to the consumer to such an extent that the consumer understand and appreciate these risks, cost and obligations. The credit provider can do so by including a clause in the credit application and agreement confirming that the consumer understands and appreciate all the risks, cost, and obligations of the agreement.

iii. The third obligation of a credit provider is not to enter into a credit agreement if the

proper assessment indicates that the consumer cannot afford the repayment of the

517

Otto et al NCA Explained (2010) 85. Though the legislator has provided criteria with the amendments to the NCA, which is helpful, it is still not compressive enough as needed.

518 _{See paragraph 5.3.} 519

particular credit agreement and entering into the credit agreement will result in the consumer becoming over-indebted.

The court has the discretion to consider reckless lending without the consumer bringing same to the court’s attention. In matters where a consumer alleges reckless lending, the consumer must provide evidence to substantiate the allegation. Should the court find the particular credit agreement to be reckless, the court has the discretion to impose certain prescribed sanctions, which will be discussed in Chapter 6 of this study.