THE NATIONAL CREDIT ACT 34 OF 2005: BACKGROUND

AND RATIONALE FOR ITS ENACTMENT, WITH A SPECIFIC

STUDY OF THE REMEDIES OF THE CREDIT GRANTOR IN THE

EVENT OF BREACH OF CONTRACT

BY

MONICA LAURA VESSIO

SUBMITTED IN FULFILMENT OF THE REQUIREMENTS FOR THE DEGREE

DOCTOR LEGUM

IN THE FACULTY OF LAW

UNIVERSITY OF PRETORIA

SUPERVISOR: PROFESSOR NJ GROVÉ

CO-SUPERVISOR: PROFESSOR CM VAN HEERDEN

SEPTEMBER 2015
I sit here incredulous that this experience has drawn to a close. I wonder where one
starts in order to appropriately acknowledge those that have helped me all along the
way. It seems that a mere ‘thank you’ would not really suffice. The alternative,
however, being far worse, I take this opportunity to do so. While a doctoral thesis is
quite lonely work, it is those people who believe that you can, that carry you when
you most doubt your own capabilities. It is these people that I would like to thank,
with sincere appreciation, the people who have journeyed with me during this work,
those that were present from commencement to culmination, those that assisted for
certain parts and those that were ever present from before the beginning still:

Bryan, for your endless love and patience, thank you my love, I’m finished!

My dad, for always encouraging and always believing. Grazie papa’ per sempre e
per tutto.

My mom, for the endless love and support, a woman could not ask more from her
mother. Grazie. TVB.

Professor Grovè, my academic pillar, promoter and number one dispenser of

wisdom: when most in doubt you provided unswerving and authentic
encouragement. I learnt the art of jurisprudence from you, a most invaluable gift. For
these I thank you. I don’t think I would have finished if it had not been for your
support. Grazie Prof.

Professor Van Heerden, thank you kindly for the sound academic guidance, the
moral support and for the humour! I’m quite sure one can’t write a thesis without the
last!

Michael, Gianluca and Daniele for their quiet observance and encouragement and
teasing! Professor Bekink for assistance on the constitutional section, Tahlita for all
the typing! And lastly but not least of all to my friends for helping me keep my chin
up, Nelis, Verushka, Vanessa, Sean and Bernard.

This work is dedicated to my beautiful daughters, Gia and Savana, who have stolen
my heart.
CONTENTS

FOREWORD ………………………………………………………………………… 10 

CHAPTER 1: GENERAL INTRODUCTION ......................................................... 1 

1.1.  Introduction ......................................................................................................... 1 

1.2.  Setting the Scene ................................................................................................ 3 

1.3.  Purpose of the Study ........................................................................................ 13 

1.4.  Methodology ..................................................................................................... 14 

1.5.  Comparative Study............................................................................................ 19 

CHAPTER 2: HISTORICAL INTRODUCTION ................................................. 25 

2.1  General History of Credit, including Interest and Banking ................................ 25 

2.2  Roman and Roman-Dutch Law ......................................................................... 35 

2.3  South African Law ............................................................................................. 42 

2.3.1  Common Law .................................................................................................... 42 

2.3.2  Legislation ......................................................................................................... 46 

2.4  European Union ................................................................................................ 54 

2.5  England ............................................................................................................. 61 

2.6  Italy ................................................................................................................... 71 

CHAPTER 3: BACKGROUND TO AND RATIONALE FOR THE NATIONAL

CREDIT ACT ............................................................................ 80 

3.1  Rationale for Consumer Law and Policy Generally........................................... 80 

3.1.1.  Economic Necessity and Legal Certainty.......................................................... 93 

3.2.  Rationale for Credit Reform in South Africa .................................................... 102 

3.2.1.  The Department of Trade and Industry Policy Framework ............................. 111 

3.2.1.1  Statistics and Data as Motivators for Change ................................................. 126 

3.2.2  Constitutional Compliance .............................................................................. 132 

3.3.  Purpose of the National Credit Act .................................................................. 149 

3.4.  European Union .............................................................................................. 154 

3.5.  England ........................................................................................................... 162 

3.6.  Italy ................................................................................................................. 171 

CHAPTER 4: THE PREVIOUS LEGISLATIVE DISPENSATION AND GENERAL

INTRODUCTION TO THE NATIONAL CREDIT ACT ............ 176 

4.1  Introduction ..................................................................................................... 176 

4.2  The Credit Agreements Act 75 of 1980 ........................................................... 178 

4.2.1  Application of the Credit Agreements Act ....................................................... 178 

4.2.2  Definition ......................................................................................................... 180 

4.2.3  Requirements for a Credit Agreement ............................................................ 183 

4.2.4  Prohibition of Certain Agreements .................................................................. 184 

4.2.5  Initial Payment and Manner of Payment ......................................................... 186 

4.2.6  Rights and Duties of the Parties...................................................................... 188 

4.2.6.1.  Rights and Duties of the Credit Receiver ........................................................ 188 

4.2.6.1.1.  The Section 11 Notice ....................................................................... 188 

4.2.6.1.2.  The Cooling-off Right ........................................................................ 190 

4.2.6.1.3.  The Right of Re-instatement ............................................................. 191 

4.2.6.1.4.  Waiver of Rights ................................................................................ 192 

4.2.6.1.5.  Notification of Location of Goods ...................................................... 192 

4.2.6.2.  Rights and Duties of the Credit Grantor .......................................................... 193 

4.2.6.2.1.  The Right to Receive Payment ......................................................... 193 

4.2.6.2.2.  Interdict Against Removal or Use ...................................................... 194 

4.2.6.2.3.  Orders Restricting or Prohibiting Use ................................................ 194 

4.2.6.2.4.  Additional Finance Charges .............................................................. 194 

4.2.6.2.5.  Lex Commissoriae, Acceleration, Penalty and Forfeiture Clauses ... 195 

4.3.  The Usury Act 73 of 1968 ............................................................................... 195 

4.3.1.  Application and Definitions of the Usury Act ................................................... 195 

4.3.2.  Transactions Excluded from the Ambit of the Usury Act ................................. 198 
4.3.3.  Requirements for an Agreement Concluded under the Usury Act .................. 199 

4.3.4.  Rights and Duties of the Parties...................................................................... 201 

4.3.4.1.  Rights and Duties of the Creditor .................................................................... 201 

4.3.4.1.1.  Disclosure Requirements .................................................................. 201 

4.3.4.1.2.  Maximum Rates of Interest ............................................................... 202 

4.3.4.1.3.  Variable Interest Rates ...................................................................... 203 

4.3.4.1.4.  Disclosure Requirements .................................................................. 204 

4.4.  The National Credit Act 34 of 2005 ................................................................. 205 

4.4.1.  Initial Problems................................................................................................ 208 

4.4.2.  The Impact of the National Credit Act ............................................................. 211 

4.4.3.  Application and Transactions Excluded from the Ambit of the Act.................. 216 
4.4.4.  Classification and Categories of Credit Agreements ...................................... 221 

4.4.4.1.  Small, Intermediate and Large Credit Agreements ......................................... 224 

4.4.4.2.  Other Credit Agreements ................................................................................ 225 

4.4.5.  Requirements to Conclude a Credit Agreement ............................................. 226 

4.4.6.  Prohibition of Certain Agreements and Unlawful Provisions ........................... 231 

4.4.6.1.  Introduction ..................................................................................................... 231 

4.4.6.2.  Unlawful Credit Agreements ........................................................................... 231 

4.4.6.3.  Unlawful Provisions of Credit Agreements ...................................................... 234 

4.4.7.  Rights and Duties of the Parties...................................................................... 235 

4.4.7.1.  Rights of the Credit Provider ........................................................................... 236 

4.4.7.2.  Duties of a Credit Provider .............................................................................. 237 

4.4.7.3.  Rights of the Consumer .................................................................................. 244 

4.4.7.4.  Duties of the Consumer .................................................................................. 247 

4.5.  European Union .............................................................................................. 249 

4.6.  England ........................................................................................................... 253 

4.7.  Italy ................................................................................................................. 260 

CHAPTER 5: BREACH OF CONTRACT AND MANDATORY PROCEDURES
BEFORE DEBT ENFORCEMENT.......................................... 265 

5.1.  Introduction ..................................................................................................... 265 

5.2.  The Development of the Obligation................................................................. 266 

5.3.  Breach of Contract .......................................................................................... 272 

5.3.1.  Default of the Debtor or Mora Debitoris.......................................................... 276 
5.3.2.  Default of the Creditor or Mora Creditoris ...................................................... 290 
5.3.3.  Positive Malperformance ................................................................................ 294 
5.3.4.  Repudiation .................................................................................................... 296 

5.3.4.1.  Section 127 of the National Credit Act as a form of Statutory Repudiation..... 299 

5.3.5.  Prevention of Performance ............................................................................. 309 

5.4.  Procedures Required before Debt Enforcement in Court ............................... 311 

5.5.  The Credit Agreements Act ............................................................................. 313 

5.5.1.  Section 11 ...................................................................................................... 313 

5.5.1.1.  When a Section 11 Notice was Deemed Necessary....................................... 314 

5.5.1.2.  Contents of Notice .......................................................................................... 316 

5.5.1.3.  Calculation of Thirty Days, Delivery and Receipt of the Notice ....................... 317 

5.5.1.4.  Completing the Cause of Action...................................................................... 320 

5.6.  The National Credit Act ................................................................................... 321 

5.6.1.  Section 129 .................................................................................................... 324 

5.6.1.1.  Purpose of the Section 129 (1)(a) Notice ........................................................ 328 

5.6.1.2.  When a Section 129 (1)(a) Notice is Deemed Necessary............................... 329 

5.6.1.3.  The Effects of Section 130 (4)(b) .................................................................... 331 

5.6.1.4.  Contents and Format of Notice ....................................................................... 337 

5.6.1.5.  Calculation of Time Periods ............................................................................ 342 

5.6.1.6.  Method of Delivery and Actual Receipt ........................................................... 344 

5.6.1.7.  The Section 129 (1)(a) Notice and Prescription .............................................. 354 

5.6.1.8.  Section 19 of the Alienation of Land Act and Section 129 and 130 of the National
Credit Act ........................................................................................................ 355 

5.7.  European Union .............................................................................................. 359 

5.8.  English Law ..................................................................................................... 360 

5.9.  Italian Law ....................................................................................................... 367 

CHAPTER 6: REMEDIES FOR BREACH OF THE CREDIT AGEEMENT ..... 373 

6.1.  Remedies for Breach of Contract .................................................................... 373 

6.1.1.  Choice of Remedies ........................................................................................ 378 

6.1.2.  Curtailment and Supplementation of Remedies.............................................. 380 

6.2.  Specific Performance ...................................................................................... 384 

6.2.1.  The Order of Specific Performance when dealing with National Credit Act .... 389 

6.2.1.1.  Payment of the Purchase Price as Specific Performance............................... 390 

6.2.1.2.  To Compel Acceptance of Delivery ................................................................. 392 

6.2.1.3.  To Compel Other Obligations.......................................................................... 395 

6.2.2.  Acceleration Clauses ...................................................................................... 397 

6.3.  Interdict ........................................................................................................... 403 

6.3.1.  Interim Attachment of Goods in terms of the Credit Agreements Act ............. 405 

6.3.2.  Interim Attachment of Goods in terms of the National Credit Act.................... 411 

6.4.  Cancellation .................................................................................................... 419 

6.4.1.  Common Law .................................................................................................. 421 

6.4.1.1.  Generally ......................................................................................................... 421 

6.4.1.2.  Effects of Cancellation of the Contract ............................................................ 423 

6.4.1.3.  Lex Commissoria or the Cancellation Clause ................................................. 425 

6.4.1.4.  Notice: Unilateral Acquisition of Cancellation.................................................. 429 

6.4.1.5.  Implied Terms ................................................................................................. 433 

6.4.2.  Statutory Rule ................................................................................................. 434 

6.4.2.1.  Cancellation by the Credit Provider: Section 123............................................ 435 

6.4.2.2.  Section 123 and the use of the Word ‘Enforce’ by the Legislature ................. 440 

6.4.2.3.  Cancellation in terms of the Credit Agreements Act ....................................... 442 

6.4.3.  Attachment of Goods in terms of the National Credit Act................................ 444 

6.4.3.1.  Attachment of Immovables in terms of the National Credit Act ....................... 449 

6.4.3.2.  Enforcement of Remaining Obligations after Attachment and Sale of Goods 452 

6.5.  Damages ......................................................................................................... 453 

6.5.1.  Recovery of Interest as Damages ................................................................... 457 

6.5.2.  Penalty Clauses .............................................................................................. 458 

6.5.2.1.  The Conventional Penalties Act ...................................................................... 462 

6.5.2.1.1.  The Credit Agreements Act and the Conventional Penalties Act ...... 469 

6.5.2.1.2.  Effects of the National Credit Act on the Conventional Penalties Act 470 

6.5.2.1.3.  Indirect Regulation of Penalty Stipulations by the Act ....................... 471 

6.5.2.1.4.  Direct Regulation of Penalty Stipulations by the Act ......................... 474 

6.5.2.1.5.  Early Settlement and Prepayments ................................................... 478 

6.6.  Declaratory Order............................................................................................ 481 

6.7.  European Union .............................................................................................. 482 

6.8.  English Law ..................................................................................................... 491 

6.8.1.  Penalties ......................................................................................................... 507 

6.9.  Italian Law ....................................................................................................... 508 

6.9.1.  Penalties ......................................................................................................... 516 

7  CONCLUDING REMARKS..................................................... 518 

REFERENCE LIST .......................................................................................... 532 

Books …………………………………………………………………………………….… 532 
Journal Articles ............................................................................................................. 542 
Thesis ………………………………………………………………………………………. 551 
Research Papers .......................................................................................................... 552 
Table of Statutes ........................................................................................................... 554 
European Directives, Resolutions, Regulations and Communications ......................... 555 
Government Gazettes and Newspaper Articles ............................................................ 557 
Table of Cases .............................................................................................................. 558 
International and Foreign Cases ................................................................................... 592 
Web Sites ……………………………………………………………………………………. 596 
Law is a virile living system of law, ever seeking, as every such system must, to
adapt itself consistently with its inherent basic principles to deal effectively with the
increasing complexities of modern organised society.

