Comprehending the Purpose, Nature and Application of the Act

SECTION: 1

Credit Agreements Act, 75 of 1980

TABLE OF CONTENTS

Content Page

Section 1 Credit Agreements Act, 75 of 1980 1

Overview 4

Development of Credit Legislation in South Africa 5

Purpose, nature and application of the Act 9

1.3 Contents of a Credit Agreement 16

Rights and duties of a Credit Grantor and Credit 1.4 24 Receiver

1.5 Provisions to prevent overspending 29

1.6 Summary 33

2 Version: 02/2004 IB CP4 LG Overview

Learning Outcome The following is the Learning Outcome of this Section:

1. Have an Overview of the Credit Agreements Act, 75 of 1980.

Learning The Learning Objectives are as follows: Objectives On completion of this Section, you will be able to:

1. Have an Overview of the Credit Agreements Act, 75 of 1980 by:

 Appreciating the development of Credit Legislation in South Africa

 Comprehending the purpose, nature and application of the Act

 Comprehending the contents of a Credit Agreement

 Having insight into the rights and duties of Credit Grantors and Credit Receivers

 Comprehending the provisions to prevent overspending

3 Version: 02/2004 IB CP4 LG Assessment To demonstrate the achievement of the Learning Objectives, you are required to Criteria meet the criteria and/or provide the following evidence:

Appreciating the development of Credit Legislation in South Africa  Describe the development of Credit Legislation in South Africa  Describe the background to Credit Legislation  Identify the sources of Credit Legislation

Comprehending the purpose, nature and application of the Act  Define the nature and purpose of the Act  Differentiate between a Credit, Leasing and Instalment Sale Transactions  Define the application of the Act

Comprehending the contents of a Credit Agreement  List the contents of a Credit Agreement

Having insight into the rights and duties of Credit Grantors and Credit Receivers  List the rights and duties of Credit Grantors and Credit Receivers

Comprehending the provisions to prevent overspending  List the provisions to prevent overspending

4 Version: 02/2004 IB CP4 LG 1. Overview of the Credit Agreements Act, 75 of 1980

1.1 Development of Credit Legislation in South Africa

Introduction Credit is a privilege and a convenience.

Credit allows you to:

 Charge a meal on a credit card

 Pay for an appliance on an instalment plan

 Take out a loan to buy a house

 Pay for schooling

Credit allows you to make a purchase without ready cash.

Credit enables you to buy things now and pay for them later. You get credit by promising to pay in the future for something you receive in the present.

But, there are strings attached to credit. Credit usually cost something and what is borrowed must be paid back!

Credit contract A Credit Agreement is not one of the specific contracts, for example a sale or a lease.

A Credit Agreement is any contract in terms of which the parties agree that payment will take place at a certain date.

The creditor extends credit for the contract price. Therefore, a Credit Agreement is just the opposite of a cash transaction.

Credit plays a very important role in the business world. As mentioned, it makes it possible for the consumer to obtain goods or services immediately, and allows for the delaying in payment or spacing of payment over a period.

Where a purchaser requires credit, experience has shown that he/she is in a vulnerable position and can be exploited by the seller.

Some individual customers do not have the knowledge and/or bargaining power to resists unfair contract terms proposed by large suppliers of goods and services. This often leads to the breach of contract by the consumer.

If a consumer spends more than he/she can afford, it will eventually result in non-payment and consequently leads to a bad credit record.

Background and South Africa, like many other countries, has implemented legislation to protect sources of Credit purchasers (Credit Receivers), especially against unfair or excessive interest Legislation rates.

The legislation protects the customer by:

 Prescribing formalities for contracts

 Prohibiting certain terms

 Regulating certain consequences of the contractual relationship

Legislation also allows for the implementation of measures to prevent overspending by customers. For example, by prescribing a relatively high deposit and restricting the period within which the purchase price must be repaid.

The first legislation to deal with this issue was the Hire Purchase Act of 1942, which was replaced by the Credit Agreements Act.

Today, the most important legislation protecting the consumer in Credit Agreements are:

 The Credit Agreements Act 75 of 1980, which regulates certain transactions for the sale and lease of movable property and for the supply of services

 The Usury Act 73 of 1968, which regulates the finance charges in respect of certain credit, leasing and money lending transactions

 The Alienation of Land Act 68 of 1981, Chapter 2, which protects the purchaser of immovable property intended for residential use

The aim of the above legislation is to protect purchasers from sellers who impose unduly burdensome terms on them. For example:

 Where a seller can cancel a contract immediately and retain all payments made as well as the recovery of the item sold

 The exclusion of common law warranties

 The exclusion of the seller’s liability for misrepresentation

Background and For the purpose of this Unit we are only going to focus on the Credit sources of Credit Agreements Act and the Usury Act. Legislation, continued These two principal pieces of legislation regulates the retail activities of Banks in South Africa, for example:

 Financial leases – in respect of motor vehicles to end-consumers

 Instalment Sale Transactions (formerly referred to as “hire-purchase) – in respect of motor vehicles

 Operation leases – in respect of industrial machinery

 Activities with respect to credit cards

 Typical money lending transactions

The Usury Act also regulates many of the transactions regulated by the Credit Agreements Act.

