Your business sells goods to a consumer with the understanding that they have (for example) 30 days to pay for the goods. After 30 days, no payment is received. In terms of the conditions of the sale a fee, charge or interest, becomes payable or the consumer may even in terms of the agreement have to pay a higher price for the goods.
The above is an example of an incidental credit agreement.
The definition of Incidental Credit
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:
- 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
- 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.
From the above it is evident that any Credit Provider who renders a fee, charge or interest on an overdue account, provides incidental credit. The same is true for a Credit Provider who provides so-called ‘early settlement discounts’ to consumers.
A Credit Provider that renders an account to Consumers which is payable within 30 days for 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 National Credit Act.
When is an Incidental Credit Agreement deemed to be concluded?
When you, as a business, charge late-payment fees or interest, the incidental agreement is deemed to be concluded 20 business days after the date on which the first late payment fee was charged.
For example, as a supplier you render an account for goods which stipulates that the account is payable on 15 November 2016, after which a charge/fee/interest will be levied on the outstanding amount. The consumer defaults on his payment and the supplier charges interest on the outstanding amount from 15 November 2016.
The law states that 20 business days after 15 November 2016, the parties are deemed to have concluded an Incidental Credit Agreement. As such, the date of the conclusion of the Incidental Credit Agreement is 15 December 2016, as the National Credit Act determines that the first date on which a fee, charge or interest is charged is excluded from the calculation.
Are you, as a business that supplies Incidental Credit, required to register as a Credit provider in terms of the Act?
No. If you, as a credit provider, only supply incidental credit then you are not required to register as a credit provider.
Note: please remember that there are numerous other types of credit that do, in fact, require registration as Credit Provider.
How much Interest can you charge in terms of an Incidental Credit Agreement?
The Minister, in terms of Section 103 of the National Credit Act, prescribes the interest rates that can be charged in terms of an Incidental Credit Agreement. The current interest rate is 2% per month, which accumulates to 24% per annum, which can be charged on default payments within an Incidental Credit Agreement.
How do I take legal action to enforce Incidental Credit?
Even though it is Incidental Credit, the National Credit Act (No. 34 of 2005) requires that Section 129 and Section 130 Notices be issued. A Section 129 Notice is a document that advises the consumer that they are in arrears of a certain amount in unpaid instalment(s) at a given date. The credit provider may not proceed with any legal action without fully, complying with the National Credit Act requirements of Section 129 and Section 130. The credit provider or their attorney may issue the above two notices at any time after the client has been in arrears for more than 20 business days.
ABOUT THE AUTHOR
Charl Fourie has been a SEESA Consumer Protection & POPI Legal Advisor since 2008. Prior to employment at SEESA he practiced as a Civil and Criminal Attorney for 4 years.