We often receive instructions from RMI4Law-members (“members”) to collect monies owing to them subsequent to their sale of goods or rendering of services to consumers and “to hold them liable for interest due to non payment from the date on which the invoice was rendered”.
The first question we ask these members is whether a contract was entered into with the consumer in terms of which interest is payable on outstanding accounts. In most instances the answer thereto is negative and, to the disappointment of the member, can interest not be charged and the payment thereof not be enforced. The only way in which we can then assist the member to limit the effect of depreciation on outstanding monies is to immediately send a letter of demand or issue summons. At least then mora interest commences to run at 15.5% per annum. This, however, is little comfort to a supplier or service provider if the outstanding monies amount to tens of thousands of rands and have been outstanding for an extended period of time such as two years.
A solution to limit the effect of the depreciation of outstanding monies is to enter into a credit agreement with the consumer in terms of which the consumer will pay interest on outstanding monies. All credit agreements are governed by the provisions of the National Credit Act 34 of 2008 (“the NCA”). The NCA provides consumers with various rights and impose many obligations on credit providers, some of which will be dealt with herein.
Although it is not a legal requirement that a credit agreement be in writing for it to be valid, the NCA prescribes the form for, as well as the content of, credit agreements. (The form and content of a credit agreement will depend on whether such agreement is considered a small, intermediate or large credit agreement.) Section 93(1), furthermore, requires that a credit provider must deliver a copy of the document in which the contract is recorded to the consumer.
Due to the last mentioned requirement and the various other strict requirements and consumer rights contained in the NCA, suppliers and service providers who wish to enter into credit agreements are strongly advised to enter into these agreements with consumers in writing. The alternative is to face the risk of having to overcome the various remedies available to consumers provided by the NCA.
An important aspect to take note of is that suppliers and service providers who wish to enter into credit agreements must ascertain whether they are required to be registered as a credit provider in terms of section 40. Failure to register when required to do so can have very detrimental consequences, including that a credit agreement be declared unlawful. This can have the further consequence of the right to recover any monies by the credit provider in terms of the agreement being cancelled or forfeited to the state.
In terms of section 81 of the NCA, a credit provider must not enter into a credit agreement without first taking reasonable steps to assess, inter alia, the consumer’s understanding and appreciation of the risks and costs of the credit agreement, his or her rights and obligations there under, debt re-payment history and existing financial means. Failure to comply with these requirements will cause the credit agreement to be reckless which can lead to a court setting aside all or part of the consumer’s obligations in terms of the agreement or suspending the force and effect of the credit agreement.
Although the charge of interest on outstanding monies can be profitable, there are various aspects and legal requirements to contend with when doing so. It is therefore advisable that suppliers and service providers consult an attorney prior to entering into credit agreements to ensure that they understand the risks and legal requirements of doing so. RMI4law members enjoy 24hours free legal advice and can obtain same by phoning 0861 668 677.
Andries Stander is an attorney at Barnard Incorporated