The Credit Agreements Act addresses the contractual aspects of a Credit Agreement and the Usury Act focuses on the financial aspects of credit.

Money lending transactions are regulated by the Usury Act and are not covered by the Credit Agreements Act.

In essence the abovementioned legislation covers four specific contracts, namely:

1. Money-lending

2. Purchase and sale

3. Lease

4. Rendering of service

Time for some fun! Complete the crossword below. Attempt this on your own and try not to refer back to the material discussed. On completion, discuss and compare your answers with your Coach. Across: 1. This Act replaced the Hire Purchase Act. 3. Legislation protects the customer by prescribing, prohibiting and …… 5. This legislation was implemented to protect ………. 8. The Credit Agreements Act addresses these aspects of a Credit Agreement. 10. This legislation also allows for the implementation of measures to prevent ……………. by consumers. Down: 2. The two Acts discussed regulates the …………………… of Banks. 4. Credit makes it possible for the consumer to obtain this immediately. 6. The Usury Act focuses on these aspects. 7. The opposite of a cash transaction. 9. Credit allows you to do this without cash.

1.2 Purpose, nature and application of the Act

Introduction The Credit Agreements Act defines and regulates different kinds of Credit Agreements. All these transactions share the same feature, namely that the parties involved agree that payment will take place in the future.

The contract sum could either be payable as a lump sum at a stated or determinable future date, or the full contract sum or any part of it could be payable in instalments over a period.

Purpose of the The purpose of the Credit Agreements Act is: Act

Extract from the Act To provide for the regulation of certain transactions in terms of which moveable goods are purchased or leased on credit or certain services are rendered on credit.

Can you recall the definition of moveable goods as discussed in previous unit?

Credit Agreement Section 1 of the Act defines a Credit Agreement as either:

 A Credit Transaction

 A Leasing Transaction

Credit Transaction Section 1 of the Act reads as follows:

‘Credit Transaction’ means –

(a) a transaction, including an Instalment Sale Transaction, in which goods are sold by the seller to the purchaser against payment by the Extract purchaser to the seller of a stated or determinable sum of money at a from the Act stated or determinable future date or in whole or in part in instalments over a period in the future;

(b) a transaction in terms of which a person renders a service against payment to him by the person to whom the service is rendered of a stated or determinable sum of money at a stated or determinable future date or in whole or in part in instalments over a period in the future;

In short a Credit Transaction is:

 A contract for the sale of movable goods or for the rendering of a service in terms of which payment takes place as envisaged by the Act

Leasing Section 1 of the Act reads as follows: Transaction

‘Leasing Transaction’ means –

Extract a transaction in which a Lessor leases goods to a Lessee against payment by from the Lessee to the Lessor of a stated or determinable sum of money at a stated or the Act determinable future date or in whole or in part in instalments over a period in the future, but does not include a transaction by which it is agreed at the time of the conclusion thereof that the debtor or any person on his behalf, must at any stage during or after the expiry of the lease or after the termination of that transaction become the owner of those goods or after that expiry or termination retain the possession or use or enjoyment of those goods;

In short a Leasing Transaction is:

 A contract in terms of which movable goods are leased and payment takes place in the future as intended by the Act

Instalment Sale Section 1 of the Act defines an Instalment Sale Transaction as follows: Transaction

‘Instalment Sale Transaction’ means a transaction in terms of which —

(a) goods are sold by the seller to the purchaser against payment by the Extract purchaser to the seller of a stated or determinable sum of money at a from stated or determinable future date or in whole or in part in instalments the Act over a period in the future; and

(b) the purchaser does not become the owner of those goods merely by virtue of the delivery to or the use, possession or enjoyment by him thereof; or

(c) the seller is entitled to the return of those goods if the purchaser fails to comply with that transaction;

An Instalment Sale Transaction is a specific kind of Credit Transaction in terms of which movable goods are sold. The purchaser in such a transaction is entitled to certain additional protection measures.

