The National Credit Act has two main objectives;

1. that is to protect you, the consumer, and
2. the regulation of the credit industry.

To better understand these objectives one has to read and understand the definition of concepts as detailed in Section 1 and then read the interpretation in Setion 2.

Definitions – Section 1: Section 1 contains a number of definitions of terms and concepts used in the Act.

Interpretation of the Act – Section 2: It is important to note that the Act should be interpreted in terms of it’s purpose.

The purpose of the Act and the means by which to achieve the purposes – Section 3

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 by;

• Promoting the develompment of a credit marekt that is accessbile to all South Africans, and in particular to those who have historically been unable to access credit under sustainable market conditions
• Ensuring consistent treatment of different credit products and different credit providers by; encouraging responsible borrowing, avoidance of over-indebtedness, and fulfilment of financial obligations by consumers and discouraging reckless credit granting by credit providers and contractual default by consumers
• Promoting equity in the credit market by balancing the respective rights and responsibilities of credit providers and consumers
• Addressing and correcting imbalances in negotiating power between consumers and credit providers by providing consumers with education about credit and consumers rights
• Providing consumers with adequate disclosure of standardised informtion in order to make informed choices
• Providing consumers with protection from deception, and from unfair or fraudulent conduct by credit providers and credit bureaux
• Improving consumer credit information and reporting and regulation of  credit bureaux
• Addressing and preventing over-indebtedness of consumers, and providing mechanisms for resolving over mechanisms for resolving over-indebtedness based on the principle of satisfaction by the consumer of all responsible financial obligations
• Providing for a consistent and accessible system of consensual resolution of disputes arising from credit agreements
• Providing for a consistent and harmonised system of debt restructuring, enforcement and judgement, which places priority on the eventual satisfaction of all responsbile consumer obligations under credit agreements.

Application of the Act – Section 4(1)

Where does the Act apply?

The Act applies to every credit agreement between parties dealing “at arms length” and made within or having an effect within, the Republic unless one of the exceptions applies. “At arms length” is not explained in the Act, however it can be defined as ‘a business transaction’ where one party receives a deferred amount and another party receives interest in return. To make things easier, Section 4(1) of the Act has identified agreements that it does NOT regard as at ‘arms length’.

Below are examples of transactions or ‘deals’ to which the NCA does NOT apply;

• A transaction where the individuals are not dealing with each other at “arms lengh”. Arms length transactions are not defined in the Act, but section 4(1)
• (b) stipulates that the following do not constitute arms length transactions:
• A shareholders loan or  a loan offered to a juristic person by an individual that has controlling interest in the jusritic person
• A loan to a shareholder or a loan offered by a juristic person to a person who has controlling interest in that juristic person
• A credit agreement between family members who are dependant on or co-dependant on each other
• Any arrangement where each party is not independent of the other and does not “strive to obtain the utmost possible advantage out of the transaction”
• Any arrangement that has been determined in law not to be one at arms length

• An agreement where the consumer is a juristic person whos asset value or annual turnover, together with the combinesd asset value or turnover of a related juristc person, at the time the agreement is concluded, equals or exceeds R1 million.
• An agreement where the state or an organ of state is a consumer and an agreement where the Reserve Bank is the credit provider
• A large agreement (a transaction that is a mortgage agreement or a credit agreement where the principal amount is more than R250 000 – except a pawn broking agreement, a credit facility and a credit guarantee) where the person is a juristic person
• A credit agreement where the credit provider is located outside South Africa (and the agreement is exempted by the Minister following an application by the consumer).
• If a person sells any goods or services and accepts, as full payment for those goods or services;
• A cheque or similar instrument upon which payment is subsequently refused for any reason or
• A charge by or on behalf of the buyer against a credit facility in terms of which a third person is the credit provder, and that credit provider subsequently refused that charge for any reason, the resulting debt owed to the seler by the issurer of that cheque or charge does not constitute a credit agreement for the purposses fo the Act.

*The Act has limited application to incidental credit agreements (section 5) and situations where the consumer is a jursitic person (section 6). In these sections a summary of the chapters and parts of the Act not applying to incidental credit agreements and credit agreements where the consumer is a jursitc person, can be found.