Browsed by
Category: Financial agreements

THE DREADED “F” WORD – READ ABOUT THE LATEST AMENDMENTS TO THE FICA PROCEDURE

THE DREADED “F” WORD – READ ABOUT THE LATEST AMENDMENTS TO THE FICA PROCEDURE

The main purpose for the enactment of FICA and FICAA is to identity any proceeds that originates from crime and other illegal activities, as well as to prevent fraud and the financing of terrorism.

Since the bombing of the World Trade Centre on 11 September 1993, a world-wide tendency was created in terms of which more and more pressure was put on financial institutions to ascertain the source of funds utilized by their clients to conclude business transactions. This obligation was also placed on attorney firms, which are defined as accountable institutions (“AI’s”) in terms of FICA.

The above legislation have a profound impact on the manner in which a property transaction is to be concluded, and it warrants the provision of various documentation by both the Seller and the Purchaser to the transferring attorney attending to the transfer of a property. Under normal circumstances these documentation are required prior to the commencement of a property transaction, and in any event, before any funds can be invested on the trust account of the transferring attorney on behalf of either the Seller or the Purchaser. The Fica procedure also requires more than just the provision of a certified copy of the identity document of the parties involved.

Although FICA was rather prescriptive with the conditions AI’s had to comply with regarding the identification and verification of its clients, FICAA introduced certain new terms, posing different obligations on AI’s. One of the main differences between FICA and FICAA is the fact that FICAA created a “risk based approach” to be implemented by AI’s, leaving it to said institution to establish on their own what risk each different client poses to the object that the legislation wish to prevent, and to establish their own internal mechanisms of identifying said risks.

To identify any relevant risks, FICAA requires an institution to institute certain customer due diligence measures. These measure requires the AI to know and understand the core business of its clients, to identity the beneficial owners (being the natural persons behind the legal entity) to prevent abuse of legal entities for fraud or other purposes, as well as to ensure that enhanced customer due diligence procedures are followed when the institution is dealing with foreign prominent public officials and domestic prominent influential persons. FICAA contains examples of which persons qualify as being prominent persons as defined in the Act.

After the risk assessment is done, the AI is responsible to act on the outcome of the risk assessment in accordance with its risk management and compliance programme. In terms of FICAA all AI’s are obliged to have their own risk management and compliance programme, specifically drafted to identify the risks posed to the main business of the accountable institution itself, and which programme are also required to set out the institutions plans to manage these risks in light of its core business, whilst simultaneously ensuring compliance with FICA and FICAA.

The outcome of the risk assessment might require the AI to prevent the risk all together by terminating the client’s mandate, or to report the risk to state entities in terms of the procedure prescribed in FICA and FICAA. The AI might also consider to implement increased customer due diligence measures by for example, to require the provision of additional documentation by the client to ensure the authenticity of the information provided to the AI by the client.

Currently there are no clear guidelines as to exactly how the risk based approach have to be implemented for specific industries, or what and how the risks will be managed. It appears as if each AI within an industry will have to apply their minds and draft a workable document addressing all relevant and expected risk scenario’s within the industry. This in itself seems to be a daunting task, and currently the various industries are hoping to receive valuable and practical feedback from the Financial Intelligence Centre in order to assist them with the drafting of such a programme.

This article was written from the point of view of a conveyancer, wishing to provide an overview of the requirements imposed by the new legislation, and to highlight the type of information required by the specific firm of attorneys according to their own internal guidelines for FICA purposes.

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)

AM I STILL LIABLE FOR MY SPOUSE’S DEBT AFTER DIVORCE?

AM I STILL LIABLE FOR MY SPOUSE’S DEBT AFTER DIVORCE?

A husband and wife buy a house together. Their marriage takes a tumble, along with their ­finances, and they have to sell their home and are left with an outstanding mortgage bond. They subsequently got divorced. The couple is concerned about what will happen to the debts and who will be ­responsible for paying them.

Who pays what after divorce?

