THE INTERPLAY BETWEEN THE CONSUMER PROTECTION ACT AND THE NATIONAL CREDIT ACT, AND THE POSSIBILITY OF PENALTIES WITH EARLY SETTLEMENT OF CREDIT AGREEMENTS

Mr Black buys a BMW car in terms of a hire purchase agreement and the financing is done through BMW Finance. After a few months Mr Black inherits a huge sum of money and decides that he wants to settle the outstanding amount. Mr Black’s concern is whether the credit provider is entitled to charge a penalty fee for early settlement of the outstanding finance amount.

The first step in answering the abovementioned question will be to determine which laws regulate the situation. The legislation that applies here will be the National Credit Act 34 of 2005 and the Consumer Protection Act 68 of 2008.

In the above scenario a distinction should be drawn between the scope of each of these Acts, as the one pertains to the credit agreement itself and the other to the goods, being the BMW car. Section 5 of the Consumer Protection Act lists the situations in which this Act will apply. Section 5(2)(d) is of particular interest to Mr Black as it excludes credit agreements which are regulated by the National Credit Act. However, the goods or services provided in terms of the credit agreement are included and will be regulated by the Consumer Protection Act, whereas credit agreements as contemplated in the National Credit Act, specifically section 8(4)(c), includes hire purchase agreements (instalment agreements) in the ambit of the National Credit Act.

Mr Black’s situation illustrates the position as stated in Article 5(2)(d) of the Consumer Protection Act. The implication of this section is that all credit agreements that are subject to the National Credit Act will be governed by the National Credit Act, but the goods and services in terms of the agreement will fall within the scope of the Consumer Protection Act. It is here that the above acts overlap with each other. The overlap actually lies in that both acts can apply to one agreement. The credit agreement must comply with the National Credit Act, but the goods and services must comply with the Consumer Protection Act. If there is a defect in the quality of the goods or the service the Consumer Protection Act will provide the appropriate remedy, but if it is about the credit agreement itself, then the National Credit Act will apply.

Section 2(9) of the Consumer Protection Act deals with the interpretation of the Act and more specifically on how the law has to be interpreted in cases where there are discrepancies between the Consumer Protection Act and any other law. The Consumer Protection Act should be read in harmony with other legislation as far as possible, but if it is not possible, then the law that offers the most protection to the consumer shall apply.

The two sections in the National Credit Act which deals with the early settlement of credit agreements are sections 122 and 125 of the Act. According to section 122 of the National Credit Act, a consumer may terminate the credit agreement at any time. The consumer can do this by paying the settlement amount as calculated in accordance with section 125 of the National Credit Act.

Section 125 states that a consumer is entitled to cancel a credit agreement at any time with or without prior notice to the credit provider. The settlement amount will be the sum of the following amounts:

  • The outstanding balance of the principal debt / capital amount.
  • All rates and charges up to and including the settlement date. For example, if the outstanding amount can be settled after 3 months, then 3 months’ interest would be charged. The interest will be calculated on the principal amount borrowed.

In the case of a large credit agreement (R250 000.00 or more) the outstanding amount will be calculated as above, but with additional interest, known as an early settlement fee. The fee may not exceed an amount equal to three months’ interest on the capital amount.

Conclusion:

Therefore, if the BMW that Mr Black bought was worth more than R250 000.00 the credit provider will be entitled to charge a penalty fee of not more than 3 months’ interest on the capital amount. In the event that the purchased item’s worth is less than R250 000.00 the credit provider will not be entitled to charge a penalty fee.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted. (E&OE).

WHAT IS THE ROLE OF THE FAMILY ADVOCATE?

The Family Advocate has many duties but in the context of Divorce Law, they are mostly consulted for making sure that all Parenting Plans and divorce Consent Papers are in the best interest of any minor children involved. The public can, however, also have access to the Family Advocate and it is important to note that they offer a free service.

The roles of the Family Advocate include the following: to provide education to family members and to others involved in the systems serving the family and youth; to help identify the strengths and needs of families; to be a mediator between the system and the family by helping to educate professionals on the strengths and needs of the family; to help family members understand the different roles of the agencies involved in the system and how they may affect the family and assist families in identifying and utilizing necessary services.

A Family Advocate helps state and local agencies and systems adopt more strengths-based and family-driven programs, policies, and services. The focus is to better meet the needs of families and their youth who have mental illness, co-occurring disorders or substance use disorders and improve outcomes for all, including families, youth, and the agencies they utilize.