An Instalment Sale Transaction is distinguished from other Credit Transactions for the sale of goods in that one of the following two characteristics may be presented:

 The purchaser does not become the owner of the goods merely by delivery or by the use and enjoyment or possession of the goods

 The seller is entitled to the return of goods if the purchaser fails to comply with any terms of the contract (e.g. by not making regular agreed- upon payments)

Figure 1 on the next page illustrates the relationship between the different transactions covered by the Credit Agreements Act:

Instalment Sale Transaction, continued Credit Agreements

Credit Leasing transactions Transactions

Sale of Supply of Sale of Supply of goods services goods services

Instalment Sale Instalment Sale Transactions Transactions Figure 1

Parties involved in The parties involved in a Credit Agreement are the: a Credit  Credit Grantor Agreement  Credit Receiver

Section 1 of the Act defines a Credit Grantor and a Credit Receiver as follows:

‘Credit Grantor’ means — (a) a seller, a dealer, or a person who renders a service, in terms of a Credit Transaction, and includes a person to whom the rights or the rights and obligations of any such seller or any such person so rendering a service have passed by assignment, cession, delegation or otherwise;

Extract (b) a Lessor in a Leasing Transaction, and includes a person to whom from the rights or the rights and obligations of any such Lessor have the Act passed by assignment, cession, delegation or otherwise;

‘Credit Receiver’ means — (a) a purchaser, or a person to whom a service is rendered, in a Credit Transaction, and includes a person to whom the rights or the rights and obligations of any such purchaser or any person to whom a service is so rendered, have passed by assignment, cession, delegation or otherwise;

(b) a Lessee in a Leasing Transaction, and includes a person to whom the rights or the rights and obligations of any such Lessee have passed by assignment, cession, delegation or otherwise;

Parties involved in The Credit Grantor is the: a Credit Agreement,  Seller continued  Dealer  Service provider  Lessor  Person to whom the rights of one of these parties has passed

A Credit Receiver is the:

Lessor/Lessee = a  Purchaser person who lets a  Person to whom a service is rendered property by lease  Lessee  Person to whom the rights of one of these has passed

Application of the As discussed, the Act governs: Act  Leasing Transactions of movable goods (Leasing Transactions)

 The sale of movables (Credit Transactions and Instalment Sale Transactions)

 The rendering of services (Credit Transactions)

The Act applies to “Credit Agreements” or “categories of Credit Agreements” as determined by the Minister of Trade and Industry from time to time by notice in the Government Gazette.

The Act applies to credit leases or purchase of durable and semi-durable consumer goods, for example:

 motor vehicles

 furniture

 electrical equipment

decree = an The Minister has decreed that the Act should apply to the following categories of official order Credit Agreements: issued by a legal authority 1. Where certain goods (specifically listed and published in the Government Gazette) are purchased or hired in terms of a Credit Transaction and the contract duration exceeds 6 months from the date of the agreement.

2. Where the cash price of the goods hired or sold does not exceed R500 000,00.

Exclusions from The Minister does not have unlimited powers of making the Act applicable to the application of consumer goods. Section 2 of the Act reads that he is not empowered to the Act apply the Act to the following categories of Credit Transactions:

1. Credit Transactions in terms of which a person purchases or hires goods with the sole purpose of selling or leasing them.

2. Credit Transactions in terms of which goods are purchased or let for use related to mining, engineering, constructions, road building or a manufacturing process.

3. Credit Transactions where the state is the Credit Grantor.

4. Credit Transactions where the price exceeds R500 000,00.

The above exclusions may apply to a significant number of retail transactions in which Banks may be involved. In particular those with wholesale or retail businesses and where the Bank finances certain industrial machinery by way of financial leases, operational leases or instalment sale (hire-purchase) transactions.

Discuss the above exclusions from the Act with your Manager or Coach.

What is the effect of this exclusion on the Bank and the consumer?

Complete the following questions without referring back to the discussions on the nature, purpose and application of the Act. On completion, exchange books with another Learner and mark each other’s answers. Discuss any uncertainties with your Coach.

Question 1 Define the following terms in your own words:

1. Credit Transaction:

2. Leasing Transaction:

3. Instalment Sale Transaction:

Question 2 Describe the categories of Credit Agreements to which the Act applies.

Question 3 Define a “Credit Grantor” and a “Credit Receiver” in your own words.

Question 4 Describe the Credit Agreement categories that are excluded from the Act.

1.3 Contents of a Credit Agreement

Introduction As discussed in the beginning of the Section, a Credit Agreement is not one of the specific contracts, for example a sale or a lease.

However, any of the financial leases, operational leases and Instalment Sale Transactions entered into by a Bank is subject to the provisions of the Credit Agreements Act.

Contents of a Section 5 of the Credit Agreements Act contains certain minimum requirements Credit Agreement in respect of Credit Agreements.

Subject to the provisions, any Credit Agreement:

 Has to be in writing, in the official language requested by the Credit Receiver and signed by, or on behalf of every party to it

 Must state the names and addresses of all the parties – the Credit Grantor and the Credit Receiver as well as their business or residential addresses. If they do not have such addresses, they must state any other address in the Republic

What is THE BANK’s policy regarding the provision that if the Credit Receiver cannot furnish a business or residential address, he/she can state any other address in the Republic?