If the couple was married in ­community of property, the debt on the property is a joint debt. They will be jointly and severally liable. This means that each partner is not just liable for half the debt now that they are divorced, in fact the bank can seek the full amount from either of them. The one spouse who is held liable by the bank would then have a claim of 50% of the debt against the other, but it would be his or her responsibility to collect that debt (not the bank’s). Alternatively, the bank may agree to accept 50% from one person and release them from the ­liability, but it does not have to.

Sometimes, the divorce settlement makes a special mention of the mortgage. But if there is no clause in the divorce, the joint liability principle applies. After a divorce, the husband and wife should present their bank with a copy of the divorce settlement. This will remove any uncertainty about ownership and liability for bond payments.

Getting divorced while under debt review

If you get divorced while you are under debt review and you have the debt review court order in place, then this will need to be rescinded and for new debt counselling applications to be started, as in order to follow on with the debt counselling process you will need to reapply, but will now need to be seen as two single applications. A new budget and new proposals will also have to be drawn up.

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)

References:

“Debt And Divorce”. News24. N.p., 2017. Web. 12 June 2017.

“Debt Review After A Divorce Settlement – Debt Review”. Debtbusters. N.p., 2017. Web. 13 June 2017.

THE APPLICATION OF THE TALEM QUALEM RULE

THE APPLICATION OF THE TALEM QUALEM RULE

A3In situations where a wrongdoer causes some form of damage to a victim, the victim might suffer more damage than one might usually expect. This might be caused by the specific circumstances in which the victim finds himself/herself, which leads to the victim suffering more damage than the average person. Would this be an acceptable defence for the wrongdoer, or must the victim’s existing circumstances be ignored when establishing the liability of the wrongdoer?

An example of the abovementioned is where the victim is in such an adverse financial position that he/she is unable to mitigate the damage caused by the Defendant.

The case of Smit v Abrahams 1994 (4) SA 158 (K) dealt with the matter at hand and is still the leading authority relating to the aforementioned question. In the case of Smit, the Plaintiff was involved in a motor vehicle accident in which the vehicle he owned was damaged beyond economical repair. The Plaintiff not only claimed the market value of the vehicle as damages from the Defendant, but also the cost of a rental vehicle for a period of three months in order to conduct his business. The extent of the Plaintiff’s damage was therefore partly caused by his own financial position and the fact that he could not afford a replacement vehicle at the time. These type of situations are known as thin-skull (or egg-skull) cases, where the circumstances of the Plaintiff influence the amount of damages suffered. In general, the thin-skull rule dictates that a Defendant cannot use the extraordinary vulnerability of the Plaintiff as a defence. This is also referred to as the talem qualem rule. The rule is based on the principle that you take your victim as you find them.

In the judgement, the thin-skull question is discussed as part of the court’s enquiry into the issue of legal causation. With regards to legal causation it is held that a rigid approach should not be followed, but rather a more flexible approach. This flexible approach should be based on reasonableness and fairness and each case should be dependent on its own facts. The fact that the Plaintiff’s damage was partly caused by his own financial vulnerability, is merely one of the factors to be considered when establishing whether or not the damage suffered was sufficiently relevant to the wrongdoer’s conduct.

It was held that, considering the facts at hand, the Plaintiff was entitled to hire a replacement vehicle in order to conduct business and that this would satisfy the criterion of reasonableness and fairness. Because of the fact that the Plaintiff was not in the financial position to buy a new vehicle after the accident and a vehicle was necessary for him to conduct the business, it was regarded as fair and just that the Defendant should carry the expense of hiring a replacement vehicle.

In cases where the thin-skull rule comes into question, the court will have to determine whether it is reasonable and fair to state that the damage suffered by the Plaintiff and particularly the extent thereof, was caused by the Defendant’s conduct.

The thin-skull rule, as originally contemplated and formulated, is not directly applied in South African law. However, the applicable principle, namely that the Plaintiff’s vulnerability does not serve as an acceptable defence, is considered as a factor when the element of causation is considered.

This article is a general information sheet and should not be used or relied on as 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 attorney for specific and detailed advice. Errors and omissions excepted. (E&OE)

KLOP JOU FINANSIES VIR DIE AANKOOP VAN ‘N EIENDOM?

