Prohibitions on Reckless and Predatory Lending: Lessons from South Africa

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1
ANDREW D. SCHMULOW*
Prohibitions on Reckless and Predatory Lending: Lessons
from South Africa
This paper provides a statement and an analysis of South Africa’s statutory
provisions aimed at curbing reckless lending, and preventing predatory
lending, to consumers.
I INTRODUCTION
South Africa is a developing country,
1
with a population of
approximately 55 million
2
people, of which 40 million are regarded as
economically-active, and fall between the ages of 15 and 64.
3
Of this
approximately 25% are unemployed,
4
and in excess of 2.5 million
adults are classified as illiterate.
5
This presents opportunities for
unscrupulous financial service providers, and especially lenders, to
* BA Honours LLB (Witwatersrand) PhD (Melbourne), Advocate of the High Court
of South Africa; Principal, Clarity Prudential Regulatory Consulting, Pty Ltd;
Visiting Researcher, Oliver Schreiner School of Law, University of the
Witwatersrand, Johannesburg; Visiting Researcher, Centre for International Trade,
Sungkyunkwan University, Seoul. The author may be contacted at
<ads@clarityprc.com.au>
1
United Nations, Statistical annex, in ‘World Economic Situation and Prospects
2015’, United Nations, 2015, p 140.
2
Statistics South Africa, Mid-year population estimates, in ‘Statistical release’,no.
P0302, Statistics South Africa, 23 July, 2015, p 2. Up from 52 million according to
the 2011 census. SouthAfrica.info, “South Africa's population”, in About/People,
published by SouthAfrica.info, October, 2015, accessed: 19 November, 2015.
3
Jami Solli-Hubbard (ed.), Responsible lending: An international landscape, in
‘News and Media, Resource Zone’, Consumers International, November, 2013, p
71.
4
United Nations, 2015, p 156.
5
Stephanie Pretorius, “SA’s real level of literacy”, ‘National’, The Citizen, 29
August, 2013 06:00 am.

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take advantage of the large number of unsophisticated financial
consumers in South Africa.
The statistical returns obtained from credit providers and credit
bureaus have revealed that the amount of credit granted to
consumers has increased substantially from R1.1 trillion in
2007 to R1.5 trillion in 2014. There were 21.7 million credit
active consumers and out of these, 9.6 million (44.2%) had
impaired records. This increase has also led to an evolution of
the problem of household over-indebtedness. Household debt to
disposable income in South Africa is still high, even though the
overall household indebtedness is actually down from its early
peaks: Q4 2008 – 81.9% and this fell to 74.3% in Q4 2013. This
is an indication that a large portion of household incomes still
goes to servicing debt.
6
As a result,
7
South Africa’s National Parliament enacted the
National Credit Act
8
in 2005, the objects and purport of which are,
inter alia, to combat reckless lending – that is to say lending which is
reckless as regards a particular borrower’s indebtedness - and prohibit
predatory lending. The methods employed are at once farsighted and
straightforward, and serve as a useful comparative model that other
jurisdictions may wish to study in order, similarly, to discourage
reckless and predatory lending practices.
This article will provide, by way of discussion, a background
to the Act, an analysis of key provisions, and a discussion of
enforcement mechanisms. Its focus on consumers is from the
perspective of the particular dynamics encountered in the protection of
individual consumers, and as such is predominantly based upon the
6
The National Credit Regulator, Annual Report, The National Credit Regulator,
2014, p 12.
7
Megan Whittaker, “South Africa's National Credit Act: A Possible Model for the
Proper Role of Interest Rate Ceilings for Microfinance”, Northwestern Journal of
International Law & Business, Vol. 28, no. 3 (Spring, 2007-2008), p 569ff.
8
National Credit Act, No. 34 of 2005, (enacted: 15 March, 2006), (Republic of
South Africa).

