A question often asked, and understandably so, is what is the difference between a discounting transaction and an incidental credit transaction? On first glance at the definitions in the National Credit Act, 2005 (the “NCA”) they seem almost identical, but one needs to look at the nature of the transaction to differentiate between the two.
Let’s take a look at a discounting transaction first. The National Credit Act defines a discount transaction to mean an agreement, irrespective of its form, in terms of which:
(a) goods or services are to be provided to a consumer over a period of time; and
(b) more than one price is quoted for the goods or service, the lower price being applicable if the account is paid on or before a determined date, and a higher price or prices being applicable if the price is paid after that date or is paid periodically during the period.
So basically, two prices are being quoted upfront and one can then chose to pay the lower price (being the discounted amount) by a certain date or pay the higher price at a later date or even periodically. If payment is deferred this will be a credit transaction if a charge, fee or interest will be levied on the amount deferred. If no charge, fee or interest is charged this will generally not be considered to be a credit transaction.
We then need to take a look at what an incidental credit agreement is. In most instances one has no intention of entering into a credit transaction – but is then caught by the definition of incidental credit agreement. 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) 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
(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 this instance, if two prices are being quoted upfront, for example, a parent being given the option at the start of a school year to pay “x” amount now (being a discounted amount) for school fees or to pay “y” on a monthly basis (bringing the end total to a larger amount) and if payment is not made by a selected predetermined date and interest is charged on the overdue amount, one would fall into the definition of an incidental credit agreement. The same logic can be applied to when someone is offered a discount if early payment is made.
The importance of the above and whether an agreement can be regarded as an incidental credit agreement, is relevant to the extent to which the NCA is applicable to one’s agreement. In the event one’s agreement does fall into the definition of the NCA, one will not necessarily have to register as a credit provider in terms of the NCA, but one will have to comply with a number of provisions of the NCA relating to (a) the interpretation, purpose and application of the NCA, consumer credit institutions, dispute settlement other than debt enforcement, enforcement of the NCA and general provisions; (b) restricted activities by unregistered persons, review and appeal of decisions; (c) consumer rights and confidentiality, personal information & consumer credit records; (d) over-indebtedness and reckless credit; (d) consumer liability, interest, charges and fees; (e) statements of account and alteration of credit agreements; and (f) collection and repayment practices and debt enforcement by repossessions and judgment, including Section 129 and Section 130 of the NCA.
For more information on the application of discounted transactions and incidental credit agreements to your business, please contact our offices on +27 21 200 0770.
Dingley Marshall Inc
February 2019
Article drafted by Natalie Gillmer.