KLOP JOU FINANSIES VIR DIE AANKOOP VAN ‘N EIENDOM?

A3_B

Die kostes verbonde aan die aankoop van ‘n nuwe eiendom behels meer as bloot die voorgeskrewe prokureurskoste vir die registrasie van die transport.   Voornemende Kopers moet doodseker maak hulle word volledig ingelig oor enige verskuilde en voorafbetaalde kostes verbonde aan sodanige aankoop.  Hulle moet ook deeglik kennis neem op welke tydstip enige deposito’s en balans kooppryse betaalbaar is om seker te maak dat daar aan die bepalings van die koopooreenkoms voldoen word.

By die aankoop van ‘n eiendom is die volgende kostes onder normale omstandighede deur die Koper betaalbaar:

  1. Die betaling van ‘n deposito binne die periode soos voorgeskryf in die koopooreenkoms.

Kopers moet kennis neem dat die betaling van ‘n deposito (gewoonlik binne die eerste 7 dae vanaf datum van ondertekening van die koopkontrak) meestal deur die Verkoper vereis word om die Koper se bereidwilligheid om die eiendom in goeder trou aan te koop, aan te dui.  Die doel van die deposito is dus juis ‘n voorafbetaling van die bedrag kort na ondertekening van die kontrak.  As die kontrak stipuleer dat ‘n deposito betaalbaar is by die verkoop van die Kopers se bestaande eiendom, sal dit streng gesproke nie neerkom op die betaling van ‘n deposito nie aangesien laasgenoemde betaling onderhewig is aan ‘n opskortende voorwaarde en nie as bewys van die Koper se goeder trou sou dien nie.

  1. Prokureurskostes, gelykstaande aan ‘n voorgeskrewe tarieffooi betaalbaar aan die oordragsprokureurs wat toesien tot die registrasie van die eiendom in die naam van die Koper.

Gemelde tarieffooi, sowel as die bedrag hereregte betaalbaar aan SARS, word bereken op die waarde van die koopprys van die eiendom. Normaalweg word die hereregte betaalbaar aan SARS ook ingesluit in die rekening van die oordragsprokureurs wat aan die Koper oorhandig word.

Die bedrag hereregte betaalbaar aan SARS by die aankoop van ‘n eiendom word jaarliks hersien en word volgens ‘n glyskaal bereken.  So byvoorbeeld is alle eiendomme wat aangekoop word teen ‘n koopprys van R750 000 of minder, vrygestel van die betaling van hereregte.   Indien die koopprys van die eiendom R750 001 of meer is, sal hereregte aan SARS betaalbaar wees voordat registrasie van die eiendom kan plaasvind. (U eiendomsagent en/of transportprokureur sal in staat wees om u van die presiese hereregte bedrag  sowel as die prokureurskostes betaalbaar op u transaksie, te voorsien).

Dis belangrik om daarop te let dat die hereregte kort na ondertekening van die kontrak reeds betaalbaar is ten einde ‘n hereregtekwitansie vanaf SARS te bekom.  Indiening en registrasie van die transport in die Aktekantoor is nie moontlik alvorens die volle bedrag hereregte nie aan SARS oorbetaal is, en SARS ‘n hereregtekwitansie daarvoor uitgereik het nie.

Baie kopers verkeer dikwels onder ‘n wanindruk dat hereregte eers teen registrasie van die transport betaal kan word, wat nie die geval is nie.   Kopers is ook dikwels onder die indruk dat prokureurskostes (betaalbaar aan die oordragprokureur as ‘n fooi vir die registrasie van die transport) dieselfde kostes is as hereregte (wat aan SARS betaalbaar is). Dus dink Kopers dikwels verkeerdelik dat geen prokureurskostes betaalbaar is aan die oordragprokureurs indien daar nie hereregte aan SARS betaalbaar is nie (weens die feit dat die koopprys van die eiendom R750 000 of minder is).  Dit is egter nie die geval nie, en is die voorgeskrewe tarieffooi steeds betaalbaar aan die oordragprokureur vir die registrasie van die transport.