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notion of the consumer as a natural person. Issues in the protection of
sophisticated consumers are not within the ambit of this article.
II BACKGROUND TO THE ACT
The purpose of the National Credit Act is to:
… promote a fair and non-discriminatory marketplace for
access to consumer credit and for that purpose to provide for
the general regulation of consumer credit … and improved
standards of consumer information; … to prohibit certain
unfair credit and credit-marketing practices; to promote
responsible credit granting … to prohibit reckless credit
granting; … to establish national norms and standards relating
to consumer credit; to promote a consistent enforcement
framework … establish the National Credit Regulator and the
National Consumer Tribunal…
9
In particular, the Act prohibits misleading and unfair
marketing and selling practices
10
- an important provision in a society
with a large number of financially unsophisticated consumers.
11
Moreover, the provisions aimed at prohibiting misleading and unfair
conduct are worded sufficiently broadly that a Court or Tribunal can
evaluate, on a case-by case basis, whether a particular practice is
unfair or misleading, having regard to the circumstances of a
particular debtor. This puts the onus squarely upon the lenders to
conduct themselves appropriately.
The Act prohibits unilateral changes to a credit agreement,
notwithstanding any provisions in the credit contract or at common
9
Preamble , ibid.
10
S 76 (4)(c)(ii), ibid.
11
See for example s 90 (2)(a)(i) and (ii), ibid, which makes void any credit contract
that contains provisions which are deceptive or fraudulent.

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law
12
to the contrary – in particular changes to the interest or fees
payable,
13
or the period of repayment or the minimum amount
payable;
14
nor may the credit provider unilaterally extend to the
borrower increased credit facilities.
15
These provisions prevent
consumers from being blind-sided by so-called loan interest ‘re-set’
16
provisions; prevent credit providers from being able to contract out of
the provisions of the Act;
17
and prevent credit providers from
continuing to extend credit to unsophisticated consumers until those
consumers are over-indebted, and caught in a debt trap.
A further noteworthy aspect of the Act is the manner in which
it seeks to shine a light onto debt practices in the Republic. In extreme
cases we have seen examples of where industry representatives have
sought to outlaw research into the harmful effects of the products their
industry produces, the most obvious and possibly most extreme
example of which is the prohibition on the conduct of research into
deaths by gun violence in the United States.
18
In contradistinction to
12
Or where the agreement as a whole purports to deprive a common law right, s
90(2)(c), as prescribed by the Minister under ss (5), ibid.
13
S 104 (1)(a) and (b), ibid.
14
S 120 (1)(a) and (b), ibid.
15
S 119 (1)-(4), ibid.
16
The practice by which consumers are enticed into entering into loan contracts by
virtue of low, fixed interest rates, which then later ‘reset’ to higher, floating rates,
often at levels that are unaffordable. Assistant Governor of the Australian Reserve
Bank, Guy Debelle, stated in 2008 that: ‘There are at least four factors that can be
identified [as causing the sub-prime disaster, two of which were]: reset shock, [and]
poor assessment of the risks by the lending institution ...’ Both reset shock and poor
risk assessment are specifically addressed by the National Credit Act, and so should
be viewed not just as forms of consumer protection, but also as potential bulwarks
against systemic threats to the broader economy.
17
s 90 (2)(a)(i), and s 90 (2)(b), National Credit Act, No. 34 of 2005.
18
Todd C. Frankel, “Why the CDC still isn’t researching gun violence, despite the
ban being lifted two years ago”, ‘News/Storyline’, The Washington Post, 14
January, 2015.

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such an approach, the National Credit Act
19
specifically requires the
National Credit Regulator to conduct research into socio-economic
trends in consumer credit in the Republic, especially as regards over-
indebtedness, and to make known its findings.
20
The National Credit Act regulates the provision of consumer
credit in South Africa, and covers every type of entity that extends
credit: banks, micro-lenders, furniture and even clothing retailers.
Entities that extend credit are captured by the provisions in the Act,
and are required to register with the National Credit Regulator.
Indeed, the only entities that extend credit but are not required to
register with the National Credit Regulator are those with fewer than
100 loans in their portfolio,
21
or those whose portfolios are worth less
than ZAR 500,000.
22
While such entities are not required to register
19
S 16 (1)(c).
20
s 16 (1) and (2), National Credit Act, No. 34 of 2005.
21
In South Africa, traditionally, black communities have assisted one another
through the provision of so-called ‘stokvel’ finance. Stokvels operate as community
savings clubs. Typically they have approximately twelve members or more, with
each member contributing to a central fund on a weekly, fortnightly or monthly
basis. Stokvels are virtually only utilized by low- or very low-income black South
Africans – and then predominantly by older black South Africans. Members meet
usually monthly at a party hosted by one of the members. In return for which the
host may be expected to make a small profit. The central fund is then loaned to each
member in turn for anything from funeral expenses to the purchase of groceries to
home improvements. Anonymous, “Stokvel”, Oxford Dictionaries, 2016. There are
currently approximately 800,000 stokvels in South Africa, worth an estimated ZAR
45 billion, and with somewhere between 8,6 and 9 million members. Most are
represented by the National Stokvel Association of SA. National Stokvel
Association of South Africa (NASASA), “Homepage”, in Website, published by
National Stokvel Association of South Africa (NASASA), 2016, accessed: 2
January, 2016; Gillian Jones, “A stokvel by any other name is still empowering”,
‘Business / Financial Services’, Business Day, 11 May, 2015 at 06:35. Clearly the
legislator did not intend to cover stokvels, as registration for these community
savings clubs would be unduly onerous.
22
S 40 (1) (a), National Credit Act, No. 34 of 2005.