Pearl Assurance Co v Union Government 1934 AD 560

FOREWORD

The National Credit Act 34 of 2005 was the ultimate product of an initiative by the
Department of Trade and Industry to address the shortcomings of the previous
legislative enactments in the area of credit regulation, that is the Usury Act 73 of
1968 and the Credit Agreements Act 75 of 1980. The Act is a dramatic departure
from the old bi-legislative credit dispensation. Its aims are, inter alia, to provide a fair
and non-discriminatory marketplace, to prohibit unfair credit practices and reckless
lending, to establish national norms and standards relating to consumer credit and to
promote a consistent enforcement framework relating to consumer credit. The Act
repealed the Usury Act and the Credit Agreements Act. Furthermore, it established
two new bodies, namely the National Credit Regulator and the National Consumer
Tribunal to monitor and enforce the framework relating to consumer credit.

Through enactment of the National Credit Act the government appears to have
focused much energy on the prevention of over-indebtedness by instilling
prohibitions on reckless lending practices by credit providers and a variety of
processes for the prevention and alleviation of over-indebtedness. However, and
despite these endeavours, the ever important considerations of the inevitably
commonplace breach of the credit agreement by consumers and the recovery
process available to credit providers, remain to be deliberated. The relationship
between the two major role players – the provider and consumer – is the nub of any
discussion, theory or legislative enactment pertaining to credit.

The thesis commences with an examination of the historical background and

rationale for the Act, putting into context not only for the South African but so too for
the foreign jurist, the rules and regulations which govern the relationship between the
parties when an agreement is breached as well as the remedies and recourses that
are available to the aggrieved party in terms of the Act. At all times the grounding of
the common law, which acts as a stabiliser especially in times of changes in and of
specific legislation, is examined in relation to breach and remedies as affected by the
Act.

Chapter 1 is a basic Introduction to the topic, sets the background for the discussion
which ensues and examines the purpose and methodology adopted in the work.
Chapter 2 encompasses a concise historical introduction to credit parameters; it
looks at how the historical regulatory pendulum of the credit market swings to and
fro. By examining the history one is able to discern what the current legislative
trends are, and where they are likely headed. Chapter 3 examines the background
and rationale for the new Act. The reasons why the previous credit regime was
deemed ineffective for the present day credit market are also considered. Chapter 4
is a consideration of the previous legislative regime and introduction to the current
legislative setting. Chapter 5 introduces the nature of the obligation and breach of
contract, followed by a study of the procedures that are required before debts can be
enforced through the courts. The procedures so required by the previous credit
legislation, as well as those expected in foreign jurisdictions are also examined. The
final chapter, Chapter 6, is an examination of specific remedies available to the credit
provider as provided by the common law and by the Act and how the Act amends
some of the common law remedies.

Throughout the thesis a comparative examination of the jurisdictions of England and

Italy are conducted as well as how these countries have tackled the problem of
regulation of consumer credit, breach and their ensuing remedies and
consequences. The jurisdictions examined are an example of a common law system
and a civilian one, respectively. Due to the movements in harmonisation of
commercial private law and due to the massive influence of this process on
individual regional legislations, it is submitted that with contemporary legal
developments due to cross-border trade, analysis of legislative developments in any
European country cannot be carried out without reference to the law-making
sanction of the European Union. Accordingly, the European Union, in so far as it
relates to credit, has been studied together with the other two foreign jurisdictions.

The conclusion is a consideration of whether the legislature has, through

promulgation of the Act in relation to the remedies for breach, ‘over protected’ the
consumer through overregulation and whether such paternalism has proved, over
time, to be detrimental to the credit market. The ‘under protection’ of the consumer
cannot be ruled out either, and this too has been considered – given that the import
of the wording of the Act as well as the interpretations of its sections by the judiciary
will be an on-going exercise. The common law, the thread that gathers the South
African legislative garment and sets it apart from the civilian tradition, and its effects
are contemplated throughout the work. The closing remarks consider whether the
Act is fair and sustainable in the South African environment and how it compares
with foreign jurisdictions. The conclusion will reveal whether room exists for
suggested improvements both to the Act and to the interpretation thereof in the area
of recovery and whether the description given to the French Civil Code, that is that it
is like an old lady, with both wisdom and weaknesses, will eventually be capable of
assignment to the National Credit Act.
CHAPTER 1: GENERAL INTRODUCTION

1.1. Introduction

In a cash economy, or in a society arranged around barter only, there would be

no need for credit.1 Transactions based on credit occur when a person either
chooses not to or cannot pay in cash, by way of exchange or in kind. Credit thus
enables people to access products or services prior to having paid for them,
usually at a cost represented by an interest rate. Where an item cannot be
afforded from a single month’s salary or income, credit enables people to
distribute the cost over a number of months or even years. Unfortunately, we do
not live in a purely cash economy and credit has become a staple commodity in
almost all nations in the world. The credit industry forms an important and
substantial sector of a country’s economy and directly impacts the economic
well-being of any nation.2 Therefore the regulation of the consumer credit market
is significant as it affects the performance and prosperity of this sector of the
economy as well as consumers affected by it.

A contemporary study on the regulation of consumer credit law in South Africa,

this work considers the particularities of breach of contract and the resultant
remedies which the law, both common and legislative, provides. The thesis
assesses the role and limitations of consumer credit law and policy, with specific
focus on remedies available to the credit provider when the credit consumer is in
breach of the credit agreement. The work considers whether regulation of
recovery procedures after default by the debtor, through the National Credit Act
34 of 2005,3 are appropriate cures for certain communal ‘pathologies’ that plague
contemporary, consumer societies, such as over-spending and over-
indebtedness.4 Furthermore, the work explores whether the consumer credit

1
The Department of Trade and Industry South Africa’s Consumer Credit Law Reform: Policy
Framework for Consumer Credit August 2004 4 (hereinafter ‘2004 Policy Framework’).
2
Howells and Weatherill Consumer Protection Law 1995 233.
3
Hereinafter ‘the Act’.
4
‘Over-indebtedness’ has become somewhat of a buzz word, or rather buzz problem throughout
the world. This is a topic that has been debated by South African academics since prior to the
promulgation of the Act. It is a theme that has been considered by economists and jurists the
1
laws (specifically those which regulate the remedies for breach of the credit
agreement) now in place, are appositely progressive and effective, also by
comparing the current law with the previous legislative dispensation as well as
with regulation in foreign jurisdictions. The law and case law as reviewed and
discussed in this work is as at October 2015. Although debt relief remedies
which have been introduced by the National Credit Act may procedurally curtail
the remedies available to a credit provider, these are beyond the scope of this
discussion and have therefore been explained but not explored in this work.

world over. Prior to the Act, the courts had implemented many common law ‘devices’ in order to
assist the over indebted consumer, the now abrogated laesio enormis rule and the common law
in duplum rule are but two examples. As will become evident in this work, the efforts of the courts
in the development of the common law in the area of consumer protection, more specifically
credit consumer protection, does not fall by the way side due to the promulgation of the National
Credit Act, rather, this body of law now applies to those credit agreements that fall outside the
field of application of the Act and to aid, where applicable in the interpretation of the Act. Some
examples of writings on the subject matter are: Renke S and Roestoff M ‘Solving the Problem of
Overspending by Individuals: International Guidelines’ Obiter 2003 24 2, Renke S and Roestoff M
‘The Consumer Credit Bill – A Solution to Over-Indebtedness?’ 2005 68 THRHR 115, Renke S,
Roestoff M and Bekink B ‘New Legislation Measures in South Africa Aimed at Combating Over-
indebtedness – Are the New Proposals Sufficient Under the Constitution and Law in General?’ IIR
2006 91, Otto The National Credit Act Explained 2006 54, Naude T ‘Law of Purchase and Sale:
Over-indebtedness of Consumers’ ASSAL 2006 244, Kelly-Louw M ‘The Prevention and
Alleviation of Consumer Over-indebtedness’ 2008 SA Merc LJ 200, Otto JM ‘Over-indebtedness
and Applications for Debt Review in Terms of the National Credit Act: Consumers Beware!
Firstrand Bank Ltd v Olivier’ 2009 21 SA Merc LJ 272, Stoop PN ‘South African Consumer Credit
Policy Measures Indirectly Aimed at Preventing Consumer Over-Indebtedness’ 2009 21 SA Merc
LJ 365, First Rand Bank v Olivier 2009 3 SA 353 (SEL), National Credit Regulator v Nedbank Ltd
2009 6 SA 295 (GNP), Andanda P and Pretorius JT ‘Miscellaneous Contracts (Loan): Over-
indebtedness and the National Credit Act’ ASSAL 2009 1108, Lotz DJ ‘Law of Purchase and
Sale: Over-indebtedness and Debt Counselling’ ASSAL 2009 1004, Lotz DJ ‘Law of Purchase
and Sale: Declaratory Orders: Over-indebtedness and Reckless Credit’ ASSAL 2009 1024, Stoop
PN ‘South African Consumer Credit Policy: Measures Indirectly Aimed at Preventing Consumer
Over-indebtedness’ SA Merc LJ 2009 365, Van Heerden CM and Lötz DJ ‘Over-indebtedness
and Discretion of the Court to Refer to Debt Counsellor’ THRHR 73 2010 502, Munyai PS ‘Higher
Interest Rates and Over-indebtedness: A Comparison of Conventional and Islamic Banking’ SA
Merc LJ 2010 405, Koekemoer MM and Pretorius JT ‘Miscellaneous Contracts (Loans: Credit
Agreements): Reckless Credit and Over-indebtedness as Defences against Summary Judgments
and Attachment Orders’ ASSAL 2011 1114, Renke S ‘Measures in South African Consumer
Credit Legislation Aimed at the Prevention of Reckless Lending and Over-indebtedness: An
Overview Against the Background of Recent Developments in the European Union’ THRHR 2011
208, Roestoff M and Coetzee H ‘Consumer Debt Relief in South Africa; Lessons from America
and England; and Suggestions for the Way Forward’ 2012 24 SA Merc LJ 53, Koekemoer MM
and Pretorius JT ‘Miscellaneous Contracts (Loans: Credit Agreements): Debt Review: Discretion
of the Court to Declare a Consumer Over-indebted and Relieve Over-indebtedness of a
Consumer’ ASSAL 2012 914, Swartz NP ‘The Prevention of Over-indebtedness: The Problem of
Interest and the Islamic Response’ AJBM 2012 10099, Otto JM and Otto RL The National Credit
Act Explained 2013 58, Mahomed I and Ngcobo ‘Retrenching an Over-indebted Employee:
Labour Law’ WP 2013 64, Van Heerden CM and Roestoff M ‘Over-indebtedness Under the
National Credit Act as a Bona Fida Defence to Summary Judgment’ THRHR 2014 276.
2
1.2. Setting the Scene

In order to consider the legal principles that govern breach of the credit
agreement and the remedies available to the aggrieved party in such instances, it
is necessary to have a command of certain basic structural terms, and an
understanding of the framework and functioning of the legal system and sources
of law that fashion the milieu of the National Credit Act.5 The following pages
contain an examination of various terms that will inform the rest of the work.

The obvious starting point is to inspect the term and concept ‘credit’.6 The
following selected and germane definitions of ‘credit’ are taken from the Oxford
dictionary:7

power to obtain goods etc. before payment [...]

on credit with an arrangement to pay later

‘Credit’ has also been defined as the trade practice where goods or services are
supplied to a receiver and where the parties agree that the receiver is entitled to
pay for these at a future date.8 The parties may agree that the receiver of credit

5
In effect, the milieu of any legislation.
6
Diemont and Aronstam posited that in a credit transaction the consumer is not in a position to
pay cash and thus requires credit to trade or to live (The Law of Credit Agreements and Hire-
Purchase in South Africa 1982 2). However, it would not be incorrect to say that a large sector of
society use credit to live beyond their means, a ‘keeping up with the Joneses syndrome’ has
developed, where spending on credit is often for luxury items and not for necessary ones. A case
of purchasing ‘wants’ rather than ‘needs’; an attitude with often negative repercussions. With the
advent of the National Credit Act, this view point has been emphasised by the stringent onus now
placed on the credit provider to ensure that the consumer is creditworthy and to avoid reckless
lending. By implication the consumer who is borrowing has the means to subsist and then some
in order to be able to afford the credit. This of course is only true for natural persons and private
use of credit. The situation differs when one considers the ‘trader’ who obtains credit for the
expansion of a business or in order to summit cash flow problems. The following extract from the
2004 Policy Framework outlines some reasons why people use credit: ‘Consumers would
generally not be able to purchase items such as houses or cars if it were not possible to obtain
finance. In acquiring such items, it is necessary to be able to spread the payments over a number
of months. For a huge number of people the same is true in respect of the purchase of a fridge,
bed, radio or television. It is also true in respect of the cost of a university education and even
true for a great many South Africans in respect of the cost of items such as school fees and
school uniforms, or equipment or trading stock for a small business. Credit has the potential to
unlock a diverse range of opportunities, some of which are economic, others educational and yet
others simply to improve the ‘standard of living’’ (2004 Policy Framework 4).
7
Thompson The Pocket Oxford Dictionary of Current English 8th edition 1992. Only the meanings
relevant to the subject matter have been provided.
8
Walker The Oxford Companion to Law 1980 312. Tim Jenkins, with a drastic simplification,
describes ‘credit’ as ‘getting something and then paying for it later’.
(http://www.ces.org.za/docs/whatcredit.htm) (7.02.08).
3
must pay an additional amount (in the form of interest or charges) for the right
granted to him to pay the amount at a future date.9 At common law ‘credit’ or
rather the granting of credit does not (necessarily) involve the obligation of the
debtor to pay to the creditor some form of proceed10 for the deferral of
payment.11 The Act appears to have followed suit,12 and defines ‘credit’, the
noun, as:13

a deferral of payment of money owed to a person, or a promise to defer such

payment; or
(b) a promise to advance or pay money to or at the direction of another person.