A Family Advocate also has the authority to draft Parenting Plans at no cost which will help provide the minor child with a stable and suitable schedule between the two parents. A Family Advocate cannot however provide for a maintenance amount as this falls under the jurisdiction of the maintenance court. Should a parent feel like they are not sure of their rights or responsibilities towards their minor child, the Family Advocate can be approached in order to arrange a meeting between the two parties to mediate the rights and responsibilities between the two parties. This process is also at no cost, however should one of the parties deny the meeting, the Family Advocate has no authority to subpoena them to attend the meeting.

The Family Advocate is a perfect remedy for parents who have their child’s best interest at heart and who aim to provide a stable environment for the child when both parents are no longer together.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted. (E&OE).

STANDARD ACKNOWLEDGEMENTS OF DEBT AND THE NATIONAL CREDIT ACT (NCA)

A2_bThe new NCA does not only regulate instalment sale agreements and lease agreements in respect of movables as was done by its predecessor, the repealed Credit Agreements Act 75 of 1980. The NCA also applies to a much wider variety of credit agreements and has no monetary cap. Instead of instituting legal action a creditor often gets a debtor to sign an acknowledgement of debt to facilitate repayment. This document could contain a provision for instalments and interest and fees. The question arises whether this agreement in confirmation of an existing obligation constitutes a credit agreement for purposes of the NCA.

The purpose of this Act is 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 to protect consumers.

“Credit”, when used as a noun, is defined in the Act as a deferral of payment of money owed to a person or a promise to defer such payment; or a promise to advance or pay money to or at the direction of another person.

“Agreement” includes an arrangement or understanding between or among two or more parties which purports to establish a relationship in law between those parties.

The parties to a credit agreement governed by the NCA are referred to as the “consumer” and the “credit provider” and these definitions should be considered. An acknowledgement of debt normally refers to a historical event of cause and does not constitute a credit guarantee or any of the named credit transactions such as a pawn agreement, discount agreement, incidental credit agreement, instalment agreement, lease, secured loan or mortgage agreement or credit facility. However, the fact that it contains a deferral of payment and requires the payment of interest, fees and other charges, will cause it to fall within the ambit of the catch-all term “credit transaction” provided for in Section 8(4)(f) of the Act.

Section 2(1) provides that the Act must be interpreted in a manner that gives effect to the purposes set out in Section 3. The question really is whether the legislature intended the rearrangement or the repayment terms of an existing debt, for instance where money has already been advanced to a consumer a considerable period of time ago or where damages were suffered as a result of a delict or breach of contract, to constitute a credit agreement or transaction for purposes of the NCA. Due to the elements of deferral and the charging of interest, fees and other charges in a standard acknowledgement of debt, and in the absence of any express or implicit indication to the contrary, it seems an inescapable conclusion that the agreement could be defined as a credit agreement within the meaning of the NCA. The relevance of this is that it might be that the credit provider would be required to register as such with the National Credit Regulator, affordability assessment would have to be done prior to conclusion, the consumer could become overindebted and apply for debt review, and so many onerous requirements will be applicable.

It is submitted that where the cause of action in relation to which the acknowledgement of debt was entered into is based on a contract or agreement which constitutes a credit agreement, the insertion of a no-novation clause into an acknowledgement of debt will not serve to exclude the agreement subsequently concluded, from the ambit of the NCA. However, where the debt initially arose as a result of a delict, the insertion of a no-novation clause might have the effect of preserving the original cause of action, namely the delict, and thus cause the matter to fall outside the scope of the NCA.

One thing to be kept in mind is that a “consumer”, in respect of a credit agreement to which the NCA applies, means

(a) the party to whom goods or services are sold under a discount transaction, incidental credit agreement or instalment agreement;

(b) the party to whom money is paid, or credit granted, under a pawn transaction;

(c) the party to whom credit is granted under a credit facility;

(d) the mortgagor under a mortgage agreement;

(e) the borrower under a secured loan;

(f) the lessee under a lease;

(g) the guarantor under a credit guarantee; or

(h) the party to whom or at whose direction money is advanced or credit granted under any other credit agreement.

This definition might provide the answer as the acknowledgement of debt might, as a different cause of action, not qualify the consumer under the above definition. So, too, is the underlying cause of action to the acknowledgement of debt, and it deserves no debate that signing an acknowledgement of debt is not something to go about without due consideration.

