This document is meant as an overview of the definition of “incidental credit” as defined in the National Credit Act No. 34 of 2005. Please consult your attorney to discuss specific aspects of the Act.

The National Credit Act No. 34 of 2005 (“the Act”) has re-shaped the credit industry in South Africa and has led to the introduction of various new concepts to the South African legal system, inter alia, the concept of an “incidental credit agreement”.

The relevance of whether a credit agreement can be regarded as an incidental credit agreement, is relevant to extent to which the Act is applicable to that agreement, having regard that only specific portions of the Act are applicable to an incidental credit agreements, while large portions of the Act is not.

Therefore the requirements under the Act applicable to a Credit Provider that only supplies incidental credit are less onerous than applicable to other Credit Providers and the remedies available to a Consumer under such an Incidental Credit Agreement is more limited than those remedies available to Consumers under other credit agreements to which the total Act is applicable.

The Act defines and “Incidental Credit Agreement” as:

‘an agreement, irrespective of its form, in terms of which an account was tendered for goods or services that have been provided to the consumer, or goods or services that are to be provided to a consumer over a period of time and either or both of the following conditions apply:

  1. a fee, charge or interest became payable when payment of an amount charged in terms of that account was not made on or before a determined period or date; or
  2. two prices were quoted for settlement of the account, the lower price being applicable if the account is paid on or before a determined date, and the higher price being applicable due to the account not having been paid by that date.'

From the aforesaid, it is evident that any Credit Provider who renders a fee, charge or interest on an overdue account, provides incidental credit, so does a Credit Provider who provides so-called early settlement discounts to its Consumers.

Therefore, a Credit Provider that renders an account to Consumers which is payable within 30 days, in terms of which no interest is charged by the Creditor Provider during the first 30 days, but who charges or reserves the right to charge interest should the account not be settled in full within the 30 day period, does provide incidental credit in terms of the Act.

Section 5 of the Act provides that the portions applicable to incidental credit agreements relates to the Chapters of the Act dealing with the following:

  1. The interpretation, purpose and application of the Act, Consumer Credit Institutions, Dispute settlement other than debt enforcement, Enforcement of the Act & General provisions;
  2. Restricted activities by unregistered persons, Review and appeal of decisions;
  3. Consumer rights and confidentiality, personal information & consumer credit records;
  4. Over-indebtedness and reckless credit;
  5. Consumer liability, interest, charges and fees;
  6. Statements of Account and alteration of credit agreements; and
  7. Collection and repayment practices & Debt enforcement by repossessions and judgment, including Section 129 and Section 130 of the Act.

The portions of the Act not included in the above, are therefore not applicable to Incidental Credit Agreements.

The most notable consequences of the aforesaid is that:

  1. The provisions dealing with the registration criteria for Credit Providers are not applicable to incidental credit agreements and therefore if a Credit Provider only supplies incidental credit, they do not need to register as a Credit Provider with the National Credit Regulator.
  2. If a creditor supplies both incidental credit and other forms of credit agreements to which the full Act applies, then the portion of agreements that are regarded as incidental, do not need to be taken into consideration for the purposes of establishing the registration requirements for the Credit Provider, even though the other agreements falling under the Act are taken into consideration for that purpose.
  3. Section 129 and Section 130 of the Act remains applicable to incidental credit agreements and therefore even if a Credit Provider only supplies incidental credit, they will still need to issue a S129 Notice before they may institute legal action against a Consumer, failing which they will be falling short of the compliance requirements of the Act in this respect.

In relation to Incidental Credit Agreements, the Act further states that:

‘The parties to an incidental credit agreement are deemed to have made that agreement on the date that is 20 business days after-

  1. the supplier of the goods or services that are the subject of the account, first charges a late payment fee or interest in respect of that account; or
  2. a pre-determined higher price for full settlement of the account first becomes applicable, unless the consumer has fully paid the settlement value before that date.'

The relevance of the aforesaid is that should a Consumer pay the full amount owing to a Credit Provider in terms of an incidental credit agreement within 20 business days (or earlier) after the date calculated in terms of the above provision, then an incidental credit agreement will not come into existence and the requirements and remedies of the Act relating to incidental credit agreements, respectively applicable to the Credit Provider and Consumer, will not apply.

Should the Consumer not pay the full amount owing the Credit Provider within 20 days after the date calculated in terms of the above provision, then an incidental credit agreement will come into existence by operation of the law and the requirements and remedies of the Act relating to incidental credit agreements, respectively applicable to the Credit Provider and Consumer will apply to that agreement.

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