Both of the above definitions do not make provision for an extra charge or
interest to be levied for the deferral of payment. Accordingly, it is submitted that
‘credit’ does not per se involve the levying of interest or a charge or fee for a
deferred payment and therefore the Act does not alter the existing position in this
regard. The common law does not prescribe interest as an essentiale of a

9
Grové and Jacobs Basic Principles of Consumer Credit Law 1993 1.
10
Often referred to as the opportunity cost of the credit provider.
11
Directive 2008/28/EC of the European Parliament and of the Council of 23 April 2008
(hereinafter the ‘European Directive 2008’) was designed to harmonise the regulation of credit
across Europe and to increase consumer protection. Member states were obliged to transpose
the Directive by 11 June 2010. The part of the Directive which relates specifically to credit
agreements, excludes from its ambit credit agreements where credit is granted free of interest
and without any other charges (section 2 (2)(f)). For a further discussion cf paragraph 4.5 infra.
12
Neither the Credit Agreements Act nor the Usury Act defined the word ‘credit’ and thus the
common law definition was used.
13
Section 3(c) of the European Directive 2008, defines ‘credit’ as part of the definition of a ‘credit
agreement’ as follows: ‘‘Credit agreement’ means an agreement whereby a creditor grants or
promises to grant to a consumer credit in the form of a deferred payment, loan or other similar
financial accommodation, except for agreements for the provision on a continuing basis of
services or for the supply of goods of the same kind, where the consumer pays for such services
or goods for the duration of their provision by means of installments. Section 1. The English
Consumer Credit Act 1974 as amended by the 2006 Act, defines a ‘credit’ as: ‘(1) […]a cash loan,
and any other form of financial accommodation; (2) where credit is provided otherwise than in
sterling it shall be treated for the purpose of this Act as provided in sterling of an equivalent
amount; (3) without prejudice to the generality of subsection (1), the person by whom goods are
bailed or (in Scotland) hired to an individual under a hire-purchase agreement shall be taken to
provide him with fixed-sum credit to finance the transaction of an amount equal to the total price
of the goods less the aggregate of the deposit (if any) and the total charge for credit; (4) for the
purposes of this Act, an item entering into the total charge for credit shall not be treated as credit
even though time is allowed for its payment’ (section 9). The definition of ‘consumer credit’ is
defined by Italian legislation (clause 121 of Decreto legislativo 93/385, as read with clauses 40-43
of Decreto legislativo 05/206) as: ‘consisting in the concession of credit, through delay of
payment, through finance or analogous financial facilitation, in favour of a consumer. The
‘concession’ or ‘conceding’ (in more familiar South African terminology – ‘granting’) of credit is
done by a commercial entity, for example banks, financial intermediaries, bodies or persons
authorized to sell goods or services with payment being delayed (Gazzoni Manuale di Diritto
Privato 2009 1227).
4
money loan; it is rather an incidentale of the agreement. However, it is submitted
that it is unusual, in today’s entrepreneurial economic environment, that payment
is deferred without the credit grantor requiring a monetary quid pro quo from the
receiver.14

‘Lending’, on the other hand, can be defined as permitting another the use of
something, in the expectation that it will be returned. In connection with ‘lending’
of money, some compensation is typically expected for the opportunity cost of
the lender for the period during which he is without the money that he has
advanced.15 This compensation is commonly requested in the form of interest.
Accordingly, it would be correct to say that one may grant credit (the noun) or
lend money. Thus one may grant interest free loans, according to these
definitions, but ‘lending’ money would imply an interest component.16

The expectation that money lent will be returned, has been defined by English
writers17 as a fragile one. The problem of non-payment, however, is not a
phenomenon pertaining only to the northern continents, and as the discourse
progresses it will become patent how necessary it becomes in the credit
relationship to have plain and unambiguous rules regulating the procedure after
there has been a breach of the credit agreement.18

14
This can be seen from the use of credit in history, cf paragraph 2.1 for a discussion.
15
Thompson The Pocket Oxford Dictionary Oxford 1992.
16
Admittedly, the distinction is academic and refers (really) more to the common usage of the
word ‘lending’. The parties should, however, agree on the rate. It does not flow automatically from
the mere agreement to lend and borrow.
17
The description was made with reference to bad debts in the English lending industry (Turner
Personal Lending and Mortgages 2001 1).
18
The common law principle underlying all contracts - pacta sunt servanda - that agreements
must be kept and that accordingly, the courts will enforce contracts is consistent with the
constitutional values of dignity and autonomy (Bills of Rights Compendium 3H7-3H9, Brisley v
Drotsky 2002 4 SA 1 SCA, Reddy v Siemens Telecommunications (Pty) Ltd 2007 2 SA 486 SCA
21, Barkhuizen v Napier 2007 5 SA 323 CC 57 & 87, Den Braven SA (Pty) Ltd v Pillay 2008 6 SA
229 D 32-33, Nyandeni Local Municipality v Hlazo 2010 4 SA 261 ECM 92, Bredenkamp v
Standard Bank of South Africa 2010 4 SA 468 SCA 37 and Christie RH and Bradfield GB The
Law of Contract in South Africa 2011 12). This principle also instils confidence in the contracting
arena, that is, that parties can expect to have their contracts enforced and it is a principle that
cannot be overlooked, even when applying the National Credit Act. This comment is made with
specific reference to the sections of the Act which authorise the courts to suspend the re-payment
commitments of a consumer to a provider (sections 83 and 84) or to re-arrange a consumer’s
obligations (sections 87 and 88). It is to be noted that these extraordinary powers of the courts do
not allow derogation from the principle that agreements must be kept – even if the obligation may
now take a little longer to fulfil.
5
In the Credit Agreements Act19 as well as in the Usury Act20 the term ‘credit
grantor’ and ‘credit receiver’ were employed. However, these terms were defined
differently in each of those acts.21 The National Credit Act has now changed the
terminology - the term used to describe a creditor in a credit agreement is ‘credit
provider’, while the term for a debtor is ‘consumer’. The Act defines a ‘credit
provider’ in respect of a credit agreement to which the Act applies as:22

19
74 of 1980 (hereinafter the ‘Credit Agreements Act’).
20
73 of 1968 (hereinafter the ‘Usury Act’).
21
The Credit Agreements Act defined a ‘credit grantor’ as ‘(a) a seller, a dealer or a person who
renders a service, in terms of a credit transaction, and includes a person to whom the rights or
the rights and obligations of any such seller or any such person so rendering a service have
passed by assignment, cession, delegation or otherwise; (b) a lessor in terms of a leasing
transaction, and includes a person to whom the rights and obligations of any such lessor have
passed by assignment, cession, delegation or otherwise’. In the Usury Act ‘credit grantor’ meant
‘any person who is granting or has granted credit to a prospective credit receiver or to a credit
receiver in terms of a credit transaction, or any person to whom, whether by delegation, cession
or otherwise, the rights or the rights and obligations of a credit grantor in respect of a credit
transaction have passed’. The definition of ‘credit receiver’ in the Credit Agreements Act was (a)
any purchaser, or a person to whom a service is rendered, in terms of a credit transaction, and
includes a person to whom the rights or the rights and obligations of any such purchaser or any
person to whom a service is so rendered, have passed by assignment, cession, delegation or
otherwise; (b) a lessee in terms of a leasing transaction, and includes a person to whom the
rights or the rights and obligations of any such lessee have passed by assignment, cession,
delegation or otherwise’. In the Usury Act ‘credit receiver’ was ‘any person to whom a credit
grantor ha[d] granted credit in terms of a credit transaction, or any person to whom, whether by
delegation, cession or otherwise, the rights and obligations of a credit receiver in respect of a
credit transaction ha[d] passed’.
22
Section 1 of the Act. Besides the ‘arm’s length’ limitation and certain monetary caps where the
consumer to a credit agreement is a juristic person, as indicated in section 4, the Act applies to
almost all credit transactions in South Africa – a very different approach from the previous
dispensation which was a bi-legislative system only governing transactions that involved a
maximum amount of R500 000 or less (cf paragraph 4.4.3 infra for a detailed discussion on the
application of the Act). The qualifier, that is that the Act applies to almost all credit transactions in
South Africa, is to be noted. The Act does not apply to a large number of credit transactions (cf
clause 4.4.3 infra for a discussion on the type of transaction excluded from the Act). The net
effect of these exclusions is that there are certain credit transactions not governed by the Act and
with the Usury and Credit Agreements Acts having been repealed, it is the common law that will
apply to such transactions. The common law in duplum rule, for example, will apply as opposed
to the statutory in duplum rule, with regards limitation of interest. The Act refers to transactions
which deal at arm’s length and the Act does not apply to credit agreements between parties who
are not dealing at arm’s length (cf. section 4 of the Act). Section 4 (2)(1)(b) defines what is
considered in terms of the Act for parties not to be dealing at arm’s length. This definition
incorporates a far wider concept than merely familial ties, and includes shareholder loans or other
credit agreements where the consumer is a juristic person and the credit provider is a person that
has a controlling interest in that juristic person; a loan to a shareholder or other credit agreement
where the consumer has a controlling interest in the juristic person who takes on the role of credit
provider; credit agreements between family members or natural persons who are co-dependent
on each other or where one person is dependent on the other; the definition comprises any other
arrangement where each party is not independent of the other and consequently does not
necessarily strive to obtain the utmost possible advantage out of the transaction; or a transaction
held in law to be between parties who are not dealing at arm’s length.
6
  the party who supplies goods or services under a discount transaction, incidental
credit agreement or instalment agreement;
 the party who advances money or credit under a pawn transaction;
 the party who extends credit under a credit facility;
 the mortgagee under a mortgage agreement;
 the lender under a secured loan;
 the lessor under a lease;
 the party to whom an assurance or promise is made under a credit guarantee; or
 the party who advances money or credit to another under any other credit
agreement; or
 any other person who acquires the rights of a credit provider under a credit
agreement after it has been entered into.

It is interesting to note that the legislature elected to use the word ‘consumer’
instead of ‘receiver’. The word ‘consumer’ in contemporary global economics is
somewhat of a ‘loaded’ term, in that protecting ‘consumers’ of credit, goods or
services has become a very central theme in much of the developed world today.
European legal science, for example, with its cross border discussions has
placed much focus on consumer law. According to Grundmann and Schauer23
consumer contract law has been a powerful – if not the most powerful – driving
force in the development of the Acquis Communautaire24 in contract law.

‘Consumerism’,25 ‘consumer’ and ‘consumer society’ are not novel terms. Many
legal historians have over the past few decades debated the origins or ‘birth’ of
the consumer society,26 but it is contemporary problems that face society today

23
The Architecture of European Codes and Contract Law 2006 5.
24
The body of harmonised contract law in Europe.
25
An interesting economic concept has developed in opposition to consumerism, which is
‘enoughism’. ‘Enoughism’ is the theory that there is a point where consumers possess everything
they need, and buying more actually makes their lives worse off. ‘Enoughism’ emphasizes less
spending and more restraint in buying behaviour of consumers (Naish J Enough: Breaking Free
from the World of More 2008). The fact that such a concept as ‘enoughism’ has been written
about, demonstrates the state of society today – a society based on material acquirements,
where purchasing consumer goods trumps common sense and people spend more than they
have, to acquire goods that they don’t actually need. In writer’s opinion a conceptual
corroboration for regulating the credit industry.
26
Ramsay I Consumer Law and Policy: Text and Materials on Regulating Consumer Markets
2007 2. The subject of ‘consumerism’, albeit with mature roots, has been described as a creature
of the second half of the twentieth century (Woodroffe G and Lowe R Woodroffe and Lowe’s
Consumer Law and Practice 2007 1). The term ‘consumer credit’, however, can be stemmed
7
which necessitate modern sophisticated solutions. McQuoid-Mason27 stated that
in a ‘broad sense everyone in society is a consumer’. In the narrow sense, he
defined a ‘consumer’ as ‘any person who buys or hires goods or services, or any
person who uses such goods or services’. Similarly, the ‘consumer’ was
characterised by the Molony Committee on Consumer Protection28 as ‘everybody
all the time’.

While on a broader scale the ‘consumer’ is indeed ‘everybody all the time’ the
focus of this thesis is ‘credit’, therefore a narrower view of ‘consumer’ is adopted
in this work and a ‘consumer’ will be, as in the Act, one who uses credit, that is a
debtor who uses capital of another and undertakes to pay at a later stage or one
who buys goods or services with an arrangement to defer payment.

Where the word ‘consumer’ was used in relation to credit agreements under the
Credit Agreements Act the courts restricted the meaning of ‘consumer’ to
transactions where credit receivers would actually make use of the goods and
not sell or lease them on.29 The National Credit Act changes the law in this

back to an era when humans had moved just beyond the nomadic hunter-gatherer stage to
discover the advantages of accumulation of capital in the form of livestock, tools and seed
through the art of farming. Loans became payable in grain, animal or metal, with the earliest
historic interest rates ranging from 20-50% per annum and later settling on 33% for loans on grain
and 20-25% for loans on silver. These types of archaic loans were made for two reasons either to
invest in future production or for non-productive purposes, the latter known as ‘consumer credit’
(Peterson CL ‘Truth, Understanding, and High-Cost Consumer Credit: The Historical Context of
the Truth in Lending Act’ Florida Law Review 2003 808 809).
27
Consumer Law in South Africa 1997 1.
28
Board of Trade Final Report of the Committee on Consumer Protection (Molony Committee)
Cmnd 1781/1962 (hereinafter the ‘Molony Report’). Clause 3 of the Italian Consumer Code, which
deals with all aspects of consumer protection and not just credit, broadly defines the ‘consumer’
as a natural person who acts for reasons that can be defined as being outside the scope of
his/her actual professional activity or trade’. This is writers own translation from the Italian: ‘la
persona fisica che […] agisce per scopi che possono considerarsi estranei ala propria attivita
professionale’.
29
Cloete AJ in Standard Credit Corporation Ltd v Strydom 1991 3 SA 644 (W) 651: ‘[I]n my view,
the credit receiver ceases to be a consumer (as opposed to a trader) where he does not intend to
use the goods himself. If he sells or leases them then he becomes a trader in them albeit in
respect of one isolated transaction’. This is often the attitude taken by jurists – that is, to restrict
the meaning of ‘consumer’ to one that actually consumes and not to one who onward sells or
rents or leases. Unfortunately, to limit the word in such a manner would exclude many small to
medium sized businesses; which, much like natural persons, require protection of their rights
against exploitation by larger, better equipped credit corporations (providers). It appears,
however, that the National Credit Act has attempted to address the issue raised hereinabove, of
the necessity to extend protection just beyond the consumer as a natural person (or non-trader)
to the consumer as a small juristic entity, by having the Act cover credit transactions where the
consumer is a juristic entity whose asset value and annual turnover is less than R1 000 000 per
8
respect, as seen from the definition of ‘consumer’, as such a consumer, in
respect of a credit agreement to which the Act applies, comprises the following
persons:30

 the party to whom goods or services are sold under a discount transaction,
incidental credit agreement or instalment agreement;
 the party to whom money is paid, or credit granted under a pawn transaction;
 the party to whom credit is granted under a credit facility;
 the mortgagor under a mortgage agreement;
 the borrower under a secured loan;
 the lessee under a lease;
 the guarantor under a credit guarantee; or
 the party to whom or at whose direction money is advanced or credit granted
under any other credit agreement.