Should a court be convinced that the written acknowledgement of debt is subject to the NCA the court could be required to make a ruling in terms of Section 130(4)(b) of the NCA, which states:

In any proceedings contemplated in this section, if the court determines that – … the credit provider has not complied with the relevant provisions of this Act, as contemplated in subsection (3)(a), or has approached the court in circumstances contemplated in subsection (3)(c) the court must – adjourn the matter before it; and make an appropriate order setting out the steps the credit provider must complete before the matter may be resumed.

In Adams v SA Motor Industry Employers Association 1981 (3) SA 1189 (A) at 1198 – 1199, the court held that there is a presumption against novation and that, where novation was not intended, it was possible for two obligations to co-exist. These obligations would be interdependent, and the creditor does not have a free election to enforce the original obligation. An acknowledgment of debt, sometimes referred to as an IOU, is evidence of a debt which is due, but differs from a promissory note as it does not contain an express promise to pay. However, where the acknowledgment of debt is coupled with an undertaking to pay, it will give rise to an obligation in terms of that undertaking.

The case of Rodel Financial Service (Pty) Ltd v Naidoo and Another 2013 (3) Sa 151 (Kzp), and its annotations is recommended for reading and getting a better understanding of the applicable principles.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted. (E&OE).

CO-OWNERSHIP OF LAND

A1_bThe word “co-ownership” in relation to land means that two or more persons own land simultaneously in undivided shares. A share in land does not represent, and may not be held to represent a defined portion of land. A co-owner who holds a share in land does not hold title to a defined piece of land even if by arrangement with his co-owners they might have agreed to give him occupation of a specific portion of land. The title he has is to an undivided share only, in the whole of the land, held in joint ownership. The portion he occupies is owned jointly by him and his co-owners in the whole thereof. If he should build a house on the portion he occupies, the house will be owned jointly.

When X, Y and Z are co-owners of a farm, they are not each entitled to a physical part of the farm but each of them has an undivided share in the whole of the farm. The shares will not always be equal. One person can have half a share while the other two can each have a twenty five percent share. However, co-ownership unfortunately often leads to disputes among the owners.

 Co-operation between the co-owners

It is advisable that co-owners enter into an agreement which regulates the relationship between them. Unfortunately this agreement will have no bearing against third parties. The consent of all the co-owners is required when administrative decisions have to be made. No owner is entitled to change or improve the property without the consent of the other owners. All the owners have to agree to the use of the property, e.g. they have to agree to the chopping down of trees, the erection of a storage facility/building, or to let cattle graze in the field. If co-owners are not consulted they may request an interdict from the court. The court may even order that buildings that have been erected, be removed. However, in instances where the aim is to preserve the property, it is not always necessary to obtain the consent of the co-owners.

The profits and losses

All the co-owners must contribute proportionally to necessary and also useful expenses for the preservation of the property. Such expenses include taxes and expenses to maintain the property in good condition, but do not include luxury expenses. Losses and charges must be shared by the co-owners, except those attributable to negligence of one of the owners. As with expenses, fruits and profits must be divided amongst the co-owners according to each owner’s shareholding.

Alienation of a share

A co-owner may alienate his share or even bequeath it to his heirs, without the consent of the other owners, even against their will. A co-owner’s share may also be attached by the sheriff.

Use of the property

Each co-owner may use the property in accordance with his undivided share. He must, however, use it with due regard to the rights of the other co-owners. Each co-owner, his employees and guests are entitled to free entry to any part of the property, except if the co-owners have agreed that a portion of the property is reserved for the exclusive use of one co-owner.

Partition

Co-owners may decide to partition the property, usually if they cannot agree on the utilisation of the property. The property will then be divided physically in accordance with the value of the property and each owner’s share in it. When this is uneconomic, which is usually the case with a farm, the property can be awarded to one co-owner, but he must then compensate the other co-owners. The court may also order that the property be sold by public auction and the proceeds divided amongst the co-owners. There is strict statutory control over the subdivision of land and also the actual physical division and use of land, so that partition may not always be possible.

Co-ownership is an excellent vehicle to becoming an owner of a property that one otherwise might not be able to afford. However, be aware of the pitfalls, choose your co-owners wisely, and draw up an agreement to regulate payment of the bond and rates, the day-to-day expenses and house rules.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted. (E&OE).