 Must state the amount paid/to be paid as an initial payment or as initial rental

Section 10 of the Act states that no credit granter may accept any post- dated negotiable instrument as an initial payment or initial rental in terms of a Credit Agreement.

Contents of a  Must clearly describe the goods or services, which are the subject of the Credit Agreement, agreement continued  Must contain the provisions of Section 13 of the Act, which entitles the Credit Receiver to terminate the contract in certain circumstances

13. TERMINATION OF AGREEMENT BY CREDIT RECEIVER

(1) When any Credit Agreement for which the initiative emanated from any Credit Grantor or his manager, agent or employee, is signed by any Credit Receiver at a place other than the business premises where the Credit Grantor or his manager, agent or employee ordinarily carries on business, the Credit Receiver may within five days after the date of the Credit Agreement terminate it by notice in writing delivered or sent by prepaid registered mail to the Credit Grantor, and by tendering the return of any goods delivered to him in the Credit Agreement. Extract (2) The period of five days contemplated in subsection (1) must be calculated from the Act with the exclusion of the day upon which the Credit Agreement was entered into and of any Saturday, Sunday or public holiday.

(3) When any Credit Agreement is terminated by any Credit Receiver in accordance with subsection (1), the Credit Grantor shall —

(a) within ten days of the date upon which the relevant notice of termination was delivered or sent to him by mail, refund to such Credit Receiver the amount of all payments made to him in terms of the Credit Agreement; and

(b) collect from the Credit Receiver any goods delivered by him in terms of the Credit Agreement and the return of which has been tendered by the Credit Receiver.

What is the effect of the above provision on the client and THE BANK?

Contents of a  The wording of Section 13(1) must be printed on the face of the contract Credit Agreement, in bold capital letters continued  Must state the conditions for the reservation and passing of ownership or the right to the return of the goods (in respect of an Instalment Sale Transaction)

 Must include the conditions as to the return of the goods (in respect of a Leasing Transaction or an Instalment Sale Transaction)

Non-compliance of the above formalities will result in the parties being guilty of an offence. However, non-compliance to the formalities has no impact on the private law consequences of the Credit Agreement entered into between the parties.

In other words, the Credit Agreement will still be valid despite the non- compliance of the above formalities.

Apart from the provisions required by the Credit Agreements Act, the Usury Act requires further particulars of the price and the finance charges to be stated.

The Usury Act will be discussed in Section 2.

Discuss the contents of a Credit Agreement with your Coach or a fellow Learner. Compare the information with any Credit Agreement contract in THE BANK.

Does the THE BANK Credit Agreement contain all the legal requirements as listed in the Act?

If there are any deviations from the requirements, list them in the space below. Note any additional information that is contained in THE BANK’s Credit Agreement that is not required by the Act.

Invalid provisions Section 6 of the Act provides that certain provisions may not form part of a relating to a Credit Credit Agreement or any other agreement or document – either because Agreement these provisions exclude the common law protection of parties or are regarded as unfair.

However, if an agreement does include one of the terms, the term (but not the whole agreement), will be invalid.

Section 6 reads as follows:

Extract 6. Invalid provisions relating to Credit Agreements from the Act (1) A Credit Agreement or any other agreement or document shall not contain a provision to the effect that —

(a) a person agrees to enter into a Credit Agreement; (b) a person acting on behalf of the Credit Grantor in connection with the conclusion of any Credit Agreement or the negotiations preceding the conclusion of a Credit Agreement, is appointed as or deemed to be the agent of the Credit Receiver; (c) the Credit Grantor is exempted from liability for any act, omission or representation by any person acting on his behalf; (d) the liability of the Credit Grantor in any guarantee or warranty which would, but for those provisions, be implied in a Credit Agreement, is excluded or restricted; domicilium citandi (e) the Credit Grantor or any person acting on his behalf is authorised to enter et executandi = upon any premises for the purpose of taking possession of goods to which address at which a Credit Agreement relates, or is exempted from liability for any such the party elects to entry; receive notice of (f) the Credit Receiver chooses a domicilium citandi et executandi at any citation and at address other than in Section 5(4); which execution (g) the Credit Receiver agrees to forfeit any moneys paid by him in a Credit can be affected Agreement or any claim for the goods or service in question if he fails to comply with any term of the Credit Agreement before those goods are delivered or that service is rendered to him; (h) the Credit Receiver is prohibited from resiling from the Credit Agreement and from claiming repayment of any amount paid by him in the Credit Agreement if without any reluctance on his part to accept performance in resiling = accordance with that Credit Agreement, the goods in question have not withdraw been delivered or the service in question has not been rendered to him within 30 days after the date of the Credit Agreement; (i) the period of the Credit Agreement is left undetermined; (j) the Credit Receiver guarantees and warrants that the Credit Agreement was signed on the business premises of the Credit Grantor; (k) the Credit Receiver acknowledges that the Credit Grantor or any person on his behalf did not make any representations or give any warranties before the conclusion of or in connection with the Credit Agreement; (l) the Credit Receiver acknowledges that he has inspected any goods to which that Credit Agreement relates.

