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PART II: APPLICATION OF THE NCA IN PRACTICE

CHAPTER 5: ASSESSMENT, A STEP TO PREVENT RECKLESS CREDIT LENDING

5.5. Consumer comprehension

On the one side of the coin the NCA aims to increase access to credit to as many consumers as possible, but on the flip side the objective of the NCA is also to prevent over-indebtedness and reckless credit lending. The Act places an obligation on the credit provider to implement mechanisms to ensure that all objectives of the NCA is met, including the conduct of a proper assessment of each consumers ability to meet the obligations in terms of the desired credit agreement.

Section 81(2)(a)(i) states that one of the reasonable steps needed to be taken by the credit provider is to access the consumers “general understanding and appreciation” of

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And it is in contradiction to s 3(d) that’s states that the purpose of the NCA is to promote equity in the credit market by balancing the respective rights and responsibilities of credit providers and consumers

the risks and cost as well as the rights and obligations of the consumer under the credit agreement. This requires that the credit provider must have a process or mechanism that enables the credit provider to determine the ability of the consumer to understand and appreciate the credit agreement that the said consumer wants to enter into with the particular credit provider.

The NCA attempts to assist the credit provider in this regard by including the following sections in the Act:

a. section 63(2) states that the credit provider must propose to the Credit Regulator

at least two official languages that the credit provider intends to use in

documentation;454

b. section 63(1) states that the consumer has the right to receive the documentation

in an official language that the consumer can read or understand considering the implications such a right has on the credit provider with regard to the financial

expenses, practicality and regional areas;455

c. section 64(1) and (2) states that the documents provided to the consumer must be

in plain language that will enable the ordinary consumer with an average literacy

skill to understand the content of the document.456

In the recent court case of Standard Bank of South Africa Ltd v Dhlamini457 the

respondent bought a second hand motor vehicle financed by the applicant. The respondent was a 52-year-old man who does not understand English and completed schooling up to standard one. Within four days after he bought the vehicle he returned it to the dealer, as he was not satisfied with the condition of the vehicle. He also demanded the repayment of the R15 000 deposit. The deposit was not returned to the respondent and the applicant commenced with the notice prescribed in section 129(1)(a) of the NCA. The court found the respondent to be “functionally illiterate” and found on the evidence that the salesperson of the dealer failed to explain the terms of

454

Otto The National Credit Act Explained 55

455

Otto The National Credit Act Explained 55

456 Otto The National Credit Act Explained 55 457

the agreement to the respondent. The court also analysed the providing of the documentation in the official language, with which the applicant also failed to comply. The contract was entered into in KwaZulu-Natal where isiZulu is the predominant African language. Due to the failure of the applicant to comply with the rights of the consumer in terms of section 63 and 64 the court found in the favour of the respondent with cost.

The case in point emphasised that documentation made available by the credit provider to the consumer must be in an official language which needs to be plain to the extent that the consumer with average literacy skills could have a general understanding and

appreciation of the content of the said documentation.458 The case also stated that this

documentation must be in the pre-required format459 with the use of plain vocabulary

and sentence structures.460

Furthermore, consumer protection is not only emphasized in the NCA, but a whole Act was drafted with the sole aim of protecting consumers against abuse and exploitation in

the marketplace.461 Du Preez points out that “vulnerable and/or illiterate consumers

should not only be protected, but also empowered”.462 However, the Consumer

Protection Act is not applicable to credit agreements.463 Nevertheless, section 2 of the

Consumer Protection Act states should there be any inconsistency between this Act and any other legislation, including the NCA, the inconsistency must be interpreted

concurrently.464 This means that the Consumer Protection Act must be applied

concurrently with the NCA, otherwise, the provisions that provides greater protection to

the consumer will prevail465 even if it implies the Consumer Protection Act.466

458

Campbell in Scholtz (ed) Guide to the National Credit Act (2008) 6-8 and 6-9

459

Form 20.2 in the Regulations to the NCA

460 2013 (1) SA 219 (KZD) par 47 461

Consumer Protection Act 68 of 2008

462

Du Preez 2009 TSAR 63.

463

s 5(2)(d) of the Consumer Protection Act, No 68 of 2008

464

s 2(9)(a) of the Consumer Protection Act, No 68 of 2008

465

s 2(9)(b) of the Consumer Protection Act, No 68 of 2008 466

This will have far-reaching consequences for the credit providers. The credit provider’s responsibility goes beyond just sourcing information concerning the consumer’s financial situation and repayment ability, but extends to ensuring that the consumer understands and appreciate the risks and costs of the proposed credit agreement and

their rights and obligations in terms of that agreement.467