IS THERE A TIME LIMIT FOR CONCLUSION OF A NCA CREDIT AGREEMENT? July 2019
Before concluding a credit agreement, a credit provider must provide a consumer with a quotation which (with a few exceptions) is open for acceptance by the consumer, for five business days. The quotation reflects the credit approval and constitutes a specific credit offer which binds the credit provider for those five days.
A quotation must, therefore, be preceded by a credit assessment to prevent reckless lending. The assessment must include consideration of the customer's debt repayment history "within 7 business days immediately prior to the initial approval of credit" [Reg 23A(13)].
Is there a time limit to the conclusion of a credit agreement after a quotation is provided? More specifically: if the consumer wants to accept the quotation "after the 5 business days have expired" (when it is no longer binding on the credit provider), can the credit provider still conclude the credit agreement?
The National Credit Act [NCA] refers to both "days" [for example in s71] and "business days" [as in s92]. Therefore these words should be interpreted according to the specific wording used in a particular context.
In terms of s92(3), read with the prescribed forms, it is clear that the five business day period is a minimum period obliging a credit provider to conclude a credit agreement, if the customer accepts the quotation during that time. However, the five day period is arguably not, at the same time, a maximum period to do so, for the following reasons:
- The basic principle in contract law is that no formalities are required for the conclusion of contracts. Legislation changing that must do so in clear terms or by necessary implication. A time limit for conclusion of an agreement will be such a formality. Section 92 clearly introduces a minimum period, but does not introduce any time limit for conclusion, either in clear terms or by necessary implication.
- If strict compliance with the five business day period was required, especially if it was a valid requirement for a credit agreement, one would expect clear consequences for non-compliance. Nothing has been provided in this regard.
- Section 89 deals with unlawful credit agreements and provides both a fixed list of instances which will result in credit agreements being unlawful, and the resulting consequences. Non-compliance with the five business day period is not included in this fixed list.
- Courts have confirmed several times that the interpretation of the purpose of the NCA, as set out in s3, is very important. Accordingly, an interpretation that supports the purposes of the NCA should be applied. Two of the NCA purposes are (i) to provide customers with information that allows them to make informed decisions (this should enable customers to compare quotes from different credit providers); and (ii) to make credit more accessible. Treating the five business days as a maximum period may defeat these purposes if a customer, who otherwise qualifies for credit, is declined simply because the quote is accepted on, for example, day six or if he is "rushed" into make a wrong decision (such as a more expensive one), simply to meet the five business day period.
The absence of a specified maximum period does not mean that a quotation, once issued, will remain valid indefinitely. The prohibition against reckless lending provides guidance:
- Section 80(1) states that a credit agreement is reckless if, "at the time the agreement was made", the credit provider fails to conduct an assessment as required by s81(2). This cannot literally mean that the assessment must be done at the time of conclusion, because at conclusion a credit assessment must have already been completed, a credit decision taken, a quotation issued and communicated to the customer, and five business days afforded. However, it certainly indicates that assessment, quotation and conclusion must be done in close proximity to the conclusion.
- Section 81(2) requires a credit provider to take reasonable steps to assess, amongst others, the consumer's debt re-payment history as a consumer under credit agreements before entering into a credit agreement. That is just one step to be complied with as part of the credit decision making process. It necessarily takes time to meet all requirements.
These general requirements are, in effect, also time limits (albeit without specific time frames). A credit agreement should be concluded as soon as possible after the assessment, and the quotation provided to ensure the credit provider can show that
at the time of conclusion, it was (still) reasonable to assume (that is, meeting the reasonable steps requirement) that the information used for the earlier credit assessment and quotation remains current, valid and accurate.
- Failure to meet this test will result in reckless lending.
- A credit provider may impose for itself an additional maximum number of days after the five days during which it will still conclude a credit agreement. This will depend on a credit provider's subjective risk appetite, bearing in mind the s80 - 81 requirements.
Are there additional requirements if conclusion happens after five business days?
More specifically, should the debt repayment history check obtained within seven business days immediately prior to the initial approval of credit be refreshed before conclusion of the credit agreement?
The answer seems to be "no":
- The presentation of a quotation certainly indicates approval of credit because of its binding nature on a credit provider;
- The NCA itself does not deal with any direct obligation or time period, as far as "credit bureau information" is concerned. Rather it states in general terms the credit provider's obligation, as far as over-indebtedness is concerned, to determine an applicant's probable propensity to satisfy in a timely manner all obligations under all credit agreements, as indicated by the consumer's history of debt repayment [s79(1)] – this probably refers to a credit bureau check. This requirement is repeated in general terms with reference to a credit provider's obligations to avoid reckless lending [s80 – 81].
- The NCA regulations were amended with effect from 13 September 2015. Among others, Reg 23A(13) was introduced but, since it cannot amend the Act, at best it provides more clarity on what the provisions in the Act have meant all along. It requires a credit provider to take into account a consumer's debt repayment history under credit agreements as envisaged in s81(2)(a) and must ensure that this requirement is performed within seven business days (14 in the case of mortgages) immediately prior to the initial approval of credit or an increase to an existing credit limit. Once again, although there is no direct reference to "credit bureau information", read with the definitions of "discretionary income" and "necessary expenses" [s1, Regulations], in the wider context of these regulations, it most likely refers to "credit bureau information".
- Reg 23A(13), read with s92, means that the Legislature/Minister accepted
minimum time lapse of 12 business days [seven plus five, or 14
plus five business days in the case of mortgages] from checking the
credit bureau information until the last moment that a credit provider will
be bound by a quotation,
notwithstanding that info could have changed
during this time.
- The Legislature/Minister therefore regards these time delays as still
being acceptable for the conclusion of a credit agreement, and compliance
with the NCA and Regulations, without introducing additional requirements.
Put differently, such a time delay then clearly meets the requirements of s80 – 81.
- Accordingly, there is no requirement in either the Act or Regulations that
credit bureau information should be refreshed during these delayed periods.
- Nothing prevents a credit provider from refreshing information after the
five day period before concluding a credit agreement. That will depend on
the likelihood of it still being able to claim compliance with s80 and s81,
actual knowledge of a change in customer information, etc. The longer
the period, the bigger the risk of non-compliance with these sections.
The NCA neither specifies nor implies a specific time limit for the conclusion
of a credit agreement. Although it can be done after the five business
day period has expired, it is recommended that it be done as soon as
possible thereafter. No specific number of days can automatically be regarded
as acceptable or unacceptable. The real test is compliance with
s80 and s81.
It is advisable for a credit provider to adopt a policy to limit the conclusion
period to a specific number of days after the five business
days, before information refreshment is required.
Raath is Principal Legal Counsel, Absa Legal.