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with the Regulator, they are nonetheless subject to the provisions of
the Act in every particular. A credit provider required to register in
terms of the Act, but which does not register, must not offer credit,
and if it does so, any such credit agreements are void from the date
upon which they were entered into.
23
In so doing the onus is placed
squarely upon the providers of credit, such that if they fail to
discharge their obligations, they would then be in a position of having
no recourse against the debtor.
The Act prohibits heavy-handed debt enforcement processes,
no doubt aimed at preventing debt collectors from frightening debtors
into repayment. While this is not, it is suggested, aimed at achieving
anything more than addressing the ‘how’ of the debt-collection
process, as opposed to the ‘when’ or the ‘if’, it is nonetheless an
important provision aimed at civilizing the process. Put differently, if
a debtor can be forced to repay their debts, good and well, but they
should not, in the process of being subjected to debt collection, be
terrorised.
24
The Act prevents credit providers from contractually escaping
from any representations made prior to the commencement of the
contract, but which may have induced the contract.
25
Moreover, the
Act prevents excessively costly credit, over-indebtedness and reckless
lending, inadequate consumer redress and dispute resolution, and even
poor customer service.
26
In terms of access to credit – an important feature in a
developing economy where a sizeable portion of the population has
historically not enjoyed equality of access to credit – an applicant is,
by law, assured that they will be granted any credit they apply for,
23
S 40 (4), ibid.
24
See for example s 133 ‘Prohibited collection and enforcement practices’, ibid.
25
S 90 (2)(h)(i), ibid.
26
Jami Solli-Hubbard (ed.), November, 2013, p 72.

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unless there are legitimate reasons for a refusal.
27
Where an
application does result in a refusal, the applicant has a right to know
the reasons.
28
This is an important provision, because credit providers
will need to be accurate and circumspect in the reasons they provide.
If the reasons are inadequate or unreasonable, then that would form
the basis for a review of the provider’s decision. Put differently, the
credit provider cannot provide generic reasons by way of a form letter.
The provider would need to demonstrate a reasonable measure of
engagement with the applicant’s circumstances. Furthermore, the
provider will not be able to rely on reasons other than the reasons
provided to the applicant, and so will be compelled to provide reasons
which are, to the best of the ability of the provider, complete and
comprehensive.
Credit granters are obligated to ensure that consumers can not
only afford the credit, but that they also understand the costs and risks
associated with that credit.
29
III SPECIFIC PROVISIONS
This part provides an account and an analysis of specific provisions in
the National Credit Act, which deserve particular attention. Only those
sections which, in this writer’s view, deserve attention, and which
demonstrate consumer protection principles, are repeated here.
(a) Section 64, Right to information in plain and understandable
language
Section 64 states as follows:
27
Ibid, p 72.
28
Ibid.
29
Ibid, p 72.

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(1) The producer of a document that is required to be delivered
to a consumer in terms of this Act must provide that document-
(a) …
(b) in plain language, if no form has been prescribed for that
document.
(2) For the purposes of this Act, a document is in plain
language if it is reasonable to conclude that an ordinary
consumer of the class of persons for whom the document is
intended, with average literacy skills and minimal credit
experience, could be expected to understand the content,
significance, and import of the document without undue effort,
having regard to-
(a) the context, comprehensiveness and consistency of the
document;
(b) the organisation, form and style of the document;
(c) the vocabulary, usage and sentence structure of the text;
and
(d) the use of any illustrations, examples, headings, or other
aids to reading and understanding.
South Africa has developed an admirable focus
30
on plain
language, concomitant with its progression to a democratic political
dispensation in 1994. Examples include both South Africa’s Final
Constitution,
31
and the Interim Constitution
32
which preceded it, and
the Consumer Protection Act.
33
In a country with a large proportion of
the population ill-educated and in some instances illiterate, it serves to
30
See for example: Plain Language Institute, “Plain language legislation in SA”,
series edited by Plain Language Institute, in Plain Language in SA, published by
Plain Language Institute, 2010, accessed: 8 November, 2015.
31
Constitution of the Republic of South Africa, No. 108 of 1996, (enacted: 1996),
(Republic of South Africa).
32
Interim Constitution of the Republic of South Africa, No. 200 of 1993, (enacted:
1993), (Republic of South Africa).
33
Consumer Protection Act, No. 68 of 2008, (enacted: 29 April, 2009), (Republic of
South Africa).

