Any Interest ?

ANY INTEREST?

The National Credit Act 34 of 2005 (“the Act”) enacted to regulate consumer credit, encompasses, defines, and regulates a wide range of credit agreements. An agreement constitutes a credit agreement in terms of the Act, if two elements are present, firstly, payment for consideration of goods or services should be deferred, secondly, a charge, fee or interest should be levied on the amount deferred.[1]

Section 8(1) of the Act further provides that a credit agreement may subsist as several different forms, including; credit facilities, credit transactions, credit guarantees and any combination of the aforementioned.[2] Section 8(4) of the Act further holds that a credit transaction may subsist as one of eight different forms including; pawn transactions, discount transactions, incidental credit agreements, mortgage agreements, secured loans, leases and any other credit agreement.[3] In this article, the focus shall be on incidental credit agreements.

What is an Incidental Credit Agreement?

In terms of section 1 of the Act, an incidental credit agreement “means 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 –

(a) 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 (b) 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.”

In light of the above, it is apparent that an incidental credit agreement is a form of a credit agreement and are thus defined as credit agreements in terms of which a person or entity provides goods or services to a consumer for consideration, to be paid on a future determined date.[4] A lower amount becomes payable in the event of early settlement of an account by the client, or; a fee charge or interest is levied in the event of late settlement of the account. The fee, charge or interest being applicable also in those instances where part payment is received, and the remainder of the account remains outstanding on the due date for payment of the entire account.[5] We shall elaborate further hereunder.

When does an Incidental Credit Agreement come about?

In most instances when an incidental credit agreement is entered into it is not the outright intention of either the supplier or the consumer to enter into such an agreement. It is a consequence, or a natural result, albeit a creation of legislation, of the defaulting of timeous payment by the consumer to the supplier, therefore, the occurrence is uncertain or incidental.[6]

Section 5(2) of the Act states the following,

“The parties to an incidental credit agreement are deemed to have made that agreement on the date that is 20 business days after; (a) the supplier of the goods or services that are the subject of that account, first charges a late payment fee of interest in respect of that account; or (b) a pre-determined higher price for full settlement of the account first becomes applicable”.[7]

The above provisos contemplates that an incidental credit agreement shall be deemed to have been concluded twenty (20) business days after a credit provider charges a fee for late payment, or interest for the first time.[8]

For example, where a credit provider renders an account to a client/customer, which account is payable on 15 May 2021, failing which the credit provider shall be entitled to charge a fee or interest in the outstanding amount. Should the account remain outstanding on the aforementioned date and the credit provider charge a late payment fee or interest on 28 May 2021, the parties shall be deemed to have concluded the incidental credit agreement as at 25 June 2021, being twenty (20) business days after the date upon which the late payment fee or interest was first charged. Common examples found in practice wherein incidental credit agreements come about as contemplated hereunder include inter alia, cell phone contracts, utility bills, doctor’s and lawyer’s fees.

Some writers hold the view that although the definition of an incidental credit agreement holds that the account tendered should be in consideration of goods or services, the moment in time which these goods or services are made available to the consumer is irrelevant. These goods or services may therefore be provided to the consumer immediately, over a period, or on a future determined date.[9]

From the above, there is thus an impression created that an incidental credit provider may provide the consumer with a deferred account for goods and services which are yet to be provided.[10] The aforementioned view very seldom holds true in practice as delivery of goods, or the rendering of a service, and the obligation to pay, are inextricably intertwined.

In light of the above information, it is no wonder that the usage of section 5(2) in practice, has given rise to a plethora of perplexity as to when exactly an incidental agreement comes into existence. Two possibilities can be connoted. The possible first explanation of when an incidental credit agreement comes into effect, suggests that the agreement comes into effect 20 (twenty) business days after the date upon which the credit provider levies a late payment fee or amount of interest to the consumer, for the first time.[11] That being; the day after which the amount deferred becomes due and payable, and will conclude on the twentieth (20^th) business day. The aforementioned suggests that the fact that consensus between the parties was reached in terms of the supply of the goods or services, the consideration thereof, the deferment of payment and the tendering of interest, is rendered irrelevant to the formation of an incidental credit agreement.[12] The second possible explanation suggests that an incidental credit agreement comes into effect upon the expiry of the 20 business days after the date upon which a credit provider levies a late payment fee or an amount of interest for the first time.[13]

If regard is given to the fact that goods or services were provided by a supplier to a consumer for an amount that has been deferred and interest has been levied, the aforementioned constitutes a credit agreement which complies with all the requirements prescribed by the Act.[14] It may therefore be argued that prior to the expiry of the twenty (20) business days, subsequent to the default on behalf of the consumer to satisfy the account and the levying of interest by the supplier on the outstanding amount, that a “other agreement” in terms of section 8(4)(f) of the Act is created.[15]

It is impractical to suggest that an agreement should shapeshift pending the lapse of the 20 business days.[16] Section 5(1) of the Act denotes that although the provisions encompassed in the Act are applicable to credit agreements in toto, a section 8(4)(f) “other agreement” being included in this ambit, only certain provisions of the Act are applicable to incidental credit agreements.[17] Therefore if the credit agreement is to take another form prior to the lapse of the twenty days, after which it would become an incidental credit agreement, legislative provisions would lose applicability.

In a judgment handed down by supra, Wallis J in JMV Textiles (Pty) Ltd v Da Chalalin Spareinvest 14 CC & Others,[18] where the Plaintiff argued the existance of a credit facility and the Defendant argued the existence of an incidental credit agreement, it was held that both party’s arguments were plausible, however, both arguments could not be correct, as the credit agreement cannot exist in two different forms.

Wallis J further refers to the definition of a credit facility encompassed in section 8(3) of the Act as being;

“a technical description for the purposes of a technical statute and common descriptions are not of a great assistance in construing the language of such provision.”

In light of the above, as well as the remarks made by Ngcobo J in Bato Star Fishing (Pty) Ltd v Minister of Environmental Affairs and Tourism 2004 7 BCLR 687 (CC),[19] where it was stated that regard must be had to the context in which the sentence was structured, even in instances where the construction is clear an unambiguous, when a statute to be interpreted is capable of interpretation, and such interpretation should further advance an identifiable value enshrined in the Bill of Rights,[20] it is my interpretation that the statute should be understood to reflect the fact that should the legislature have intended a shapeshifting of credit agreements before the lapse of the 20 business days, that provision for this would have been made.

Perhaps it is the intention of the legislature that the legislation be interpreted to suggest that an incidental credit agreement arises upon the default of the obligation placed on the consumer to pay the amount deferred, the levying of a charge, fee or amount of interest on this amount and the expiry of the twenty (20) days, and that prior to default of payment, that the agreement concluded is a mere purchase and sale agreement, perhaps not. In my opinion, this question remains unanswered.