  1. Die koste verbonde aan die uitreik van ‘n heffingsertifikaat.

Dikwels vorm ‘n eiendom wat aangekoop word deel van ‘n huiseienaarsvereniging, en sal die Koper na registrasie verantwoordelik wees vir die betaling van heffings aan die huiseienaarsvereniging, wat bepaalde funksies tot voordeel van die eienaar verrig.

Indien die Koper ‘n deeltiteleenheid aankoop, is heffings outomaties ook betaalbaar aan die regspersoon van die skema.  By die registrasie van ‘n transport moet ‘n huiseienaarsvereniging of die regspersoon van die deeltitelskema ‘n heffingsertifikaat uitreik wat bevestig dat die bestaande geregistreerde eienaar op datum is met die betaling van alle heffings.  Die koste verbonde aan die uitreik van sodanige heffingsertifikaat kan onder normale omstandighede wissel tussen R500 en R1 500, en is gewoonlik deur die Koper betaalbaar. 

  1. Okkupasiehuur, indien die Koper sou besluit om voor registrasie van die eiendom reeds okkupasie daarvan te neem.

Dit is belangrik dat die Koper kennis neem van die bepalings van die koopooreenkoms, wat sal stipuleer of die Koper na okkupasie slegs okkupasiehuur aan die Verkoper moet betaal vir die gebruik van die eiendom voor registrasie, en of die Koper ook vir ander uitgawes van toepassing op die eiendom (soos byvoorbeeld munisipale belastings, heffings, water en elektrisiteit), verantwoordelik sal wees.

Hierdie is ‘n algemene inligtingstuk en moet gevolglik nie as regs- of ander professionele advies benut word nie. Geen aanspreeklikheid kan aanvaar word vir enige foute of weglatings of enige skade of verlies wat volg uit die gebruik van enige inligting hierin vervat nie. Kontak altyd u regsadviseur vir spesifieke en toegepaste advies. (E&OE)

FINANCES WHEN PURCHASING A PROPERTY

FINANCES WHEN PURCHASING A PROPERTY

A3_B

The costs associated with the purchase of a new property are more than just the prescribed conveyancing fees for the registration of the transfer. Prospective buyers must make absolutely sure they are fully informed of any hidden and advance costs when purchasing a property. They should also take note at which point during the transfer process they are liable to pay any deposits as well as the balance of the purchase price to ensure that they fully comply with the provisions of the purchase agreement.

When buying a property the Purchaser is normally responsible for payment of the following costs:

 1.    The payment of a deposit within the period specified in the purchase agreement. 

Buyers should note that the payment of a deposit (usually within the first seven days after signature of the agreement) is often required by the seller to confirm the buyer’s willingness to purchase the property in good faith.  The purpose of the deposit is an advance payment of the amount shortly after signing said agreement. If the contract stipulates that a deposit is payable upon the sale of the buyers’ existing property , it will strictly speaking not constitute the payment of a deposit as the latter payment is subject to a condition precedent, and does not serve as evidence of the buyer’s good faith to proceed with the property purchase.

  1. Conveyancing fees, equal to a prescribed tariff fee payable to the conveyancers who oversee the registration of the property into the name of the Purchaser.

Said tariff fee, as well as any transfer duty amount payable to SARS, is calculated on the value of the purchase price of the property. Normally the transfer duty payable to SARS is also included in the statement of account of the conveyancers provided to the buyer during the course of the transfer.

The amount of transfer duty payable when purchasing a property is reviewed annually and calculated according to a sliding scale. For example, all properties purchased at a purchase price of R 750 000 or less, are exempt from the payment of transfer duty. If the purchase price of the property is R750 001 or more, the payment of transfer duty to SARS are compulsory before registration of the property can take place. (your estate agent and/or conveyancer will be able to inform you of the exact amount of transfer duty and conveyancing fees payable on your transaction).

It is important to note that the transfer duty amount is normally payable shortly after signature of the deed of sale in order to obtain a transfer duty receipt from SARS.  Lodgement and registration of the transfer in the Deeds Office is not possible unless the full amount of transfer duty was duly paid to SARS, and a transfer duty receipt has been issued for it.