Read through the extract from the Act on the previous page “6. Invalid provisions relating to Credit Agreements”. Form a small group with some of your fellow Learners and discuss these provisions. Note your understanding of each of these invalid provisions in your own words in the space provided. The first provision is given as an example.

1. A provision whereby a person agrees to enter into a Credit Agreement may not be included in any agreement.

The parties involved have freedom of choice. Thus, they cannot bind themselves in advance to conclude a Credit Agreement. The Act protects the consumer against being persuaded into an agreement by providing that a prospective Credit Grantor or someone acting on his/her behalf may not as incentive promise any benefit to the prospective Credit Receiver unless the benefit will in the ordinary course of events constitute a condition of contract.

2. A provision that a person, who acts on behalf of the Credit Grantor in concluding a Credit Agreement is also appointed as (or is deemed to be) the agent of the Credit Receiver.

3. A provision exempting the Credit Grantor from liability for any act, omission or representation by any person acting on his behalf.

4. A Credit Grantor or any person acting on his/her behalf may enter upon any premises for the purpose of taking possession of goods to which a Credit Agreement relates, or exempting such a person from liability for any such entry.

5. The period of a Credit Agreement may not be left undetermined.

7. A provision, which determines that the Credit Receiver acknowledges that the Credit Grantor, or any person acting on his/her behalf, did not make any representations or give any warranties before the conclusion of, or in connection with the agreement, will be invalid.

8. A provision, which provides that the Credit Receiver acknowledges that he/she has inspected any goods to which the agreement relates, will not be valid.

9. The liability of a Credit Grantor in terms of any guarantee or warranty implied in a Credit Agreement may not be excluded or restricted.

10. A Credit Receiver may not choose a domicilium citandi et executandi at any address other than his/her residential/business address.

11. A provision that the Credit Receiver agrees to forfeit any money paid by him/her or the right to receive the goods/services if, before the goods or services are delivered, he/she fails to comply with any term of the agreement, may not be included in an agreement.

11.The Credit Receiver may not be prohibited from withdrawing from the contract and claiming repayment of moneys paid for the goods or services that have not been delivered within 30 days.

12. The Credit Receiver cannot validly guarantee or warrant that the Credit Agreement was signed on the business premises of the Credit Grantor.

1.4 Rights and duties of the Credit Grantor and Credit Receiver

Introduction Each party in a Credit Agreement have certain rights and duties, which will be determined by the nature of the contract – whether it is a contract of sale or a lease.

The party’s rights and duties will also be determined by the terms of the agreement.

In addition to these rights and duties, the Credit Agreements Act creates certain special rights and duties.

Section 22 of the Act states that a Credit Receiver cannot waive any right he/she has under the Act.

Extract from the Act 22. WAIVER OF RIGHTS

The waiver by any Credit Receiver of any right under this Act, is invalid.

Credit Receiver’s The Act limits the Credit Grantor’s right to claim the return of any goods if right to a defaults the Credit Receiver does not comply with the contract. notice before repossession Section 11 of the Act states that the Credit Grantor must, by means of a hand- delivered or a registered letter, notify the Credit Receiver of the breach of contract and demand compliance within the period fixed by the letter.

He/she must allow the Credit Receiver at least 30 days after the date of the handing over/posting of the letter to comply. If the Credit Receiver does not comply with his/her obligations within this period, the Credit Grantor may repossess the goods.

However, if the Credit Receiver fails to comply with the obligations on more than 2 occasions and the Credit Grantor has issued default notices in this regard, the Credit Receiver is only allowed 14 days in which to comply.

The Act ensures that the Credit Receiver will receive default notices.

The Act prohibits any provision in an agreement in terms of which the Credit Receiver chooses as his/her legal address an address other than his/her residential or business address. The Credit Receiver is obliged to inform the Credit Grantor of any changes in his/her address.

Credit Receiver’s The Credit Grantor may not enter the premises where the goods are kept, right to a defaults without permission, even if he/she is entitled to repossess the goods. notice before repossession, continued

In our discussions around “Invalid provisions relating to a Credit Agreement”, we said that a provision in a Credit Agreement authorising entry or exempting the Credit Grantor from liability for entry, is invalid.