It was necessary to encompass the wide ranging definitions of ‘credit provider’

and ‘consumer’ in the Act due to the fact that the Act covers a very broad
spectrum of transactions when referring to ‘credit agreement’. The consumer
could be anyone from a person applying for an overdraft facility to a company
purchasing a vehicle, albeit certain credit transactions are not covered by the
Act.31 While the Act is applicable to natural persons that enter into credit
agreements – it must be borne in mind that it applies to juristic persons, as
consumers, on a limited basis.32

annum. Interestingly, however, the most recent 2008 European Directive on credit limits the
definition of consumer to natural persons who, in transactions covered by the Directive, act for
purposes which are outside their trade, business or profession (section 3).
30
Section 1 of the Act.
31
These limitations are discussed generally in paragraph 4.4.3 infra.
32
Section 4: ‘Application of the Act,’ read together with section 5 and 6 of the Act. Otto and Otto
(2013 1) accordingly and correctly state that a consumer in the field of credit legislation is
normally an individual or a small juristic person. A ‘juristic person’ is defined in the Act as: ‘a
partnership, association or other body of persons corporate or unincorporated or a trust if (a)
there are three or more individual trustees or (b) the trustee itself is a juristic person’. A stokvel is
not a juristic person. The definition of ‘juristic person’ as defined by the Act is important because it
differs from the common law understanding of ‘juristic person’. While the Act proposes to define a
‘juristic person’ for purposes of the Act, it cannot be that this definition will not influence or at least
conflict with the generally accepted definition of juristic person in South African law. The effects of
such conflict will have to be seen when the matter comes before court. The application and
transactions excluded from the ambit of the Act are discussed in greater detail in paragraph4.4.3.
9
It is submitted that the term ‘consumer protection’, however, is somewhat of a
misnomer. The term tends to be consumer focused, whereas the actual
regulatory exercise (in the form of credit law, whether common or codified)
concerns the parameters that manage, limit and regulate the relationship
between consumer and lender.33 The concept initially developed from the need
to protect perceptibly vulnerable consumers against exploitation by lenders, who
are in a better position to determine the contractual terms of the loans.34 The
following paragraph from Grové and Otto35 touches on some practical issues:

The spectacular growth in consumer credit during the last thirty years has, no
doubt, contributed to a general increase in the living standards of those people
who were in a position to obtain it. It did, however, give rise also to a host of
problems on the legal, social and economic fronts. Consumer-credit legislation
cannot solve all these problems. It can, for instance, not solve problems that
result from an injudicious utilization of credit. It does not, furthermore, provide
any solution for persons who are unable to meet their credit commitments
through unemployment, deficiency of income and ill health.36 Credit legislation
can, however, provide an answer where exploitation occurs. It can be used to
level a possible imbalance which may exist between the bargaining power of
credit consumers and credit grantors, standardize the way in which credit
information is disseminated, provide credit consumers with statutory rights in the
formation and performance of a contract and limit a creditor’s rights and
remedies.

33
The following definition of credit legislation is in fact consumer focused: ‘[c]redit legislation is
the means by which people, who borrow money, buy or hire goods or who obtain services on
instalments, are usually protected’ (Grové NJ and Otto JM Basic Principles of Consumer Credit
Law 2002 2). Definitions of ‘consumers’ or ‘consumer transactions’ cannot be described as
universal. Epstein, a Professor of Law in Texas, defines a ‘consumer transaction’ as one ‘in
which a man and/or woman borrows or buys for personal or household purposes’. This
completely excludes the small business credit borrower, envisioned and now protected by the
South African legislature. In a multicultural business environment like South Africa, it is submitted
that the small-business practitioner, regardless of the vehicle in which he operates his business,
should receive protection from the legislature with regards his credit transactions. While
registering a company is a relatively simple and inexpensive process – the temptation, or rather
need, to enter into credit transactions is often unavoidable due to the nature of cash flow issues in
an active business, the consequences of which are not always simplistic. These may leave the
small businessman exposed to perils that he may neither foresee or necessarily understand. It is
submitted that the approach by the legislature to protect consumers by the amount of their net
worth as opposed to the method through which they operate (be it in their personal capacity or in
the form of a juristic entity) is the correct approach. The Act is, however, not consistent in this
regard as some protections provided to natural persons are not afforded to juristic entities (cf
section 6 of the Act).
34
Often found in the form of standard form contracts.
35
2002 2.
36
However, many contemporary studies, especially in Europe, focused on over-indebtedness,
call upon new legislation or at least policy, to be formulated in such a way that such occurrences
are to be considered when looking at a debtor’s financial position and ability to meet his
commitments. The Act appears to be an attempt by the legislature to align the credit laws of
South Africa with a more contemporary and global ideology.
10
As indicated earlier, the thesis involves an investigation of the methods of
recovery when a receiver of credit is in breach of the contract. Mora is one of the
many ways in which a credit consumer may breach the contract which he has
entered into in order to obtain goods, services or loans of money while the credit
provider grants him a deferral of the payment thereof, often at a cost to the
consumer. Mora can be defined as ‘breach of the time factor of a promise,’ and
also ‘delay without lawful excuse, of performance of a contractual duty; in other
words mora is the wrongful failure to perform timeously’.37 Christie38 gives a
more comprehensive definition of mora:

Time is an element common to all contracts, and to decide the consequences of

failure to perform a contractual obligation within the appropriate time our law
employs the concept of mora. A debtor is in mora in respect of a particular
obligation when three elements are present. First, the obligation must be
enforceable against him. If he would have a good defence to any action that
might be brought against him to enforce the obligation he is not in mora (D12 1
40; D45 1 127; D50 17 53; D50 17 88). Second, performance must be due. […]
Third, the debtor must be or be deemed to be aware of the nature of the
performance required of him and the fact that it is due. It is not necessary to
show that his default is wilful or negligent. His ignorance will excuse him only if it
is both bona fide and reasonable.

While this study begins with the common law, an examination of the Act is the
pivotal point, as the credit contract and credit relationship between credit provider
and consumer is dominated by this legislation. The field of consumer protection,
its significance, and more importantly, the debate over how it should most
effectively be regulated has been a much-deliberated question by jurists, both
academic and practising. Furthermore this discourse is not only of national
interest but also of international relevance. After a long period of prosperity,
economic growth and the globalization of the credit markets, the trend of
consumer credit binges have shown unmistakeable signs of economic plight,39
directing further attention to credit legislation and policy.

37
Mulligan GA ‘Mora’ 1952 SALJ 276 278 and Kerr AJ The Principles of the Law of Contract
2002 615.
38
Christie and Bradfield 2011 519.
39
The European Sovereign Debt Crisis being a case in point, a period of time in which several
European countries faced the collapse of financial institutions, high government debt and rapidly
rising bond yield spreads in government securities. The European Sovereign Debt Crisis was
seen to start in 2008, with the collapse of Iceland’s banking system and spread primarily to
Greece, Ireland and Portugal in 2009 (Investopedia.com/terms/e/European-sovereign-debt-
crisis.asp) (1.12.2014). European governments assisted banks in order to avoid a complete
collapse of the banking system. 1.6 Trillion euros (an equivalent of 13% of the European Union’s
11
The methods of recovery upon breach of the credit contract, which are examined
in this thesis, will not be looked at in isolation of the Act but rather within the
common law setting, the previous legislative dispensation and comparatively with
various foreign jurisdictions’ approach in this area; namely, the European
Union,40 England and Italy.

It is submitted that legislation should not over-protect the consumer and must put
the need to respect the pacta sunt servanda rule into perspective. Thus the
legislature need consider the effects the credit industry has on the economy and
that the withdrawal of lending investors due to overbearing legislation would have
detrimental effects on the credit market.41 Overly zealous consumer protective

annual gross domestic profit) were committed between 2008 and 2011. The European Union also
launched a Europe-wide recovery programme to safeguard jobs and social protection levels and
to support economic investment. As part of such reforms, three European supervisory bodies
were set up to help coordinate the work of national regulators and ensure European-level rules
are applied consistently, namely, the European Banking Authority – which deals with the
supervision of the recapitilisation of books; the European Securities and Markets Authority –
which deals with the supervision of capital markets and carries out direct supervision with regard
to credit rating agencies and trade repositories and the European Insurance and Occupational
Pensions Authority – which deals with insurance supervision (cc.europa.ev/economy-
finance/explained/the-financail-and-economic-crisis/responding-to-the-financial-crisis/index-
en.htm) (1.12.2014). The United States’ housing bubble also being, a prime example, this
economic bubble affected many parts of the United States housing market. Housing prices
peaked in early 2006, started to decline in 2006 and 2007, and reached new lows in 2012.
(http://www.standardandpoors.com/indices/sp-case-shiller-home-price-
indices/en/us/?indexId=spusa-cashpidff--p-us----) (19.03.2013). A credit crisis resulted from the
bursting of the housing bubble, this was viewed as ‘the primary cause’ of the 2007–2009
recession in the United States (Holt J ‘A Summary of the Primary Causes of the Housing Bubble
and the Resulting Credit Crisis: A Non-Technical Paper’ The Journal of Business Inquiry 2009 8
120).
40
The European Union is examined in the thesis for two reasons, firstly because European
countries are more and more attempting to resolve their individual national problems from a
regional perspective, secondly because Europe is uniting on a mercantile level as a tactic to
solution finding. Africa can learn some of these skills or approaches and adapt them in order to
develop its own regional philosophy and jurisprudence.
41
In South Africa, when the National Credit Act was promulgated the reaction of the lending
market was not at all positive. The following are a few extracts taken from media publications,
which demonstrate an apprehensive public rejoinder: ‘Foschini Group – which owns @home and
Foschini fashion stores, as well as operating an external credit granting division RCS – cites the
Act as an area of concern in its 2006 annual report’.
(http://www.itweb.co.za/financial/2007/0701261035.asp?S=FinancialandA=FINO=FRGN
(26.01.07)); ‘However, the National Credit Act imposes new and onerous conditions on credit
providers for credit insurance’.
(http://www.netsassets.co.za/insurance/insurance.asp?websiteContentItemID=62954 (8.02.07));
‘Finance houses, mortgage providers, in fact all companies and individuals that provide credit, are
potentially facing an information overload due to significant changes in the regulatory and
administrative frameworks within which they operate as a ready-to-be promulgated National
Credit Act’ (http://www.lorge.co.za/Press%20Office/National%20Credit%20Act.htm (8.02.07)).
12
practices could leave borrowers with a limited selection of lenders, offering credit
at exceedingly high rates of interest. A fine balance needs to be struck between
upfront or pre-contractual protection of the consumer and after the fact
protection.42 An exploration of the effects of the Act in this regard, albeit limited
to the fields of breach and recovery, will also be conducted.

1.3. Purpose of the Study

The study was conducted in order to provide careful and what will hopefully be
useful insight to the interpretation of the National Credit Act and more specifically
the remedies available to the credit provider when the consumer is in breach.
The Act is relatively new and replaces legislation which had been in operation for
upward of thirty years. It is also a very modern piece of legislation, in that some
of the rules that it imposes and regulatory and judicial bodies that it creates are
very contemporary and on par with international developments, yet fit into the
South African setting because of the need to protect a majority indigent
contingency of the population, a medium sized middle class and a small echelon
of wealthy people. It is submitted that the most vulnerable group of the three is
the middle class, at least the lower middle class that are in danger of losing their
homes and livelihoods if protective implements, guarding against abuse, are not
activated in their favour. The Act is primarily a consumer protective device; this is
evident from its preamble and section 3 of the Act. The Courts have also
understood the philosophy behind the Act.43

It has previously been submitted that a balance between protecting the rights of
the credit provider and the rights of the credit consumer is necessary in order to

42
The Act appears to have attempted this balance by placing stringent onuses on credit providers
to know their consumers and assess their consumers’ credit worthiness prior to supplying credit
(or be accused and face the consequences of reckless lending) and the relief that a consumer
may seek if declaring himself over-indebted. The former is an example of pre-contractual
legislative protection and the latter one of post-contractual protection or relief.
43
Cf Absa Bank Ltd v Myburgh 2009 3 SA 340 (T) per Bertelsmann J (clause 24): ‘The Act is the
latest in the various attempts by the Legislature to put enactments in place that regulate the
granting of credit to the consumer and to restrict the financial gains that credit providers may
garner from this enterprise that has often been more than a little controversial, it replaces and
repeals the Usury Act and the Credit Agreements Act and creates a new dispensation that is
intended to ensure that the consumer is effectively protected without restricting access to
affordable credit provided and obtained in a responsible fashion’.
13
promote a healthy and poised economy, without stifling trade. It was in this vein,
that the decision was made to investigate what could possibly be dubbed the
heart of the credit relationship. That is, when the credit agreement is breached
and the rights of the credit provider are pitted against the rights of the credit
consumer – the thesis considers whether the Act protects and maintains
equilibrium between both the parties. An examination of the earlier
dispensation44 and an inspection of the methods of the existing dispensation are
conducted45 and finally conclusions are drawn as to whether the Act managed a
calibrated regulation of the consequences of the remedies for breach of the credit
agreement.

1.4. Methodology

The thesis examines the remedies that are available to the credit provider once a
credit consumer has breached the credit agreement. The discussion focuses
specifically on the credit agreements that fall within the scope of the National
Credit Act. An exposition of what therefore does fall within the ambit of the Act
was necessary.46 Despite the relatively wide scope of the Act, that is relative to
its predecessor legislation, the Credit Agreements Act and the Usury Act and
Exemption Notice,47 there are quite a variety of credit agreements that do not fall
within its range. While the nature of the contract together with breach and
recovery, in terms of the common law of South Africa are examined as an
introduction to the remedies available in terms of the Act, the remedies for
breach of the credit agreement that fall beyond the reaches of the Act have not
been examined.