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strengthen the position of vulnerable consumers, by making
legislation as accessible as possible. This is not only true for South
Africa; it is true for any country where consumers, made vulnerable
by, for example, their lack of language skills, are evident.
Again, as is a general feature of this Act, the onus is upon the
producer of the document to ensure compliance, and again, as is also a
feature of this Act, a Court or Tribunal is given philosophical
direction in terms of reaching a conclusion as to compliance with the
Act, but is specifically mandated to inquire into the particular
circumstances of a consumer, upon whose behalf a complaint is
brought. In so doing the Act references ‘consumer of the class of
persons for whom the document is intended’. Set against that must be
the expected ability of a consumer with average literacy skills, but
minimal credit experience, to understand that document without undue
effort. In particular a Court or Tribunal must have regard to the
vocabulary and sentence structure used in the document.
34
It is not in dispute that this creates a large lee-way for Courts
and Tribunals. But in the context of heavily skewed power relations
between a credit provider, and a potentially vulnerable consumer, the
Act clearly aims to favour the consumer. As a corollary, it is
incumbent upon credit providers to know their customers (KYC), and
to err on the side of caution in the formulation and provision of
documentation.
(b) Section 66, Protection of consumer credit rights
Section 66 states as follows:
(1) A credit provider must not, in response to a consumer
exercising, asserting or seeking to uphold any right set out in
this Act or in a credit agreement-
34
These issues were addressed by the High Court of South Africa in § 52, 53 and 64
in Standard Bank of South Africa Ltd v Dlamini 2013 (1) SA 219 (KZD).

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(a) discriminate directly or indirectly against the consumer,
compared to the credit provider’s treatment of any other
consumer who has not exercised, asserted or sought to uphold
such a right;
(b) penalise the consumer;
(c) alter, or propose to alter, the terms or conditions of a credit
agreement with the consumer, to the detriment of the consumer;
or
(d) take any action to accelerate, enforce, suspend or terminate
a credit agreement with the consumer.
(2) If a credit agreement, or any provision of such an
agreement is, in terms of this Act, declared to be unlawful or is
severed from the agreement, the credit provider who is a party
to that agreement must not, in response to that decision-
(a) directly or indirectly penalise another party to that
agreement when taking any action contemplated in
section 61(1);
(b) alter the terms or conditions of any other credit
agreement with another party to the impugned agreement,
except to the extent necessary to correct a similarly
unlawful provision; or
(c) take any action to accelerate, enforce, suspend or
terminate another credit agreement with another party to
the impugned agreement.
This section serves to outlaw any attempts by a credit provider
to punish a consumer for exercising their rights, or to punish another
party to the agreement (such as a guarantor). It prevents a credit
provider from installing into a contract any provisions which would
allow some sort of sanction to be imposed upon a consumer who
exercises their rights, or complains about their treatment. This is a
valuable provision in that it prevents credit providers from bullying or
coercing their customers.
(c) Section 76, Advertising practices
Section 76 states as follows:

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(1) …
(2) …
(3) …
(4) An advertisement of the availability of credit, or of goods or
services to be purchased on credit-
(a)…
(b) …
(c) must not-
(i) advertise a form of credit that is unlawful;
(ii) be misleading, fraudulent or deceptive; or
(iii) contain any statement prohibited by regulation;
and
(d) may contain a statement of comparative credit costs to the
extent permitted by any applicable law or industry code of
conduct, but any such statement must-
(i) show costs for each alternative being compared;
(ii) show rates of interest and all other costs of credit
for each alternative;
(iii) be set out in the prescribed manner and form;
and
(iv) be accompanied by the prescribed cautions or
warnings concerning the use of such comparative
statements.
(5) In any advertisement concerning the granting of credit, a
credit provider must state or set out the interest rate and other
credit costs in the prescribed manner and form.
The effect of this section is, principally, to outlaw
advertisements or promotional materials that are designed, or have the
effect of, misleading or deceiving consumers, are fraudulent or illegal,
and which fail to inform consumers of the costs of a particular form of
credit.
(d) Section 80, Reckless credit
Section 80 states as follows:

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(1) A credit agreement is reckless if, at the time that the
agreement was made, or at the time when the amount approved
in terms of the agreement is increased, other than an increase
in terms of section 119(4)-
(a) the credit provider failed to conduct an assessment as
required by section 81(2), irrespective of what the outcome of
such an assessment might have concluded at the time; or
(b) the credit provider, having conducted an assessment as
required by section 81(2), entered into the credit agreement
with the consumer despite the fact that the preponderance of
information available to the credit provider indicated that-
(i) the consumer did not generally understand or
appreciate the consumer’s risks, costs or obligations
under the proposed credit agreement; or
(ii) entering into that credit agreement would make
the consumer over- indebted.
(2) …
(3) …
This section places upon the credit provider an obligation to ‘know the
customer’. Moreover, the credit provider is to be judged according to
what information was available at the time the decision to grant credit
was made. This is potentially different from the information which the
credit provider actually obtained. Thus a failure to make a reasonable
investigation of the potential debtor’s position, and a concomitant lack
of adequacy of information obtained would not, it is suggested,
constitute a defence. The incentive for the credit provider to make a
thorough investigation is, therefore, maintained.
(e) Section 82, Assessment mechanisms and procedures
Section 82 states as follows:
(1) Subject to subsections(2)(a) and (3), a credit provider may
determine for itself the evaluative mechanisms or models and
procedures to be used in meeting its assessment obligations

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under section 81, provided that any such mechanism, model or
procedure results in a fair and objective assessment.
(2)The National Credit Regulator may-
(a) pre-approve the evaluative mechanisms, models and
procedures to be used in terms of section 81 in respect of
proposed developmental credit agreements; and
(b) publish guidelines proposing evaluative mechanisms,
models and procedures to be used in terms of section 81,
applicable to other credit agreements.
(3) Subject to subsections (2)(a) and (4), a guideline published
by the National Credit Regulator is not binding on a credit
provider.
(4) If the Tribunal finds that a credit provider has repeatedly
failed to meet its obligations under section 81, or customarily
uses evaluative mechanisms, models or procedures that do not
result in a fair and objective assessment, the Tribunal, on
application by the National Credit Regulator, may require that
credit provider to-
(a) apply any guidelines published by the National Credit
Regulator in terms of subsection (2)(b);or
(b) apply any alternative guidelines consistent with prevailing
industry practice, as determined by the Tribunal.
This section allows the credit provider to develop its own
evaluative mechanisms, models or procedures to enable it to conduct
the creditworthiness and suitability assessment, as required above;
provided the mechanisms that the credit provider develops are fair and
objective. A credit provider may submit its mechanisms, models or
procedures to the regulator for pre-approval.
The National Consumer Tribunal (NCT), on the
recommendation of the National Credit Regulator, may impose
mandatory guidelines on a credit provider who is consistently found to
use evaluative mechanisms or procedures that are unfair and
subjective. Put differently, this empowers a Tribunal to punish and
impose conditions upon credit providers who have a track-record of
acting contrary to the spirit or the letter of the Act. Given time and

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sufficient opportunities for ventilation, this stricture may have a
civilising effect on the industry as a whole, and may contribute to the
development of a culture that favours prudent, ethical conduct towards
consumers, by rendering contrary business practices unsustainable.
While the guidelines which the National Credit Regulator may
publish subject to s 3 are not binding, the fact that a Tribunal may
subsequently impose them as binding, by way of a court order, makes
the guidelines highly persuasive. For one thing following the
guidelines as published could later be used by a credit provider to
convince a Tribunal that it has a clean track-record. This may prove
useful, because a determination by a Tribunal that a credit provider
does not have a clean track record opens up the possibility that the
Tribunal may impose other processes as binding, in addition to the
guidelines as promulgated by the National Credit Regulator.
(f) Section 83, Court may suspend reckless credit agreement
Section 83 states as follows:
(1) Despite any provision of law or agreement to the contrary,
in any court proceedings in which a credit agreement is being
considered, the court may declare that the credit agreement is
reckless, as determined in accordance with this Part.
(2) If a court declares that a credit agreement is reckless in
terms of section 80 (1)(a) or 80 (1)(b)(i), the court may make an
order-
(a) setting aside all or part of the consumer’s rights and
obligations under that agreement, as the court determines just
and reasonable in the circumstances; or
(b) …
(3) …
(4) …
This section effectively provides courts with unfettered
discretion to apply the prohibitions on reckless lending. This includes
the power to set aside a loan contract despite the prima facie validity
thereof in terms of the common law or statute, or a contractual