Sometimes buyers are under a misconception that the payment of transfer duty are only due upon registration of the transfer, which is not the case. Buyers also often confuse the conveyancing fees (payable to the transferring attorney as a fee for attending to the registration of transfer of the property) with the transfer duty (payable to SARS). Accordingly buyers often mistakenly assume that no conveyancing fees are payable to the conveyancers if there is no transfer duty payable to SARS  (due to the fact that the purchase price of the property is R750 000 or less). However, this is not the case, and the prescribed tariff fee remains payable to the conveyancers for attending to the registration of transfer.

  1. The costs for the issuing of a levy clearance certificate.

Often the property purchased forms part of a homeowner’s association.  After registration of the property, the buyer will be responsible for the payment of levies to the homeowner’s association of which it became a member upon transfer.

If the Purchaser bought a sectional title unit, levies will automatically become payable to the body corporate of the scheme subsequent to transfer.  Upon the registration of a property the homeowner’s association or body corporate of the sectional title scheme must issue a levy clearance certificate confirming that the current registered owner of the property is up to date with the payment of all levies in respect of said property.  The cost of issuing such levy clearance certificate under normal circumstances may vary between R500 and R1 500, and is usually payable by the Purchaser.

  1. Occupational rent, if the buyer decides to take occupation of the property prior to registration thereof in its name.

It is important that the buyer take notice of the provisions of the purchase agreement, which will stipulate whether the buyer will only be liable for the payment of occupational rent to the Seller once it occupies the property, or whether the buyer will also be responsible for the payment of other expenses applicable to the property (such as rates, levies, water and electricity).

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).

DIE WISSELWERKING TUSSEN DIE WET OP VERBRUIKERSBESKERMING EN DIE NASIONALE KREDIETWET, EN DIE MOONTLIKHEID VAN BOETES BY DIE AFLOS VAN KREDIETOOREENKOMSTE

DIE WISSELWERKING TUSSEN DIE WET OP VERBRUIKERSBESKERMING EN DIE NASIONALE KREDIETWET, EN DIE MOONTLIKHEID VAN BOETES BY DIE AFLOS VAN KREDIETOOREENKOMSTE

Article 1_BMnr Swart koop ‘n BMW-motor in terme van ‘n huurkoop ooreenkoms en sy finansiering word deur BMW-finansiering gedoen. Na ‘n paar maande erf mnr Swart ‘n groot som geld en hy besluit om die finansiering in terme van die kredietooreenkoms heeltemal af te los. Mnr Swart is bekommerd dat die kredietverskaffer hom kan penaliseer met ‘n boete omdat hy die finansiering vroeër aflos.

Die eerste stap in die beantwoording van die bogenoemde vraag sal wees om te bepaal watter wetgewing die situasie reguleer. Die wetgewing wat hier van toepassing is, is die Nasionale Kredietwet 34 van 2005  en die Wet op Verbruikersbeskerming 68 van 2008.

In hierdie aangeleentheid moet daar ‘n onderskeid getref word tussen die toepassingsgebied van elkeen van die bogenoemde wette, aangesien die een wet van toepassing sal wees op die kredietooreenkoms self, terwyl die ander wet van toepassing sal  wees op die goedere, met ander woorde die BMW-motor. Artikel 5 van die Wet op Verbruikersbeskerming sit uiteen wanneer die wet sal geld en wanneer nie. Artikel 5(2)(d) is van spesifieke belang vir mnr Swart, aangesien dit kredietooreenkomste wat ingevolge die Nasionale Kredietwet gereguleer word, uitsluit. Alhoewel artikel 5(2)(d) die ooreenkoms self uitsluit, word die goedere of dienste wat gelewer word ingevolge die kredietooreenkoms ingesluit. Hierdie kredietooreenkomste, soos beoog in die Nasionale Kredietwet, word gedefinieer in die wet self, en meer spesifiek artikel 8(4)(c) wat huurkoop ooreenkomste (paaiement ooreenkomste) insluit.