The historical development of the Act is examined and a comparison with other
jurisdictions and their approach to remedies for breach of the credit agreement
are investigated to provide not only historical background but useful foreign
sources for the development of the legislation. Not only is the history of the Act

44
Chapter 4 paragraphs 4.2 and 4.3.
45
In paragraph 4.4, Chapters 5, and 6.
46
Cf paragraph 4.4.4 infra.
47
Government Gazette no 713 of 1999.
14
examined through an analyses of its direct predecessors (Credit Agreements Act
and Usury Act) but incorporated in the study is a look at the history of credit,
interest and credit agreements, as these developed in South Africa and in the
rest of the world.48

The foreign comparative sections of the thesis are based on three aspects.
Consideration of the European Union; this is an examination of a somewhat
hybrid system. It has been dubbed a ‘hybrid’ jurisdiction for the obvious reason
that the European Union is not a single country but a conglomerate of countries
which have endeavoured or are endeavouring to harmonise their laws to
facilitate, inter alia, cross border trade. Without an understanding of the evolution
of consumer credit in Europe, it is submitted that any other examination of a
European jurisdiction would be rendered more difficult given the influence of the
European Union Directives, inter alia, in the credit field. General principles of
European laws which form the basis for legislation may affect the conditions
under which credit institutions do business.49 The European Union has become
increasingly active in the area of Consumer Protection, some legislation focused
on consumer credit, such as the Consumer Credit Directive50 and other is of
more general influence, but nonetheless important to consumer credit
transactions, such as for example, the Unfair Contract Terms Directive.51 Such
legislation not only influences cross-border transactions but changes the legal
landscape within which purely domestic transactions take place.52 Thus when
looking at any European country, cognisance must be taken of the relevant
national legislation but one needs to be familiar with the underlying European
Union laws and with both the general rules and specific Directives, as these may
affect the interpretation and effect of national law.53

48
As so fittingly put by Holmes: ‘The life of the law has not been logic: it has been experience’
(The Common Law 1881 from Zweigert K and Kötz H Introduction to Comparative Law 1998
181).
49
Rott P in Goode RM Consumer Credit Law and Practice 2014 paragraph 121.1.
50
Directive 87/102/EEC (OJ L42 12.2. 1987 p 48) and its successor, Directive 93/13/EEC (OJ
L95 27.3. 1993 p 66).
51
Directive 93/13/ECC OJ L95 27.3. 1993 p 29.
52
Rott in Goode Consumer Credit Law and Practice 2014 paragraph 121.1.
53
Ibid.
15
The second jurisdiction which has been examined, is that of England, because its
credit legislation is so similar in nature and need, to that of South Africa.
However, it must be mentioned that South Africa’s unique first-world/third-world
impasse requires particular attention. Furthermore, England’s jurisdiction was of
interest because in 2006 it amended its credit legislation, which had been in
effect since 1974, a similar progression to the credit legislation in South Africa.
Finally, the Italian jurisdiction was examined because the civilian tradition is so
starkly different to the South African one and insight into such a different system
may assist with innovative thinking both in the interpretation and development of
our system. Furthermore, Italian credit law was of interest precisely because
there is very little literature in South Africa that examines the civilian countries
approach to credit.54 Lastly, while the comparative sections are of valuable
influence because of the global tendency towards harmonisation,55 an in depth
comparative study is beyond the scope of this work and more specialised
comparative or specific studies will have to be referred to for greater detail.
However, a differentiation must at this early stage be drawn between the
European countries examined in this work and South Africa in terms of legal
framework. That is the distinction of the overarching umbrella influence of
European Union law. South African jurists are not obliged to take into

54
Interestingly, the four systems, South Africa, the European Union, England and Italy derive and
therefore bring to the fore the various roots of modern jurisdictions, namely, Roman law, civilian
tradition and common law.
55
Europe is the leader in this field, but it is submitted that Africa will closely follow suit, and has
already started making huge strides which are indicative of a future African union. Formation of
SADC and OHADA, are prime examples, SADC is the Southern African Development Community
started as Frontline States whose objective was political liberation of Southern Africa. SADC was
preceded by the Southern African Development Coordination Conference (SADCC), which was
formed in Zambia in April 1980 with the adoption of the Lusaka Declaration (Southern Africa:
Towards Economic Liberation). The formation of SADCC was the culmination of a long process of
consultations by the leaders of the then only majority ruled countries of Southern Africa, thus
Angola, Botswana, Lesotho, Mozambique, Swaziland, United Republic of Tanzania and Zambia,
working together as Frontline States. In May 1979 consultations were held between Ministers of
Foreign Affairs and Ministers responsible for Economic Development in Botswana. Subsequently
a meeting was held in Tanzania in July 1979 which led to the establishment of SADCC. On
August 17, 1992, at their Summit held in Windhoek, Namibia, the Heads of State and
Government signed the SADC Treaty and Declaration that effectively transformed the Southern
African Development Coordination Conference (SADCC) into the Southern African Development
Community (SADC) The objective also shifted to include economic integration following the
independence of the rest of the Southern African countries (http://www.sadc.int/) (4.03.2011).
OHADA is the French acronym for ‘Organisation pour l'Harmonisation du Droit des Affaires en
Afrique’ translated in English as the ‘Organization for the Harmonisation of Business Law in
Africa’. It is an organisation created on October 17, 1993 in Port Louis (Mauritius)
(http://www.ohada.com) (4.03.2011).
16
consideration any generalised legislation when interpreting the National Credit
Act or common law in relation to credit. By generalised legislation one intends
legislation which must, by its very nature, be based on fairly general principles so
as to be suitable to many different jurisdictions, like European Union law and
legislation. The South African lawyer’s perspective can thus be described as
being more insular, in that generally his considerations will be focussed on
internal dynamics, such as past legislation and case law and (obviously) current
legislation and common law. That is not to say he need not take cognisance of
foreign legislation and rulings or where relevant and where applicable,
international law; simply that his concerns are perhaps more sheltered when
working with the credit law paradigms.

The examination of the remedies for breach of the credit agreement led to a need
to scrutinise a number of other rules which relate to the regulation of breach of
contract and remedies therefor. Some of these rules are imposed by legislation
such as the Conventional Penalties Act 15 of 196256 which regulates the penalty
provisions in contracts; while some such other rules are found within the ambit of
the common law, such as those relating to acceleration clauses. Furthermore,
while specific credit agreements, for example the sale of land on instalments, are
regulated by other legislation, such as the Alienation of Land Act 68 of 1981,57
yet in some areas overlap with the Act, these have not been dealt with in this
thesis.

Legislation and common law were not the only sources used in the research and
writing of this thesis; besides extensive reliance on academic writings, such as
books and journals referenced and national and international publications; close
attention was paid to research reports directly relevant to the National Credit Act
and those that have been carried out in other jurisdictions mandated by their
respective governments but which, it is submitted, lend to an international body
of knowledge of consumer credit.

56
Hereinafter the ‘Conventional Penalties Act’.
57
Hereinafter the ‘Alienation of Land Act’.

17
As mentioned in the previous paragraph, data or information was obtained
largely from academic writings, these found in their usual abodes – academic
libraries or retailers of academic books and journals. The internet also played a
very significant and reliable role in gathering information. Many government-
mandated reports both national and international were accessed via the internet;
as well as many articles written in relation to the Act. The examination of
legislation and case law were obviously the spring board for every section and to
mention their patent importance seems almost superfluous.

Finally, besides heavy reliance on the sources mentioned above, careful thought
was given to the design and implementation of the thesis, and the relevance of
its placement within the context of the field of study. Given that the National
Credit Act is a relatively youthful piece of legislation, the area for contribution of
original interpretation and understanding was perhaps fortuitously generous,
however, the body of knowledge that has come forward from the courts and
academic writers’ interpretation of the old credit regime and contemporary one
during this work, formed, without doubt, another indispensable tool.

The exercise of interpreting legislation through its purpose and objects by

including social and political directions is known as the ‘text-in-context approach’
to interpretation.58 The forerunner to this approach is known as the ‘mischief
rule’,59 which acknowledges the application of external aids for example the
common law prior to the enactment of the legislation, defects in the law not
provided for by the common law, new remedies and solutions provided by the
legislature and the true reason for the remedies.60 The mischief rule also looks
at the historical context of particular legislation to place it in its proper
perspective.61 The text-in-context approach provides a balance between
grammatical and overall contextual meaning.62 Botha63 submits that without
taking the object and scope of the legislation, that is its contextual meaning into

58
Du Plessis LM The Interpretation of Statutes 2002 96.
59
This rule was laid down by Lord Coke in Heydon’s Case 1584 3 Co Rep 7a 76 ER 637.
60
Botha C Statutory Interpretation An Introduction for Students 2013 97.
61
Botha 2013 152.
62
Botha 2013 98.
63
Ibid.
18
account, the interpretation process cannot be complete. The methodology
adopted in understanding the remedies supplied to the credit provider in the
event of breach of contract by the consumer by the National Credit Act, were
indeed based on the text-in-context approach to interpretation together with the
mischief rule.

1.5. Comparative Study

Studying and comparing jurisdictional systems is becoming, in today’s global

economy, almost a necessity. The following view posited by Lena and Mattei64 is
appropriate:

In the increasingly global environment of legal practice, there is a basic need to

know something about the legal systems of different countries. International
practise requires an essential understanding of the legal minds of colleagues
operating outside of one’s own legal system.

Peterson65, discussing the two goals his article proposed to achieve – but which
can be used as a concept base for comparative studies, remarks as follows:

The first is to provide a new conceptual tool for organizing discussions of

consumer credit in general, and high-cost consumer credit in particular. The
world’s past civilizations have employed only relatively few types of strategies for
addressing this fundamental dilemma. Unfortunately, historians - and in turn
policymakers and legal practitioners – have not recognized the similarities
between these strategies because most historical treatments focus either on one
culture or one strategy. When we step back and paint with the broader brush
strokes of historical case studies, patterns of common social responses to
consumer credit problems emerge. These patterns are important both because
they provide a new way of organizing discussions about consumer credit policy
and because they shed contextual light on the limitations of our current
strategies.

In a study of comparative law, Zweigert and Kötz,66 initially define comparative

law as ‘an intellectual activity with law as its object and comparison as its
process,’ they continue to elaborate ‘[n]ow comparisons can be made between
different rules in a single legal system, […]. [However,] [i]f this were all that were
meant by comparative law, it would be hard to see how it differed from what

64
Introduction to Italian Law 2002 ix.
65
2003 Florida Law Review 813.
66
Zweigert and Kötz 1998 2.
19
lawyers normally do: lawyers constantly have to juxtapose and harmonize the
rules of their own system, that is, compare them, before they can reach any
practical decision or theoretical conclusion. Since this is characteristic of every
national system of law, ‘comparative law’ must mean more than appears on the
surface. The extra dimension is that of internationalism. Thus ‘comparative law’
is the comparison of the different legal systems of the world’. Comparative
lawyers remain convinced that comparative law is both useful and necessary and
that ‘by the international exchanges which it requires, comparative law procures
the gradual approximation of viewpoints, the abandonment of deadly
complacency, and the relaxation of fixed dogma, [affording] us a glimpse into the
form and formation of legal institutions which develop in parallel, possibly in
accordance with laws yet to be determined, and permits us to catch sight,
through the differences in detail, of the grand similarities and so to deepen our
belief in the existence of a unitary sense of justice’.67 It is submitted that the
exercise of comparing the internal system with an external one, thereby
internationalising the ‘lawyering’ venture, is of special benefit when new
legislation is introduced into a legal system. Its stabilising and settling-in process
will depend on the interpretation it receives, and comparative studies of similar
systems can only be of valuable import.

There is truth, however, in the following words of caution:68

It is surprising to what extent the same problems occur all over the world in spite
of major differences in policy, degree of sophistication of financial institutions,
level of development, etc. As regards this similarity in the problems experienced
and, in a sense, also the solutions resorted to we never lost sight of the fact that
one cannot simply transplant principles wholesale from a foreign jurisdiction to
one’s own system.

There is always a danger in an attempt to transplant legal institutions which have

developed in the commercial and social organisation of a foreign society in
response to its belief systems. Comparative legal study gives insight into the
relation between any society and the interlocking rules within which it structures
everyday transactions. To adopt foreign law without reference to the checks and
balances which ensure consistency and justice in the system as a whole is also
unlikely to be a success.

67
Zweigert and Kötz 1998 2-3.
68
Otto JM and Grové NJ The Usury Act and Related Matters 1991 6.
20
‘Common law’ systems are frequently contrasted with ‘civil law’ systems. A
customary feature of the civil private law system is that their private law is based
on a systematic set of general rules of law contained in legislative enactments
typically known as ‘codes’. Examples of these are the Code Civil of France and
Belgium; the Bürgerliches Gesetzbuch in Germany, the Burgerlijk Wetboek in the
Netherlands and the Codice Civile of Italy.69 The existence of a code is not,
however, the distinguishing feature as for example, the Scandinavian countries
which are typically regarded to have civil law, do not have complete systematic
codifications.70 The term ‘civil law’ is used to describe European jurisdictions
which have been heavily influenced by the language, ideas and structures of the
Roman law which was initiated at the end of the eleventh century in Italy with the
revival of Justinian’s Corpus Iuris Civilis and spread throughout Europe, though
varying in influence.71 While the reception of Roman law through Europe created
a sense of a common law of continental Europe - the ius commune, England was
not impacted by it in the same way; here the King’s courts and the legal
profession were already developing their own law.72

Increasingly, consumer credit law is directly affected by international

developments and institutions. A good example is the regional influence of the
European Union.73 Thus, where appropriate, the European Union’s proposals
and methods have been examined. Its influence is evident in the whole of
Europe; England and Italy are no exception.

The term ‘civilian’ or ‘civilian law’ refers to the legal systems on the European
continent.74 These terms are used to differentiate from the (English) common
law. The civilian tradition places emphasis on the basic unity of the European
legal tradition; ‘for the modern division of law into national legal disciplines is of

69
Cartwright P Contract Law: An Introduction to the English Law of Contract for the Civil Lawyer
2007 8.
70
Ibid.
71
Ibid.
72
Ibid.
73
Ramsay 2007 1.
74
‘[M]odern civil law of obligations remains remarkably Roman in its outline and in much of its
substance. It is generally agreed that Roman law is the main contributor to the modern civil law of
obligations, although Germanic elements and canonical contributions have also played an
important if less obvious role in its formation’ (Watkin TG An Historical Introduction to Modern
Civil Law 1999 284).
21
comparatively recent origin’.75 The following from Zimmermann76 depicts the
harmonisation of what has become known as the civilian tradition in Europe:

In the Middle Ages, the whole of educated Europe formed a single and
undifferentiated cultural unit; and the Roman-canon ‘common’ law was part and
parcel of this European culture. Law professors moved freely from a chair in one
country to one in another; the same textbooks were used in Pavia or Bologna as
much as in Halle, Alcalá or Oxford; and it was on a European level, too, that all
the major transformations of that common law took place. Moving with the same
cultural tides and moored to a common language, European legal science
remained an essentially homogenous intellectual world.