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provision. In making the determination the court need only have
regard to what it determines to be just and reasonable grounds, and
with reference to the manner prescribed by s 80 (1) (see above).
This section has the effect of making reckless lending a
precarious business for the credit provider: while the credit provider
may initially succeed in extending reckless loans, the credit provider
is effectively denied of any certainty of title. If at a later stage either
the borrower or the National Credit Regulator forms the view that the
loan was reckless, it may then be challenged, and all of the borrower’s
obligations rendered void. This serves as a powerful disincentive to
credit providers to ‘chance their luck’.
Put differently, if the court finds the loan reckless, it can set
aside all or part of the borrower’s obligations. In effect, therefore, the
court can punish a lender under this section, for making a reckless
loan, by voiding all or part of the loan, leaving the lender with no
further recourse. The flexibility given to the court, by which it can
suspend ‘all or part’ of the obligations, according to whatever is ‘just
and reasonable’, is particularly noteworthy.
(g) Section 85, Court may declare and relieve over-indebtedness
Section 85 states as follows:
Despite any provision of law or agreement to the contrary, in
any court proceedings in which a credit agreement is being
considered, if it is alleged that the consumer under a credit
agreement is over-indebted, the court may-
(a) …
(b) declare that the consumer is over-indebted, as determined
in accordance with this Part, and make any order
contemplated in section 87 to relieve the consumer’s
over-indebtedness.
Similar to s 83, this section allows a Court to inquire into
whether a debtor is over-indebted, notwithstanding a provision in the
loan contract, or at common law or statute, that purports to deprive the

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debtor of the right to be relieved of their debt, if they are found to be
over-indebted. Clearly, therefore, the legislator has placed the onus for
‘know your customer’ on the credit provider, while at the same time
firing a shot across credit providers’ bows to the effect that if they
engage in reckless lending, whereby a debtor is placed in an
inescapable debt trap, then responsibility for those loans will rest with
the credit provider, as indeed will the consequences.
In the event that a Court finds that credit has been extended in
a manner that is reckless, it may re-arrange the debtor’s obligations,
including by recalculating the debtor’s obligations,
35
which may
include holding that the credit agreement is void ab initio,
36
requiring
the credit provider to refund the debtor, with interest,
37
or it may
cancel all of the creditor’s rights to recover monies or goods,
38
or it
may cause the creditor’s rights to recover to be forfeited to the State.
39
(h) Section 90, Unlawful provisions of credit agreement
Section 90 states as follows:
(1) A credit agreement must not contain an unlawful provision.
(2) A provision of a credit agreement is unlawful if-
(a) its general purpose or effect is to-
(i) defeat the purposes or policies of this Act;
(ii) deceive the consumer; or
(iii) subject the consumer to fraudulent conduct;
(b) it directly or indirectly purports to-
(i) waive or deprive a consumer of a right set out in
this Act;
35
S 86 (7)(c)(ii)(dd), National Credit Act, No. 34 of 2005.
36
S 89 (5)(a), ibid.
37
S 89 (5)(b), ibid.
38
S 89 (5)(c)(i), ibid.
39
S 89 (5)(c)(ii), ibid.

