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Incidental Credit agreement OR Full Blown Credit agreement
23 October 2017  | Marié Combrink
 

I have a big problem with people paying late or withholding payment altogether.
What interest can I charge the consumer on an overdue account rendered and am I allowed to charge interest when I am not a Registered Credit Provider in terms of the National Credit Act?

In my Credit Application's Terms and Conditions I clearly state:
1.    Account must be paid in full 30 days from statement date;
2.    Interest will be charged on overdue accounts

The above example is of an incidental credit agreement.
 
The National Credit Act defines an “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 date, or
2. Two prices were quoted for settlement of the account, the lower the 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.
 
On accounts such as these the Minister in terms of Section 103 of the National Credit Act, prescribes the most you can legally charge defaulters currently is 2% per month from the day after default date and in this instance from 31 days. This therefor accumulates to 24% per year which can be charged.  This is because they are what
 
National Credit Act (NCA) defines as “incidental credit agreements” according to the definition above.
 
They are called “incidental credit” because the interest you are charging becomes due only if the client fails to pay for the goods and services after a certain period of time, being 30 days in this instance.
 
When interest is charged from the day on which the service is rendered or immediately afterwards, it is not incidental credit but “actual credit”, and only registered credit providers can enter into such agreements with their customers according to a written “Full Blown” Credit agreement as we refer to.

All credit providers to these “Full Blown” credit agreements, no matter the amount, should be registered as a Credit Provider at the National Credit Regulator according to the National Credit Act as from 11 November 2016. 

In these Full Blown credit agreements interest payable is governed and agreed upon and should comply with the Regulations on Interest provided and the NCA.
 
If an amount is owed to you and it is not payable according to either of the above mentioned interest can be charged according to the prescribed rate of interest which is calculated by the Repurchase Rate (RR) as determined from time to time by the South African Reserve Bank, plus 3.5% per year, which rate is currently 10.25% per year.
 
Even though this interest rate is amended from time to time the rate prescribed at the time when interest begins to run in these instances is fixed at that time and remains constant.  For instance, if summons is issued for interest of 10.25% per year and this rate is amended before date of Judgment is granted, the same rate still applies.
 
It is important to make sure which kind of credit agreement you are dealing with as this determines how legal action should be instituted and how to proceed.  In the case of an Incidental Credit agreement OR a Full Blown credit agreement a Notice in terms of Sections 129 and 130 has to be issued and forwarded by registered post to the consumer, at any time after the consumer has been in arrears for more than 20 business days.  The Credit provider in both situations may not proceed with any legal action without fully complying with the National Credit act requirements of Sections 129 and 130 being met.

Herewith the Regulations on Interest from May 2016

Credit Type                                                        Maximum Prescribed Interest Rate

1.    Mortgage agreements                                 RR + 12% per year

2.    Credit facilities                                              RR + 14% per year

3.    Unsecured credit transactions                   RR + 21% per year

4.    Developmental credit agreements            RR + 27% per year

5.    Short term transactions                              5% per month on the 1st loan and 3% per                                                                                       month on subsequent loans within a calendar year.

6.      Incidental Credit Agreements                    2% per month                             

Reference List:

·  National Credit Act 34 of 2005 and Regulations
·         LEAD Debt Collection seminar 



 
 
 
Tags: Credit Act