To use (yet again) the words of Professor Zimmermann,77 this is not merely an
exercise in antiquarianism and accordingly the following paragraph is aptly
relevant:

For the civilian tradition lives on, albeit often unrecognized, in the modern
national legal systems. All the major European codes find their roots at one stage
or another in the development of the ius commune therefore usually presents the
most appropriate starting point for comparative research in the traditional core
areas of continental private law. Apart from that, however, it provides the
intellectual and doctrinal framework within which a new European legal unity may
one day emerge. Anyone attempting to bolster the move towards greater political
and economic unity by a harmonization of the legal rules applying in the various
European countries would neglect their common historical basis at his peril. The
ius commune even today constitutes a unifying force of great potential.

While the civilian tradition of continental Europe is often contrasted to the English
common law system we are warned against misconceptions.78 That is that while
a useful distinction exists, the two systems are not so radically dissimilar.79
Zimmermann80 submits that this is due, not only to the common historical

75
Zimmermann R The Law of Obligations 1990 ix. From the late Middle Ages until the time of the
French Revolution, Western and Central Europe had a common law and a common legal
science. The ius commune was part of the 12th century Renaissance. Both the Roman Church
and the Roman Empire claimed supremacy and thus used rational legal systems as a source of
legitimacy and as a means to control and organize. A new scholastic method of analysing and
synthesizing was applied to the authoritative texts: the canons and Justinianic law, which came to
be known as the Corpus Iuris Civile. Roman law and cannon law, which was in any event heavily
influenced by the Roman law, became the main medieval ius utrumque. It was this ius utrumque
studied by the graduates of Bologna and then other universities throughout Europe, who then
applied (and consequently spread) it when they moved into key administrative positions. Roman
law was received at different times throughout Europe, starting in Italy in the twelfth Century; it
reached Northern France and Holland in the thirteenth and fourteenth centuries and finally
Germany in the sixteenth century (ibid).
76
Zimmermann 1990 ix.
77
Ibid.
78
Maitland FW The Forms of Action at Common Law 1954 76.
79
Ibid.
80
Zimmermann 1990 ix.
22
framework within which the law developed but also due to the substantive legal
rules. Practically, England was never cut off from the continental legal customs.
In fact English law, at inception, has been described as not being English at all
but ‘a species of continental feudal law developed into an English legal system
by kings and justices of continental extraction’.81 Furthermore, throughout its
development Roman (civil) law was of considerable influence on English law and
jurisprudence.82 Despite the civil and canon law influences it absorbed a variety
of indigenous influences and even where civilian influence was apparent English
courts and writers have often proceeded to develop the law along independent
lines.83 The following advice, again from Zimmermann84, should not go
unheeded:

But it would appear to be a fruitful exercise to try to explore a common basis for
comparative legal studies, to trace explicit as well as cryptic reception processes,
to concentrate one’s attention, for once, not so much on the distance and the
differences between common law and civil law as on their proximity and
similarities; and to attempt a comparison of legal solutions against the
background of a common ‘Western’ civilization.

While the recommendation above is directed at the harmonisation of the

European countries legal culture – South Africa should not lag too far behind and
should at all times, especially if it wishes to facilitate trade with Europe, keep its
eye on the proverbial ball. South Africa’s private law has been described as ‘one
of the last preserves in the modern world where the tradition of the ius commune
still lives on, untrammelled, largely, by the intervention of the legislator’.85 South
Africa is one of a few ‘mixed jurisdictions’ which are not only based on the civilian
system but which have absorbed a substantial amount of English law.86 Its
reception of English law during the course of the nineteenth century was likened
to the process of absorption of the spread of Roman Law over Europe.
Accordingly, the South African system has been but a matrix for the blending of

81
Ibid.
82
Ibid.
83
Zimmermann 1990 ix.
84
Ibid.
85
Zimmermann 1990 xiii. However, as is evident these words were written in 1990, a good 24
years ago. South Africa, especially concerning consumer protection, has faced a rather extended
bout of new legislation since 1994. The National Credit Act and Consumer Protection Act being
on point.
86
Zimmermann 1990 xiii.
23
‘the two main emanations of the ‘Western’, or European (in the broader sense),
traditions’ and consequently the process of mutual assimilation that has occurred
over the years, may ‘offer stimulating insights as well as valuable experiences for
anyone interested in the prospect of a future European common law’.87

While the South African common law may offer valuable insight to aid the
processes of harmonisation of a European common law, it can be equally utilised
for the development of a South African jurisprudential maturity in alignment with
Europe and Africa (as trading partners). There is an ‘African’ initiative towards
harmonisation of private commercial law. Organisations like UNIDROIT88 and
OHADA are consistently working towards these goals and early, focused
comparative studies on particular areas of law can only lend to the harmonisation
process. The description, provided in the preceding paragraph, of South Africa’s
untrammelled body of law was made in 1990. Now, twenty four years later, we
see the sickle of the legislator coming down in large sweeping motions. Slowly,
adding to the drastic curtailment of the operations of South African common law.
Instead of decaying, South African common law should develop into an
exemplary model for harmonisation. South Africa should revere its own history of
reception of English law and re-use the skill to ensure future alignment with the
cross-border contract laws of the European Union, and equally as important, with
its land neighbours. However, before looking abroad, it is important, with the
introduction of new legislation, to determine exactly where the boundaries of the
legislation end and those of the common-law begin.

87
Ibid.
88
International Institute for the Unification of Private Law. UNDROIT is an independent
intergovernmental organization with its seat in Rome. Its purpose is to study needs and methods
for modernizing, harmonizing and co-coordinating private and in particular commercial law as
between States and groups of States and to formulate uniform law instruments, principles and
rules to achieve those objectives. It was set up in 1926 as an auxiliary organ of the League of
Nations, the Institute was, following the demise of the League, re-established in 1940 on the
basis of a multilateral agreement, the UNDROIT Statute. Membership of UNDROIT is restricted to
States acceding to the UNDROIT Statute (http://www.unidroit.org/dynasite.cfm?dsmid=103284)
(4.03.2011).
24
 CHAPTER 2: HISTORICAL INTRODUCTION

2.1 General History of Credit, including Interest and Banking

The history of credit, interest and banking has received extensive focus over the
years by academics and jurors alike. It is therefore not the purpose of this
chapter to set out in explicit detail the history of these topics. A general
examination thereof is not, however, without its merits. The lessons that can be
drawn by looking at the progress of the history of credit, interest and banking
over the centuries allows one to draw, from such studies, necessary information
which enables one to recognize progressive or reactionary developments as well
as advance forecasts as to future trends or, at the very least, correctly pinpoint
the location of the contemporary one. From this type of observational exercise
one can attempt to predict both legislative and judicial responses to particular
regulatory environments.89

It is trite that a statute should be construed in conformity with the existing law and
that the legislature does not intend to alter existing law more than necessary.90
Therefore, before new legislation can be handled with any degree of confidence
and in order to avoid having to continuously amend it, one should first possess a
sound knowledge of what the existing laws, especially the common law, allow.91
In order to comprehend the common law in a specific field it is valuable to study
the historical development of that particular area of law.92 South Africa is
especially interesting, in that, it is one of the best examples of a mixed system of
law.93 South African law consists of a diverse blend of Roman law, Roman-
Dutch law, English law, Indigenous law and modern legislation, with a

89
‘Look back over the past, with its changing empires that rose and fell, and you can foresee the
future too’ (Marcus Aurelius).
90
Van Heerden NNO v Queen’s Hotel (Pty) Ltd 1973 2 SA 14 (RA), Casserley v Stubbs 1916
TPD 310 312, Cockram Interpretation of Statutes 1987 98 and Grové NJ and Otto JM Basic
Principles of Consumer Credit Law 2002 7.
91
Grové and Otto 2002 8.
92
Ibid.
93
Hahlo HR and Khan E The South African Legal System and its Background 1973 578 and Otto
JM ‘The History of Consumer Credit Legislation in South Africa’ 16 1 Fundamina 2010 257.
25
progressive Constitution,94 and thus provides one of the most fecund jurisdictions
for comparative and historical studies.95

Credit legislation is no different and its historical background, especially the

abuses which give rise to it, are of importance when interpreting an act and its
contextual setting.96 Legislation on credit agreements and related matters has
far-reaching consequences on socio-economic matters due to the malpractices
which they attempt to curb.97 It is therefore necessary to take notice of historical
developments as they provide social, economic and juridical background to
present as well as future legislation.98 The National Credit Act brought varied
changes to the area of credit law, previously regulated by the Credit Agreements
and Usury Acts. A brief examination of the South African historical background
of the credit law dispensation will allow for a clearer understanding of the
common law of credit and this will assist as a point of reference for interpreting
the National Credit Act and more specifically breach of contract and the remedies
therefore.

Consumer credit legislation is influenced by a myriad of factors, not least of all

economic, social, political and religious considerations. These influences and
their effects on South Africa’s credit legislation are not unique to South Africa
and certain similarities between consumer credit legislation in different countries
exist.99 It is therefore also useful to compare the historical developments of
different countries.100 Accordingly, later in the chapter, the background of
European, English and Italian credit law are examined. It will become evident
how, throughout history, each jurisdiction experienced similar trends, albeit at
different periods.

94
Constitution of the Republic of South Africa, 1994.
95
Otto 16 1 Fundamina 2010 257-8.
96
Otto Credit Law Service 1991 paragraph 1.
97
Ibid.
98
Grové and Otto 2002 8 and Otto Credit Law Service 1991 paragraph 1. They were referring to
the previous credit dispensation, however, the concept is contemporarily applicable.
99
Otto 16 1 Fundamina 2010 259.
100
Ibid.
26
Consumer protection is not a twentieth-century phenomenon.101 Throughout
history, it has been the exploitation and malpractices born from different types of
contract and commercial practises that have led the earliest lawmakers to lay
down rules in order to regulate relations among those subject to the law.102

Many ancient societies, for example the Romans, whilst not necessarily under
the guise of ‘consumer protection’, had firm rules in order to protect
individuals.103 Some examples are the warranty against latent defects in the sale
of a res, the beneficia available to a surety and the in duplum rule.104

The codification of common law principles developed over extended periods of

time is also not a novelty.105 The Romans, once again, provide a prime example:
the Roman edicts establishing the actio quanti minoris and the actio redhibitoria
are examples of legislative intervention in order to protect consumers when the
common law, as it then was, did not sufficiently do so.106

101
Otto 16 1 Fundamina 2010 258.
102
Grové and Otto 2002 8.
103
Otto 16 1 Fundamina 2010 258.
104
Once described by Otto as ‘an ancient form of consumer protection’ (The National Credit Act
Explained 2007 3 and Otto 16 1 Fundamina 2010 258). The common law in duplum rule prevents
unpaid interest from surpassing arrear but unpaid capital (Union Government v Jordaan’s
Executor 1916 TPD 411, Van Coppenhagen v Van Coppenhagen 1947 1 SA 576 (T), Stroebel v
Stroebel 1973 2 SA 137 (T), Administrasie van Transvaal v Oosthuizen en ‘n Ander 1990 3 SA
387 (W), LTA Construction Bpk v Administrateur, Transvaal 1992 1 SA 473 (A), Standard Bank of
South Africa SA Ltd v Oneanate Investments (Pty) Ltd 1995 4 SA 510 (CPD), Commercial Bank
of Zimbabwe v MM Builders (Pty) Ltd 1997 2 SA 285, Leech and others v ABSA Bank Limited
1997 3 All SA 308 (W), Bellingham v Clive Ferreira 1998 4 SA 382 (WLD), F & I Advisors (Edms)
Bpk v Eerste Nasionale Bank van SA Bpk 1999 1 SA 515 (A), Commissioner for SA Revenue
Service v Wouldige 2000 1 SA 600 (C), Sanlam Life Insurance Ltd v South African Breweries Ltd
2000 2 SA 647, Absa Bank v Leech & Others 2001 All SA 55, Georgias v Standard Chartered
Finance Zimbabwe Ltd 2000 1 SA 126 (Z), Meyer v Catwalk Investments 354 (Pty) Ltd en Andere
2004 6 SA 107, Verulam Medicentre (Pty) Ltd v Ethekweni Municipality 2005 2 SA 451). Despite
criticism and calls for its abrogation (Otto and Grové The Usury Act and Related Matters Working
Paper 46 SA Law Commission 1993 375) this rule, albeit with modifications, has been included in
the National Credit Act, more specifically in section 103 (5). Cf fn 2286 for a discussion on the
statutory in duplum rule. Cf Vessio in Moorcroft J Banking Law and Practice 2014 Chapter 31 for
a discussion of the differences between the common law and statutory in duplum rule.
105
Otto 16 1 Fundamina 2010 259.
106
Van Oven Leerboek van Romeinsch Privaatrecht 1948 264 taken from Otto 16 1 Fundamina
2010 259.
27
Central to the regulation of commercial practices and the contracts which relate
thereto is the issue of charging of interest.107 Academic and historical research
have also demonstrated the fallacy of the impression that mercantile loans and
banking transactions are the invention of the seventeenth century.108 Statements
such as ‘[t]he history of consumer credit regulation is as old as consumer credit
itself’109 and ‘[c]onsumer credit is older than money’,110 albeit dramatic, reveal
that the practice of exchanging things of value in return for the obligation of future
repayments is one of humanities’ ancient social designs.111 Historians and
archaeologists speculate that interest in the broad sense, originated some time
during the late Palaeolithic or early Mesolithic ages between, about 8000 and
5000 BC.112 Lending on interest was one of the first economic milestones of life
in society and considered an essential driving force in its development.113 It is
thus older than industry, banking and striking of coins.114

Curbing of interest rates has been a debated issue since 4000 years ago, the
first known enactment in this regard being found in the Code of Hammurabi.115