Credit Receiver’s Section 12 of the Act states, that if the Credit Receiver pays the amount due in right to terms of the agreement, plus any reasonable costs incurred by the Credit reinstatement Grantor in connection with the repossession of the goods, the Credit Receiver is after entitled to have the repossessed goods returned. repossession However, the above right falls away if the Credit Receiver terminates the contract or if the goods were returned in terms of a court order.

Section 12 further states that the Credit Grantor may not within the 30 day period require/induce the Credit Receiver to sign a document in which he terminates the contract or agrees to return the goods.

Credit Receiver’s If the Credit Grantor becomes entitled to cancel/withdraw the contract, but right upon non- chooses to uphold it, he/she may not be financially better off as opposed to compliance with which he/she would have been if the Credit Receiver had complied with all the Credit Agreement obligations.

Where the contract is upheld, the Credit Grantor’s right to recover damages is limited in terms of the Limitation and Disclosure of Finance Charges Act, Act 73 of 1968.

However, if the Credit Grantor cancels/withdraws the contract, he/she may enforce penalty clauses and recover more than the actual damage suffered.

Credit Receiver’s Section 13 of the Act states that if the Credit Grantor took the initiative in respect right to terminate of a Credit Agreement and the agreement is signed at a place other than the certain Credit ordinary business premises of the Credit Grantor, the Credit Receiver has a Agreements statutory right to terminate the contract within 5 days.

This 5-day period excludes the day on which the agreement was entered into, weekends and public holidays.

The Credit Receiver can terminate the agreement by:

 Delivery of a written notice to the Credit Grantor

 Posting a registered letter in this regard

Credit Receiver’s This right to terminate an agreement protects the consumer against the so right to terminate often high-pressured, door-to-door sales people. certain Credit Agreements, Before such an agreement is concluded on a premises other than the Credit continued Grantor’s business premises, the Credit Grantor must inform the Credit Receiver in writing of his right to termination.

Contracts concluded through the post are excluded from this provision, and the right of termination is thus not available.

Credit Grantor’s Section 18 of the Act states that if a Credit Grantor issues a summons in right to an proceedings relating to a Credit Agreement, he/she can include a notice in the automatic summons to prohibit any person from: interdict  Using the goods sold or leased

 Removing the goods from the place where they are kept when the summons is served

Any person who is aware of such a notice is prohibited from using/removing the goods or allowing someone else to use or remove them.

The Credit Receiver may apply to the court to set aside the interdict.

Credit Receiver’s In the event of Instalment Sale Transactions, ownership of the goods are rights in reserved by the Credit Grantor. Alternatively, the contract can provide that the Instalment Sale goods must be returned to the Credit Grantor if the Credit Receiver Transactions breaches the contract.

In short, the above means that the Credit Grantor is entitled to the goods, either because he/she is the owner, or in terms of the return clause in the contract.

If the Credit Grantor terminates the contract in the event of non-compliance on behalf of the Credit Receiver, the Credit Receiver remains liable to pay the full contract price.

However, the Act protects the Credit Receiver in so far as that he/she has the right to have the value of the returned goods taken into account in determining the outstanding amount to be paid. If the value of the goods returned exceeds the outstanding amount, the Credit Grantor has to pay the difference back to the Credit Receiver.

Section 16 of the Act prescribes how the returned goods must be valued.

Credit Receiver’s If the Credit Grantor institutes the proceedings for the return of the goods rights in sold, the court may make the order subject to the condition that the value of Instalment Sale the returned goods must be subtracted from the outstanding amount. If the Transactions, value of the goods exceeds the outstanding amount, any excess is then continued paid to the Credit Receiver.

In certain instances Credit Receivers are also protected in that court orders will not be made against them if they are able to return the goods to the Credit Grantor.

Section 19 of the Act states that the court may not make an order against the Credit Receiver in an Instalment Sale Transaction:

 Imprisoning him/her for contempt of court

 Attaching his/her salary

unless the Credit Grantor can prove that the goods cannot be recovered, because the goods:

 Have been destroyed

 Are no longer in the possession of the Credit Receiver and cannot be located

 have been seized under the Customs and Excise Act and is unlikely to be returned

Because the Credit Grantor has to bring the value of the returned goods into account, he/she has an interest in the preservation of the goods. The Act protects this interest of the Credit Grantor.

The Credit Grantor who institutes proceedings, may request the court to:

 Make an order regarding the valuation of the goods

 Prescribe how the goods should be protected from damage or depreciation

The Credit Grantor may also request the court to prohibit the use of the goods while awaiting the outcome of the proceedings.

Statements to Irrespective of whether the Credit Receiver requests them or not, the Credit Credit Receiver Grantor is required to send out statements from time to time (at least every 3 months), setting out the total amount paid to date and the amount still outstanding.