Mnr Swart se situasie val presies in artikel 5(2)(d) van die Wet op Verbruikersbeskerming. Die implikasie van hierdie artikel is dat alle kredietooreenkomste wat onderhewig is aan die Nasionale Kredietwet buite die bestek van die Wet op  Verbruikersbeskerming val, maar die goedere, en in dié geval die BMW-motor, en die kwaliteit van die goedere binne die bestek van die Wet op Verbruikersbeskerming val. Dit is hier waar die bogenoemde wette met mekaar oorvleuel. Die oorvleueling is eintlik daarin geleë dat beide wette op een ooreenkoms van toepassing kan wees. Die kredietooreenkoms moet voldoen aan die Nasionale Kredietwet, maar die goedere en dienste gelewer moet weer voldoen aan die Wet op Verbruikersbeskerming. As daar ‘n gebrek in die kwaliteit van die goedere of dienste is, sal die Wet op Verbruikersbeskerming die gepaste wetgewing wees, maar as dit gaan oor die kredietooreenkoms self, dan sal die Nasionale Kredietwet geld.

Artikel 2(9) van die Wet op Verbruikersbeskerming handel oor die interpretasie van die wet en meer spesifiek oor hoe die wet geïnterpreteer moet word in gevalle waar daar teenstrydighede ontstaan tussen die Wet op Verbruikersbeskerming en enige ander wet. Volgens die artikel moet die saamlees van verskillende wette so ver as moontlik geskied, maar as dit nie meer moontlik is nie, dan moet die wet geld wat die meeste beskerming aan die verbruiker verleen.

Die twee artikels in die Nasionale Kredietwet wat handel oor die vervroegde aflos van kredietooreenkomste is artikel 122 en 125. Volgens artikel 122 van die Nasionale Kredietwet mag ‘n verbruiker ‘n kredietooreenkoms op enige tydstip beëindig. Die verbruiker kan enige tyd sy kredietooreenkoms beëindig deur die vereffeningsbedrag ooreenkomstig artikel 125 te betaal.

Artikel 125 bepaal dat ‘n verbruiker geregtig is daarop om ‘n kredietooreenkoms te eniger tyd te vereffen, met of sonder voorafgaande kennis aan die kredietverskaffer. Die bedrag wat betaalbaar is om ‘n kredietooreenkoms te vereffen, is die somtotaal van die volgende bedrae:

  • Die uitstaande balans op die hoofskuld / kapitale bedrag.
  • Alle rentes en heffings tot en met vereffeningsdatum. Byvoorbeeld as die uitstaande bedrag na 3 maande afgelos word, sal slegs 3 maande se rente gevra word. Die rente sal bereken word op die kapitale bedrag wat geleen is. 

In die geval van ‘n groot ooreenkoms (R250 000.00 of meer) sal die aflosbedrag dieselfde bereken word soos hierbo, maar met addisionele rente, wat bekend staan as ‘n vervroegde-aflos-fooi. Dié fooi mag nie meer as ‘n bedrag gelykstaande aan drie maande se rente op die kapitale bedrag wees nie.

Gevolgtrekking

Dus, indien mnr Swart se BMW-motor se kapitale bedrag, en dus die kredietooreenkoms, meer werd is as R250 000.00 dan sal die kredietverskaffer geregtig wees om in terme van die Nasionale Kredietwet ‘n boete van nie meer as 3 maande se rente te hef nie by die vervroegde aflos van die kredietooreenkoms. Indien dit minder werd is as R250 000.00 sal hy nie geregtig wees om enige boetes te hef nie.

Hierdie is ‘n algemene inligtingstuk en moet gevolglik nie as regs- of ander professionele advies benut word nie. Geen aanspreeklikheid kan aanvaar word vir enige foute of weglatings of enige skade of verlies wat volg uit die gebruik van enige inligting hierin vervat nie. Kontak altyd u regsadviseur vir spesifieke en toegepaste advies.

Kliek hier om die volledige vrywaring te sien

 

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

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

Article 1_BMr 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.

Click here to view full disclaimer