107
Not many commercial activities have met with as much resistance as the issue of usury
(Grové NJ Gemeenregtelike en Statutére Beheer oor Woekerente LLD, Randse Afrikaanse
Universiteit, 1989 8).
108
Peterson CL ‘Truth, Understanding, and High-Cost Consumer Credit: The Historical Context of
the Truth in Lending Act’ 2003 Florida Law Review 807 809.
109
Franken in Niemi et al Consumer Credit, Debt and Bankruptcy 2009 129.
110
Peterson 2003 807 809
111
Augustinus, whose view was supported by Noodt, opined that if one lends money with the
expectation of receiving back more than one had given, not only in money but in some other kind
of good (for example, wheat, wine or oil) one was then a moneylender. Cf Ambrosius De Tobia c
14, where he states that ‘food is interest, clothing is interest and in fact anything that is added to
the principal is interest – irrespective of the name given, such increment is interest’ (from Thomas
PHJ ‘Anitchresis, Hemiolia and the Statutory Limit on Interest in Gerard Noodt’s De Foenore et
Ususris’ 2007 De Jure 52 57).
112
The following passage is elucidating: ‘Deferred payments played an important part in the life of
primitive communities from a very early stage. […] Credit existed in a fairly extensive scale before
the stage of money economy was reached. There are many ethnographic instances of credit in
kind in communities were no trace of any medium of exchange or even standard value has been
discovered. […] Even during the most primitive phase of barter when the exchange of goods
assumed the form of reciprocal presents or services, there was often a discrepancy between the
time of making the original payment or rendering the original service and that of the reciprocation.
In a sense, it is therefore true to say that credit existed from the very earliest phases of economic
activity, even before the evolution of barter proper’ (Einzig P Primitive Money in its Ethnological,
Historical and Economic Aspects 1966 362-3).
113
Gelpi R-M and Julien-Labruyère F The History of Consumer Credit Doctrines and Practices
2000 1.
114
Ibid.
115
Buckely SL Teachings on Usury in Judaism, Christianity and Islam 1998 11. The Code was
decreed in Mesopotamia by Hammurabi who reigned in Babylon from 1792 to 1750 BC. It is
made up of about 282 paragraphs, about 260 of which have been preserved. The Code concerns
28
In ancient Greece the development of commercial loans from the fifth century
onwards became one of the factors contributing to the economic prosperity of the
country.116 Despite this acceptance of credit by both population and the
authorities, eminent philosophers, such as Plato and Aristotle condemned it.117
Plato was not in favour of economic development.118 According to him citizens
should be forbidden to work in ’productive’ occupations, which he considered
degrading.119 Instead, he believed they should devote themselves entirely to the
affairs of the city.120 In his Utopian City, Plato banned gold and silver as well as
lending.121 Aristotle, on the other hand, condemned usury122 because he
considered it incompatible with the very nature of money.123 He viewed money
as a convention, its principal purpose was to facilitate exchange and be used as
a store of value.124 Aristotle differentiated between natural things and
conventional things, advocating that only natural things can reproduce.125 Since
money is a convention, it cannot reproduce.126 He therefore condemned lending
at interest, because according to him, with such loans money ‘itself’ becomes
reproductive and therefore diverted from its principal function of facilitating
exchange and against its very nature.127 Aristotle also condemned the

litigation between borrowers and lenders (Gelpi and Julien-Labruyère 2000 3). Some authors,
however, are of the view that the Code of Hammurabi is not the oldest code of laws in the world
(Driver GR and Miles JC The Babylonian Laws 1968 2 39). Buckley postulates that it was from
the Babylonians who were accustomed to charging interest at 20 percent per annum, that the
post-exilic Jews learned much in the way of legal terms and forms. The first reference in the
Babylonian Talmud to a rate of interest is in fact to one of 20 percent (1998 13).
116
Gelpi and Julien-Labruyère 2000 7.
117
Ibid.
118
Ibid.
119
Gelpi and Julien-Labruyère 2000 7.
120
Ibid.
121
Gelpi and Julien-Labruyère 2000 7-8.
122
The philology of the word ‘usury’ is interesting to note. Initially an increase given to a creditor
for the use of his capital was known as ‘foenus’ and ‘usura’ did not actually mean interest but the
use of anything whatsoever. However, due to the general and common use of the word, the
notion took hold that the word ‘usura’ could be accepted in the sense of ‘foenus’ (Van Niekerk SJ
et al The Three Books on Interest Bearing Loans and Interest (Foenus et Usurae) by Gerard
Noodt Jurist and Professor of Law Van Der Linden JR 1724 2009 7).
123
Gelpi and Julien-Labruyère 2000 8.
124
Ibid.
125
Ibid.
126
Gelpi and Julien-Labruyère 2000 8.
127
Ibid. He stated: ‘The most hated sort (of wealth getting) and with the greatest reason, is usury,
which makes a gain out of money itself and not from the natural object of it. For money was
intended to be used in exchange but not to increase at interest. And this term interest (tokos),
which means the birth of money from money is applied to the breeding of money because the
offspring resembles the parent. Wherefore of all modes of getting wealth, this is the most
unnatural’ (Aristotle Politics 1258b).
29
occupation of money-lender, because he was of the view that the money-lender
attempts to extract profit from money which is naturally sterile and which has no
properties or uses other than serving as a means of exchange.128 As far as the
Romans were concerned, Seneca, a prominent Roman philosopher, like most
Roman philosophers of the time, was opposed to usury on moral grounds.129 He
considered it morally wrong as usury, effectively, involved paying for time.130

Because the Old Testament proscribed charging of interest,131 much of the

earlier debate by theologians, economists and jurists centred on whether or not
interest should be charged at all.132 Some writers took the view that with the
New Testament, making profit on money became completely acceptable.133
However, it is submitted that there was much debate with regard the
interpretation of the New Testament and conflicting views existed, specifically
with regard to lending with interest.134 The Church had been fighting against
interest-bearing loans since the first century, that is, against any surplus gain
whether in currency or in kind.135 Saint Clement of Alexandria, a Greek Church

128
Ibid. He stated: ‘…those who ply sordid trades, pimps and all such people, and those who lend
small sums at high rates. For all these take more than they ought, and from the wrong sources.
What is common to them is evidently a sordid love of gain…’ (Aristotle Ethics 1122a).
129
Bukley 1998 96.
130
Ibid. Seneca, with regard to lending on interest, described it as ‘a voluntary evil deriving from
our system, in which there is nothing that can be scrutinised by our eyes, that can be held in our
hands – a mere dream of empty avarice’ (Van Niekerk et al 2009 60).
131
Exodus 22.25, Leviticus 25:36-7, Deuteronomy 23:19-20, Psalms 15:5, Proverbs 28:8, Ezekiel
18:8,13,17, Ezekiel 22:12, Nehemiah 5:7. For an elaborate discussion on religious influences on
usury cf Buckley 1998. The Mosaic Law forbade the lending of money at interest by a Hebrew to
a Hebrew, but did not forbid lending at interest to a foreigner by a Hebrew or to a Hebrew by a
foreigner, and held that the practise of interest was disadvantageous only among their own fellow
citizens and not to all people equally (Van Niekerk et al 2009 65).
132
Considerable attention was given by historical jurists to charging of interest. The humanists
are one example; during the sixteenth century there were many publications on various aspects
of interest. One example is a Dutch legal historian, Gerard Noodt, whom relied on classical
authorities such as Accius, Varro and Vossious (Thomas 2007 De Jure 52 54).
133
Kelly, relying on Matthew 25:27 and Luke 19:23 for this conclusion (‘A Summary of the History
of Usury with an Examination of the Policy of the Systems, and Suggestions for its Amendment,
Together with Collection of Statutes’ 13 1853 HeinOnline 15-16 (http://heinonline.org 2.4.2013).
Otto draws on the same sources for a similar conclusion (16 1 Fundamina 2010 260).
134
Cf Matthew 5:42 and Luke 6:34, 35, cf also the discussion by Buckley and the authorities cited
on a Christian understanding of usury (1998 85-173).
135
As with contemporary lending where the consumer is most often in a more vulnerable position
than the credit provider, so in ancient times creditors lent to those in desperate need of food or
shelter, and this relative advantaged bargaining position left the consumers at a significant
disadvantage. Coupled with this issue was the problem that in the absence of standardized
currencies – ambiguities over what constituted acceptable payment of the debt opened the
parameters for abuse (Peterson 2003 Florida Law Review 807 809). It was the Code of
Hammurabi which attempted to address this problem by asserting that debts could be tendered in
30
father, was one of the first to denounce credit on the basis of the Old Testament
writ.136 In the second and third centuries, Saint Basil, Saint Gregory of Nysse
and Saint Ambrose of Milan led campaigns against usury on the basis of biblical
scripture.137 From the end of the fourth century to the beginning of the fifth
century the councils, particularly the Council of Nicea in 325 AD, forbade the
practise of usury amongst clerics as it was incompatible with Christian
principles.138 Although this ban was generalized in the fifth century, it was not
extended to the lay community until the time of Charlemagne,139 under whom
usury was for the first time forbidden against the layperson by secular legislation
in the Admonitio Generalis, which implemented the wish of the Council of Clichy
of 626 AD.140 Distinct from the Frankish world, Gothic law unlike the Greeks and
Romans, did not impose a ban on money lending but rather regulated it.141 In
the time of the Carolingians the lending of money on interest was allowed and
common, however, as early as the ninth century the Church preached the
doctrine of sinfulness of charging of interest.142 By the twelfth century, this was
viewed as law and interest could only be charged where it represented fair
compensation for special risks and after the debtor was in mora. A second
exception was used as a means to circumvent the prohibition – an early date
was fixed for repayment, a date which was not really intended and after its lapse
interest could legitimately be charged.143 By the thirteenth century, with
developing commerce, resistance to the prohibition on interest was becoming
stronger as it was slowly realised that every loan involves some risk, justifying

various types of goods. This, ostensibly, thwarted some abuses by creditors by prohibiting them
from requiring payment in some rare or out of season good (Buckely 1998 13).
136
Gelpi and Julien-Labruyère 2000 20.
137
Gelpi and Julien-Labruyère 2000 20-1.
138
Gelpi and Julien-Labruyère 2000 22.
139
Also known as Charles the Great, he was the King of the Franks from 768 AD, the King of Italy
from 774 AD and from 800 AD the first emperor of Europe since the collapse of the Western
Empire three centuries earlier.
140
The Roman Emperor Lothario continued the work of Charlemagne and in 825 he reinforced
the ban on usury, expressly granting power to the bishops not only to seek out and punish
usurers but laid down penal sanctions for the misdemeanour of usury by decreeing reprimands,
fines and even imprisonment as punishment for usurers (Gelpi and Julien-Labruyère 2000 25 and
Hahlo and Khan 1973 461). A very influential body of ecclesiastical legislation for Charlemagne’s
empire were a collection of Cannons known as the Hadriana. In the Hadriana is the epistle ‘Nec
hoc quoque’ of Pope Leo 1, a papal decree that categorically forbids clerics to take usury and
declares that laymen who take it are guilty of seeking shameful gain – turpe lucrum (Buckely
1998 99-100).
141
Gelpi and Julien-Labruyère 2000 25.
142
Hahlo and Khan 1973 462.
143
Ibid.
31
the payment of interest.144 Martin Luther, with his reformative views, frowned on
international trade, banking, credit and capitalist industry.145 In his ‘Sermons on
Usury’, in 1519 and 1520, he insisted that loans should be interest free.146
During the course of the fifteenth century Florence passed laws restricting
interest rates to 15.5 percent per annum, then 20 percent and then 30 percent.147
Eventually municipal pawnbrokers were set up to try and circumvent even higher
black market rates.148 The Catholic Church set up, what were known as Montes
Pietatits, these were institutions whose funds had been created by donations so
that the Church could extend interest free loans.149 However, in 1515, Pope Leo
X, a member of the Medici banking family, authorised these loans to be made at
such interest rates as were necessary in order to cover costs.150 During the
sixteenth century attempts by the Catholic Church and the Protestants were
made to revive the prohibition of interest but by the end of the sixteenth century
the prohibition had ceased to operate.151 Jean Calvin, however, accepted that
the charging of interest was permissible within certain limits: that is, interest that
is ‘biting’ was not allowed.152 By the seventeenth century ‘usury’ had gained a
new meaning, that is, the charging of excessive interest.153

144
Ibid.
145
Gelpi and Julien-Labruyère 2000 48.
146
Ibid.
147
Philpott F and Neville S et al The Law of Consumer Credit and Hire 2009 1.
148
Ibid.
149
Ibid.
150
Philpott and Neville 2009 1.
151
Hahlo and Khan 1973 462.
152
Grové 1989 73 fn 16. Noodt postulated that the reason why interest could not be forbidden is
that commerce would not survive without interest and he was of the view that commerce is man’s
only protection against poverty, peace and in war, whether one is considering private individuals
or states, or princes, or the advantage of ready cash in the greatest or smallest transactions
(Noodt I Praefattio 175, from Thomas 2007 De Jure 52 54 fn 11). After the reformation, this issue
appears to have become resolved and charging of interest was accepted in certain
circumstances. Thereafter the issue of disclosure of interest in a contract was brought to the fore
(Grové and Otto 2002 19).
153
Hahlo and Khan 1973 462. This is precisely where South Africa’s regulatory regime is today:
the contemporary consideration is not whether interest should be allowed, but how much interest
should be allowed. That is, what level of interest rate ceiling would provide an adequate balance
to protect the consumer from exploitation, while simultaneously insuring the provider’s risk is
adequately considered. However, see the more recent cases on this matter that declare that
there is no common law ceiling on the rate of interest: Cf Structured Mezzanine Investment (Pty)
Ltd v Dawids and Others 2010 6 SA 622 (WCC) and Structured Mezzanine Investments (Pty) Ltd
v Basson NO and Others (22732/2009) [2013] ZAWCHC 63 (24 April 2013).
32
Linked to credit is the practise of banking and modern discoveries have shown
that the history of banking transactions refers back to a period not less than two
thousand years before Christ.154 The history of banks and evidence of banking
transactions are dated back to antiquity. Pastoral nations such as Hebrews,
while including moneylenders, had no system of banks that would be considered
adequate from the modern point of view.155 However, as early as 2000 BC, the
Babylonians had developed just such a system.156 This was a result of services
performed by the organized and wealthy institutions: the temples of Babylon, like
those of Egypt, which were also banks, recorded transactions on clay tablets,
with inscriptions on them evidencing the extension of credit.157

Banking operations developed from religious institutions to private business

institutions, when in 575 BC a formal banking institution was established in
Babylon: the Igibi Bank of Babylon.158 The records of this bank show that it acted
as buying agent for clients; loaned on crops, attaching them in advance to ensure
reimbursement; loaned on signatures and deposited and received deposits on
interest.159 Similar banking institutions existed in Greece, Rome, Egypt and other
developed nations, centuries before Christ, and they too deposited money, lent it
on interest, extensively used letters of credit and financial papers and traded in
them.160

Initially temples served as banks, and lent to individuals and states at moderate
interest rates. In the fifth century private individuals began to receive money on
deposit and to lend it to merchants at interest rates that varied from 12 to 30