Credit Grantor to An agreement can be concluded at a fixed or variable rate. Where the rate is advise of rate variable and actually varies, for example the prime overdraft rate charged by variation Banks, the Credit Grantor must advise the Credit Receiver of such variation.

Failure of Credit Various criminal provisions apply to the Act. If the Credit Grantor fails to comply Grantor to comply with the requirements of the Act, a criminal conviction may follow. to the Act Section 23 of the Act provides that any person who contravenes or fails to comply with any provision of the Act, is guilty of an offence and punishable on conviction to a fine of R5 000 and/or 2 year’s imprisonment.

Form a small discussion group with a fellow Learner. Discuss the rights and duties of a Credit Grantor and a Credit Receiver. Complete the table below by noting in your own words their rights and duties. Discuss any uncertainties with your Coach.

Rights and duties of Credit Receivers Rights and duties of Credit Grantors

1.5 Provisions to prevent overspending

Introduction As discussed in the beginning of this Section, the Credit Agreements Act protects consumers from unfair contract terms.

Apart from this, the Act also tries to protect the consumers against themselves by prescribing minimum deposits as well as maximum repayment periods on certain goods.

Deposit payable The Act provides for minimum prescribed deposits, which have to be paid in respect of the various goods listed by the Minister.

The table on the next page contains all the goods, the percentage deposit to be paid as well as the period in which the full purchase price must be paid (as per Annexure A of the Act),.

The minimum deposit is prescribed from time to time by regulation and is calculated as a percentage of the cash price.

If the parties agree, the deposit may consist wholly or partly of goods. The value of these goods may not exceed the reasonable market value.

As discussed earlier in this Section, the deposit may not be paid by way of a post-dated cheque or other post-dated negotiable instrument.

The Credit Grantor or one of his/her representatives may not extend credit to the Credit Receiver for the deposit or make money available to the Credit Receiver to enable him/her to pay the deposit.

Where a new Credit Agreement replaces an earlier one and any goods sold/leased under the earlier agreement form part of the goods sold/leased under the new agreement, payments made under the earlier agreement may not serve as a deposit for the new agreement.

Goods, percentage deposit, and repayment period described by Act

Deposit Period of Goods (portion of payment cash price) (months) 1. Household furniture, including garden furniture, 10% 24 lawnmowers, mattresses, floor carpets and floor rugs, irrespective of the materials from which these articles are manufactured. 2. Electrical and non-electrical appliances for domestic 10% 24 use. 3. Television receivers, accessories and parts thereof, 10% 24 but excluding closed circuit television equipment. 4. Radios and gramophones, sound recorders and 10% 24 reproducers, record players, laser disc players, tape and wire decks, loudspeakers and amplifiers, accessories and parts thereof for these articles. 5. Jewellery, clocks and watches and parts thereof. 20% 18 6. Photographic and cinematographic cameras, 20% 18 enlargers, reducers and projectors, including accessories for these articles but excluding equipment for cinemas and theatres, microfilm equipment and lithographic process cameras. 7. Video cassette recorders and players, video tape 20% 18 recorders and players, and video recorders and cameras and decoders. 8. Electronic television games. 20% 18 9. Mechanically propelled motor vehicles, not subject to 10% 54 the provisions of paragraph 10 including any commercial vehicle irrespective of whether such motor vehicle is subsequent to the manufacture thereof equipped, constructed or adapted for the conveyance of persons, but excluding tractors, harvesting machinery, agricultural machinery and implements and irrigation machinery. 10. Mechanically propelled road passenger motor 10% 54 vehicles designed to seat not more than 15 persons, including motorcycles and motor-tricycles.

Maximum No Credit Agreement may exceed the maximum repayment period as repayment period prescribed by the Minister.

If a Credit Receiver cannot afford the instalments necessary to discharge the full contract price within the maximum prescribed period, he/she must be discouraged from concluding an agreement.

Any provision in the agreement which leaves the period of a Credit Agreement undetermined, is invalid.

Credit In certain instances, the requirement of minimum deposits and maximum Agreements periods of payment are inapplicable. exempted from deposits/ This may apply to the sale or leasing of certain audio-vision equipment where maximum the goods are used by the Credit Receiver for: repayment periods  Monitoring  Instruction  Education  Security  Multiple-viewing situations

and the payments are allowed to be deducted for income tax purposes.

The above also applies in respect of transactions relating to motor vehicles where the payments under a Leasing Transaction or the payments/amounts representing depreciation or wear and tear of goods under Instalment Sale Transactions are deductible for income tax purposes.

Cession on a right Previously, Credit Grantors could secure repayments by requiring the Credit to income Receiver to sign a binding Cession, with the effect that consumers were left with little or no money to live on.