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(ii) avoid a credit provider's obligation or duty in
terms of this Act;
(iii) set aside or override the effect of any provision of
this Act;
(iv) authorise the credit provider to-
(aa) do anything that is unlawful in terms of
this Act; or
(bb) fail to do anything that is required in
terms of this Act;
(c) it purports to waive any common law rights that-
(i) may be applicable to the credit agreement; and
(ii) have been prescribed in terms of subsection (5);
(d) …
(e) …
(f) …
(g) it purports to exempt the credit provider from liability, or
limit such liability, for
(i) any act, omission or representation by a person
acting on behalf of the credit provider; or
(ii) …
(h) it expresses an acknowledgement by the consumer that-
(i) before the agreement was made, no
representations or warranties were made in
connection with the agreement by the credit provider
or a person on behalf of the credit provider; or
(ii) …
(i) …
(j) …
(k) it expresses, on behalf of the consumer-
(i) an authorisation for any person acting on behalf of
the credit provider to enter any premises for the
purposes of taking possession of goods to which the
credit agreement relates; or
(ii) …
(iii) …
(iv) ...
(v) …

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(vi) a consent to the jurisdiction of-
(aa) the High Court, if the magistrates’ court
has concurrent jurisdiction; or
(bb) any court seated outside the area of
jurisdiction of a court having concurrent
jurisdiction and in which the consumer
resides or works or where the goods in
question (if any) are ordinarily kept;
(l) …
(m) it purports to direct or authorise any person engaged in
processing payments to give priority to payments for the
credit provider over any other credit provider;
(n) …
(o) it states or implies that the rate of interest is variable,
except to the extent permitted by section 103(4).
(3) In any credit agreement, a provision that is unlawful in
terms of this section is void as from the date that the provision
purported to take effect.
(4) In any matter before it respecting a credit agreement that
contains a provision contemplated in subsection (2), the court
must-
(a) sever that unlawful provision from the agreement, or alter
it to the extent required to render it lawful, if it is reasonable
to do so having regard to the agreement as a whole; or
(b) declare the entire agreement unlawful as from the date
that the agreement, or amended agreement, took effect, and
make any further order that is just and reasonable in the
circumstances to give effect to the principles of section 89(5)
with respect to that unlawful provision, or entire agreement,
as the case may be.
(5) …
This section contains some of the most far-reaching consumer
protection provisions, by declaring a variety of provisions unlawful.
These include provisions which in the view of the Court attack the
spirit of the Act, or subject the consumer to deceptive or fraudulent

FALL 2016 CIFR working paper
19
provisions. The section extends to provisions in a contract that waive
or exclude the consumer’s rights or the provider’s obligations.
Further, the section makes unlawful any provisions that
exempt conduct on behalf of an agent of the provider, or exclude
liability for any representations that may have induced the contract. It
prevents a provider from contractually acquiring the right to repossess
any goods by entering the debtor’s premises without, it is assumed, a
court order.
Significantly, it also prevents a provider from nominating as a
forum a Division of the High Court of South Africa, when a
Magistrate’s Court will do. This, it is argued, is aimed at preventing a
creditor from intimidating a debtor by selecting a court where the
processes are more onerous, and the costs considerably higher. In
addition, the creditor cannot select a jurisdiction which is remote from
where the debtor resides, in order to make attendance at court more
difficult and onerous for the debtor.
The section prevents the creditor forcing the debtor to agree to
a garnishee order, that is to say, an order in which the debtor agrees to
give the creditor access to the debtor’s salary before it is paid to the
debtor.
40
Finally, the section prohibits recourse by the creditor to
punitive interest rates.
Where an agreement contains an unlawful provision, that
provision will be void ab initio, and the Court is empowered to sever
the provision from the agreement. If the provision cannot be severed,
then the Court may declare the contract void from inception, and
make any other orders that the Court deems fair and reasonable under
the circumstances.
40
For more on this see: Angelique Arde, “Garnishee orders: are you exploited?”,
‘Business’, Independent Online, 28 October, 2012 at 9:50pm; Frans Haupt, Hermie
Coetzee, Dr Dawid de Villiers & Jeanne-Mari Fouch, The incidence of and the
undesirable practices relating to garnishee orders in South Africa, University of
Pretoria, October, 2008.

CIFR working paper
20
IV ENFORCEMENT
The Act establishes jurisdiction for both Courts and Tribunals; the
latter partly to expedite judicial review without relying on over-
burdened courts.
41
42
(a) Specific enforcement provisions and penalties
A Judicial Officer (Judge or Magistrate) may order that premises be
searched
43
where the commission of a breach is suspected, and when
searched, powers of search and seizure of both persons and evidence
are comprehensive.
44
Juxtaposed with this power is a requirement
45
that persons being searched are entitled to their dignity (including that
they not be physically searched by an officer of a different gender
46
),
freedom, security and privacy;
47
that the search be conducted with
41
RP Goodwin-Groen, The National Credit Act and its Regulations in the Context
of Access to Finance in South Africa, in ‘Financial Policy and Regulation’, FinMark
Trust South Africa, November, 2006, p 61, § 5.6.1.
42
Jami Solli-Hubbard (ed.), November, 2013, p 77.
43
S 153, National Credit Act, No. 34 of 2005.
44
S 154, ibid.
4545
Under s 155, ibid.
46
S 155(2), ibid.
47
S 155(1), ibid.

FALL 2016 CIFR working paper
21
regard to decency and order, and that persons present by advised of
their right to legal representation,
48
which they may insist be present
during the search.
49
Items over which the persons being searched
assert privilege may not be searched,
50
but can be seized, pending a
court determination as to whether they should be regarded as
privileged.
51
Throughout this process inspectors may use reasonable
force against persons or property.
52
The Act includes the power to summon witnesses,
53
as well as
the power to compel a witness to be sworn in,
54
or produce a book or
document
55
when ordered to do so. Similarly, the Act
56
makes it an
offence to refuse to answer a question fully or to the best of the
witness’s ability,
57
subject to the provisions of s 139(5) which state
that a self-incriminating answer provided under s 159(a) cannot be
used in criminal proceedings against the witness, except on a charge
of perjury. In this writer’s view this strikes a sensible balance:
individuals who have, or who are connected with entities that have
engaged in reckless or predatory lending cannot stymie a Court from
uncovering the truth, but at the same time will not be forced to self-
incriminate.
Section 160
58
makes it an offence to ignore an order of a
Tribunal,
59
obstruct an investigation, engage in a personal attack on a
48
S 155(3)(a), ibid.
49
S 155(3)(b), ibid.
50
S 155(5), ibid.
51
S 155(6), ibid.
52
S 155(7), ibid.
53
S 158(a), ibid.
54
S 158(b)(i), ibid.
55
S 158(b)(ii), ibid.
56
S 159, ibid.
57
ss (a), ibid.
58
Ibid.
59
Punishable by a fine or up to ten years imprisonment, or both: s 161(a), ibid.

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member of a Tribunal, provide false information to a Tribunal, or
ignore a search warrant.
60
Under s 151
61
a Tribunal may impose
administrative penalties that amount to up to ten per cent of the
respondent’s turnover during the preceding year,
62
or 100,000 South
African Rand (ZAR),
63
whichever is greater. In determining the
administrative penalty the Tribunal is authorised to take account of a
broad range of factors that relate to the gravity, extent and duration of
the offence,
64
the loss or damage caused by the offence,
65
the
behaviour of the respondent,
66
the market circumstances surrounding
the contravention,
67
the profit earned through the contravention,
68
the
level of co-operation which the respondent provided to the National
Credit Regulator,
69
or whether the respondent has previous
convictions for contravening the Act.
70
Recently the National Credit Regulator has taken steps against
a number of lenders for reckless lending.
71
In the aftermath of the fine
levied against African Bank, and African Bank’s subsequent collapse,
other micro-lenders have, or are as at the time of writing, being taken
to task.
72
60
Punishable by a fine or up to twelve months imprisonment, or both: s 161(b), ibid.
61
Ibid.
62
S 151(2)(a), ibid.
63
S 151(2)(b), ibid.
64
S 151(3)(a), ibid.
65
S 151(3)(b), ibid.
66
S 151(3)(c), ibid.
67
S 151(3)(d), ibid.
68
S 151(3)(e), ibid.
69
S 151(3)(f), ibid.
70
S 151(3)(g), ibid.
71
Renee Bonorchis, “African Bank’s Ellerine Faces Closing as Buyers Stay Away”,
‘Business’, Bloomberg, 4 November, 2014 at 10:38 pm AEST.
72
These include Shoprite Holdings Ltd and Capitec Bank Holdings Ltd. Renee
Bonorchis, “Shoprite Probed for Reckless Lending by S. African Regulator”,
‘Business’, Bloomberg Business, 14 October, 2015 at 7:59 pm AEST.

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V CONCLUSION
Reckless lending is antithetical to the concept of consumer protection,
and in a worst case scenario can contribute to, or even precipitate
financial contagion and crisis. Predatory lending is unconscionable
and has no place in a modern economy. The South African legislation
provides a robust legislative framework which if emulated and
adequately enforced would, in this writer’s view, provide for both
consumer protection and the prevention of practices which are
economically unsustainable.
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