However, a limitation was enacted, prescribing that a Credit Receiver may not cede the right to more than 25% of his/her income to secure the payments in terms of one or more Credit Agreements.

In addition, the Credit Receiver may withdraw any Cession of a right to income at any time.

This, in turn, discourages Credit Grantors from extending too much credit to a consumer and forces them to consider the consumer’s ability to afford instalments.

Limitation on The Act also limits the consumers’ entry into Credit Agreements. entry into Credit Agreements Section 20 of the Act states that:

IF … THEN … an administration order has been no Credit Grantor or his/her granted to any person whose gross representatives may, as long as the monthly income is less than R500, administration order is in force, without the consent of the administrator concerned, enter into any Credit Agreement with such person if the price payable in terms of that Credit Agreement exceeds R200.

32 Version: 02/2004 IB CP4 LG 1. Overview of the Credit Agreements Act, 75 of 1980 1.6 Summary

Summary Below is a summary of the key learning points of this Section. Read through them carefully and ensure that you understand all the concepts. Discuss any uncertainties with your Coach before you move on to the next Section.

 A Credit Agreement is any contract in terms of which the parties agree that payment will take place at a certain date

 South Africa, like many other countries, has implemented legislation to protect purchasers (Credit Receivers), especially against unfair or excessive interest rates

The legislation protects the customer by:

 Prescribing formalities for contracts  Prohibiting certain terms  Regulating certain consequences of the contractual relationship

 The Credit Agreements Act replaced the Hire Purchase Act of 1942

 The Credit Agreements Act 75 of 1980, regulates certain transactions for the sale and lease of movable property and for the supply of services

 The Usury Act 73 of 1968, regulates the finance charges in respect of certain credit, leasing and money lending transactions

 The aim of the above legislation is to protect purchasers from sellers who impose unduly burdensome terms on them

 The Credit Agreements Act and the Usury Act regulates the retail activities of Banks

 The Credit Agreements Act addresses the contractual aspects of a Credit Agreement and the Usury Act focuses on the financial aspects of credit

 Money lending transactions are regulated by the Usury Act and are not covered by the Credit Agreements Act

 The purpose of the Credit Agreements Act is to regulate certain transactions in terms of which moveable goods are purchased/leased on credit or certain services are rendered on credit

 A Credit Transaction is a contract for the sale of movable goods or for the rendering of a service in terms of which payment takes place as envisaged by the Act

 A Leasing Transaction is a contract in terms of which movable goods are leased and payment takes place in the future as intended by the Act

 An Instalment Sale Transaction is a specific kind of Credit Transaction in terms of which movable goods are sold

Summary,  The parties in the Credit Agreement are the Credit Grantor and Credit continued Receiver

 The Act applies to credit leases or purchase of durable and semi-durable consumer goods, for example:  Motor vehicles  Furniture  Electrical equipment

 Section 2 of the Act reads that the Minister is not empowered to apply the Act to the following categories of Credit Transactions:

1. Credit Transactions in terms of which a person purchases or hires goods with the sole purpose of selling or leasing them. 2. Credit Transactions in terms of which goods are purchased or let for use related to mining, engineering, constructions, road building or a manufacturing process. 3. Credit Transactions where the state is the Credit Grantor. 4. Credit Transactions where the price exceeds R500 000,00.

 Subject to the provisions, any Credit Agreement:

 Has to be in writing, in the official language requested by the Credit Receiver and signed by, or on behalf of every party to it  Must state the names and addresses of all the parties – the Credit Grantor and the Credit Receiver as well as their business or residential addresses. If they do not have such addresses, they must state any other address in the Republic  Must state the amount paid/to be paid as an initial payment or as initial rental  The wording of Section 13(1) must be printed on the face of the contract in bold capital letters  Must state the conditions for the reservation and passing of ownership or the right to the return of the goods (in respect of an Instalment Sale Transaction)  Must include the conditions as to the return of the goods (in respect of a Leasing Transaction or an Instalment Sale Transaction)

 Section 6 of the Act provides that certain provisions may not form part of a Credit Agreement or any other agreement or document – either because these provisions exclude the common law protection of parties or are regarded as unfair. However, if an agreement does include one of the terms, the term (but not the whole agreement), will be invalid

 Each party in a Credit Agreement have certain rights and duties, which will be determined by the nature of the contract – whether it is a contract of sale or a lease

Summary,  The party’s rights and duties will also be determined by the terms of the continued agreement

 The Credit Agreements Act protects consumers from unfair contract terms

 Apart from this, the Act also tries to protect the consumers against themselves by prescribing minimum deposits as well as maximum repayment periods on certain goods

Use the space below to note you own, additional learning points from this Section.

36 Version: 02/2004 IB CP4 LG