154
http://www.albalagh.net/Islamic_economics/riba_judgement.shtml#74-75 (27.08.2007).
Moorcroft states: ‘[i]t is safe to assume that as soon as trade developed between individuals and
tribes in prehistoric times the need arose for someone to act as intermediary, to hold bartered
goods and to exchange goods for the purpose of barter’ (2014 paragraph 1.2).
155
Initially the objective of the depositor was to ensure the safekeeping of his money or other
movables, however, this objective evolved over time as commerce and technology developed
(Moorcroft 2014 paragraph 1.2).
156
Buckley 1998 12.
157
The priestess Amat-Schamach, it seems, was the accredited agent of one of these institutions.
The clay tablet with the inscription can easily be likened to what we would refer to today as a
negotiable commercial instrument (ibid).
158
Ibid.
159
Buckley 1998 12.
160
Ibid.
33
percent according to the risk involved.161 In this way these individuals became
‘private’ bankers.162 These early private bankers were Greeks named trapezites
or ‘the men at the table’, who took their methods from the near East, improved on
them, and passed them on to Rome, which handed them down to modern
Europe.163 The practice of commercial, industrial and agricultural loans
advanced on the basis of interest were so prevalent in the Roman Empire that
Justinian164 had to promulgate a law determining the rates of interest which could
be charged to different types of borrowers.165 This law166 was promulgated in the
Byzantine Empire shortly before Justinian’s death, and remained in force for
some time after its promulgation.167

The above overview demonstrates that the practice of granting credit, lending on
interest and setting up of lending institutions has been a widely popular and

161
http://www.albalagh.net/Islamic_economics/riba_judgement.shtml#77 (27.08.2007).
162
Ibid.
163
http://www.albalagh.net/Islamic_economics/riba_judgement.shtml#77 (27.08.2007). Referring
to bankers in Roman times, Voet stated that ‘most Romans had the conditions of their contracts,
the accounts of their money and transactions, their payments, expenses and so on made up and
recorded by them as having special skill, so that it was their main service and work to make up
careful accounts of their doings’ (Voet The Selective Voet being the Commentary on the
Pandects 2 13 20). Cf fn 178 for a discussion on the different interest rates set by Justinian.
164
Byzantine emperor (527-565 AD).
165
http://www.albalagh.net/Islamic_economics/riba_judgement.shtml#78 (27.08.2007). Cf. the
discussion in fn 178 infra.
166
Novellae 121, 138 and 160.
167
The Arabs, especially of Mecca, had constant business relations with Syria, one of the most
civilized provinces of the Byzantine Empire. The business relations of the Arabs were not
restricted to Syria, but extended to Iraq, Egypt and Ethiopia. Their economic and financial
relations with the Byzantine Empire were so prominent that the currency used throughout the
Arabian Peninsula was the dirhams (of silver) and dinars (of gold) coined by the Byzantine
Empire. These Byzantine coins remained in use throughout the Muslim world till the year 76 A.H.,
when Abdulmalik ibn Marwan started coining his own dinars
(http://www.albalagh.net/Islamic_economics/riba_judgement.shtml#78. (27.08.2007)). In the ninth
century, during the time of the Frankish Empire, bills of exchange payable to order or to the
bearer came into use and holder and bearer clauses were reflected on promissory notes in Italy
soon thereafter (Hahlo and Khan 1973 391). Negotiable instruments and discounting were
common in the thirteenth century in Italy, France Germany and the Netherlands. Bills payable to a
named payee or order was known by the sixteenth century and by the seventeenth century a
number of endorsements were permissible. In the Middle Ages there were a variety of coins from
differing origins in circulation. Thus money exchanges were common and by the twelfth century
money changers had developed a network of money exchanges. According to Moorcroft, money-
changers were the predecessors of modern bankers. They provided clearing services and
discounted bills and granted loans. Initially only to kings and princess. Also initially deposits were
accepted on the basis of a partnership agreement between the bank and the depositor, similar to
systems followed by Islamic banks today (Moorcroft 2013 paragraph 1.2). Italy, with its Bank of
Venice and the Casa di San Giorgio of Genoa, established in the twelfth century, played a leading
role in the development of banking. These two banks were the first large banks as we understand
them today (Hahlo and Khan 1973 467-8).
34
ancient practice, invoking discussion and debate from theologians, economists
and jurists, throughout the world and throughout history. The concept of
protecting the consumer is also not a contemporary one. It is society’s evolution
and industry progresses that requisite continual upgrades to consumer laws in
order that such legislation remains current and thus relevant to modern advances
and therefore not only ensures that the consumer is duly protected, but that the
relationship between provider and consumer remains in balance.

The above discussion furthermore delineates the similarities in regulatory trends,

not only across different nations but over different periods. So, while the debate
over the regulation of interest rates was as important in the Roman Empire as in
the Frankish one, the need to develop banking policies moved with the evolution
of banking practises. The same can be said when looking at contemporary
legislative policies and reasons therefore.168 Albeit, with reference to interest, the
debate, with the exclusion of Muslim countries under Shariah law, is no longer
centred on whether to charge interest but how much interest should be charged.
As far as banking policies are concerned these will ever need to change as
modern methods of transacting are continuously innovated.

2.2 Roman and Roman-Dutch Law169

168
This is also evident in the following chapter which, while centred on the background and
rationale for the National Credit Act, also examines the motives behind English, Italian and
European Union consumer legislation. These different jurisdictions have very similar reasons for
enacting legislation which protects and regulates the credit environment.
169
Roman-Dutch law was the legal system that applied in Holland during the seventeenth
century. It was a fusion of medieval Dutch law, mainly of Germanic origin and the Roman law of
Justinian as adopted in the Reception. Roman-Dutch law can be divided into four broad periods:
the Germanic period, which continued up to the fifth century (this period ended with the breakup
of the Western Roman Empire in 726 AD); the Frankish period, from the fifth century to the ninth
century (this period was ended with the Treaty of Verdan of 343 AD which divided the Frankish
Empire into three parts); the Middle Ages, from the ninth century to the sixteenth century and
which ended with the birth of the Dutch Republic in 1581. Roman-Dutch law was brought to an
end in Europe with the end of the Dutch Republic, towards the end of the eighteenth century, with
the introduction of the Napoleonic Codes (Hahlo and Khan 1973 330-1). The following from
Wessels is a light hearted explanation of what is meant by Roman-Dutch law: ‘I heard of a lady
who thought it extremely clever of her English nephew to pass an examination in Roman Dutch
law – “So clever” she said, “of an English boy to write his Roman law papers in Dutch [,]”’. He
continues, ‘Roman Dutch law is not Roman law codified in Dutch nor is it Dutch law written in
Latin. It is a system of law which was developed during the sixteenth and seventeenth centuries
out of diverse legal elements. One of these elements was the Roman law’ (Wessels ‘The Future
of Roman Dutch Law in South Africa’ SALJ 37 1920 265).
35
From the earliest times in the Republic of Rome lending and borrowing were a
common feature of commercial society.170 The contract of loan of money for
consumption was known as mutuum.171 If the lender wanted to demand interest
to such loan, he would have to do so by way of another contract known as a
stipulatio.172 The stipulatio would novate the mutuum for payment of the capital
amount and interest.173 While Roman law emphasized the autonomy of
contracting parties, the one area where the state intervened from an early stage
was in the control of interest rates,174 as usually in contracts of loan it was the
creditor who dictated the terms, thereby essentially subtracting from the freedom
of contract ideal.175 From the foundation of the Republic, Roman common law
which, like most ancient societies was based on custom, gave way to statutory
law.176 One of the most prominent examples is the Twelve Tables.177 A ceiling
rate was contained in the Twelve Tables and in case of contravention the usurer
would incur criminal liability.178 The Twelve Tables were complemented by the

170
Grotius 2 12 1 and 6, Voet 12 1 1 and 19, Lee RW An Introduction to Roman-Dutch Law 1953
128; Tucker v Ginsberg 1962 2 SA 58 (W) 62, Credit Corporation v Roy 1966 1 SA 12 (D). The
loan for consumption was the oldest of the real contracts; its predecessor was nexum, which was
a formal moneylending transaction by which the debtor gave himself by way of formal transaction
as hostage to the creditor for payment of the debt. The creditor could then choose to enslave him,
execute him or sell him (Thomas et al Historical Foundations of South African Private Law 2000
269).
171
It must be noted, however, that the contract of mutuum involved the transfer of ownership of
the money or other consumable to the borrower who then had an obligation to return the
equivalent (in quantity and quality) to the lender at a stipulated or reasonable future time (Grotius
3 10 6, Voet 12 1, Lee 1953 128, Damont NO v Van Zyl 1962 4 SA 47 (C), Thomas et al 2000
269).
172
Thomas JAC Textbook of Roman Law 1976 272
173
If interest were to be paid without a stipulatio then the payment went to reduce the capital
amount loaned, as an informal agreement to pay interest would impose only a natural obligation,
it being a rule of classical law that no action arose from a pact (ibid).
174
There were always maximum rates of interest that varied from period to period (Thomas et al
2000 273).
175
Ibid.
176
Gelpi and Julien-Labruyère 2000 9.
177
Ibid.
178
Digest 22 1 and 2, Voet 22 1 2, Lee RW Elements of Roman Law 1956 284, Kaser M Roman
Private Law 1980 202, Thomas 1976 272. In an interesting article, Thomas argues that the
provision on interest was not part of the Twelve Tables. According to him the Twelve Tables were
not a codification of substantive Roman law, but a precursor of the edict of the praetor. In his
paper he also points out that the lex Duilia Menenia of 357 BC, mentioned by Livius in Book VII
Chapter 16, which law put a maximum rate of interest at 12 percent per annum, was the first law
which placed a limit on interest. He draws from the views of De Martino (‘Riforme del IV Secolo a
C’ 1975 BIDR 27) and Pikulska (‘Fenus Uncicarum’ 2002 RIDA 165). The predominant view,
however, holds that the lex Duilia Menenia merely re-affirmed the provision of the Twelve Tables
(cf Kaser I Das Romische Privatrecht 1971 168) (Thomas PHJ ‘Did the Twelve Tables Limit
Interest?’ TSAR 2008 1 52-65). Buckley states that it could not be determined exactly whether the
Twelve Tables fixed a maximum rate of interest at 10 or 12 per cent per annum because of the
36
Licinian laws which were decreed by the plebeian Tribune Licinius Solon in 376
BC as a response to people’s demand for a reduction in debts.179 These laws
granted, inter alia, a reduction on debts, remission of interest to insolvent debtors
and a three year moratorium to pay back the capital sum outstanding.180 Roman
law permitted charging of interest, with various limitations on rates of interest
being imposed throughout different periods. Unfortunately, lenders persistently
ignored stipulated interest rate ceilings and this led to a complete ban on the
practice of charging interest – the ban was imposed through the Lex Genucia.181
Though, this did not eradicate the institution of charging for the extension of
credit, time and practice having sanctioned it.182 Such severe provisions, as
completely banning the charging of interest, proved counterproductive and
culminated in the slaying of a praetor.183 Thus, towards the end of the Republic,
fixed interest rates for ordinary people were set at 12 percent and 6 percent for
senators.184 When Justinian came into power, being heavily influenced by his
Christian beliefs, he lowered the rate to 6 percent for ordinary persons and 4
percent for senators.185 Compound interest was forbidden and thus simple
interest was charged.186

expression ‘unicarius foenus’. It appears the legal rate of interest was gradually reduced until the
year 347 BC, when it was fixed at 5 percent as a maximum. In 342 BC, however, interest was
forbidden all together by the Lex Genucia, though this was in practice an inoperative law as it was
easily evaded. Consequently the maximum rate of interest – the Centesima – of 12 percent
remained in force until Justinian fixed the maximum rates of interest, with maritime loans at 12
percent, loans to ordinary persons not in business at 6 percent and loans to high personages and
agriculturalists at 4 percent (O’Brien G An Essay on Medieval Economic Teaching 1967 160-1
taken from Buckley 1998 96-7; cf also Gelpi and Julien-Labruyère 2000 13).
179
Gelpi and Julien-Labruyère 2000 9.
180
Ibid. Solon’s moratorium/waivers came at a time of great economic distress and while they
provided some relief for poor debtors, he neither banned nor imposed maximum rates (Buckley
1998 96).
181
Earlier, there existed the Lex Marcia (104 BC).
182
Zimmermann R The Law of Obligations – Roman Foundations of Civilian Tradition 1990 167
1.
183
Praetor Aesillio, who, unable to resolve their differences, allowed the creditors and debtors to
proceed against each other in the courts, was murdered in the centre of the forum Romanum.
Bringing the issue before judges was seen as a resuscitation of the almost obsolete Lex Genucia,
the moneylenders’ exasperation led to the praetor’s murder and then the concealment of the
evidence (Zimmermann 1990 168).
184
See fn 174 supra.
185
Ibid.
186
Thomas 1976 273.
37
The Canon Law, which was the dominant rule in the Middle Ages,187 forbade
charging of interest altogether.188 However, the economic realities were more
forceful than religious tenet, with the eleventh and twelfth centuries marked by
rampant development and huge growth in capitalism.189 As finance was required
for production and investment, various transactions were evolved in order to
circumvent the prohibition on interest.190 Consequently, during the sixteenth
century and with the Reformation, the prohibition on usury was no longer tenable
and by the time imperial legislation was decreed in 1654, which acknowledged
the possibility of allowing the charging of interest, the Canonical prohibition had
been abrogated by convention. This realized a general move back towards
Roman rules on usury and interest, with certain modifications, for example the
interest rate for general loans was reduced from 6 to 5 percent.191 After the
Reformation, the courts of Holland allowed charging of interest.192 However,
Holland had no certum modum usurarum.193

187
Zimmermann 1990 170.
188
The courts in Holland mainly disregarded this law, especially after the Reformation (Dyason v
Ruthven 3 Searle 282 292-4).
189
Buckley 1998 20.
190
Furthermore, the Church endured usury by Jews: ‘excluded from agriculture, not allowed to
own landed property, unable to join the guilds and thus become artisans or ordinary merchants,
they were forced to take up the shadier business of moneylending/pawn broking’ (Zimmermann
1990 172-3). It is interesting to note that the Hebrew word for usury is neshekh which literally
means ‘a bite’ due to its painfulness to the debtor. It appears that the prohibition on taking interest
in Exodus (22:25) and Leviticus (25:36, 37) was confined to the poor in dire straits and not to
moneylending in the normal course of business, whereas in Deuteronomy (23.19, 20) the
prohibition applies to all moneylending, except business dealings involving foreigners (Buckley
1998 20).
191
Zimmermann 1990 175.
192
Otto JM and Grové NJ The Usury Act and Related Matters South African Law Commission
Working Paper 1991 19.
193
Without the Canon Law, the courts of Holland had to look back to various authorities regarding
the rate of interest; at least Justinian’s Code sanctioned that charging of interest was not
unlawful. Van der Linden seemed to stipulate that 6 percent interest should not be exceeded and
anything above that should be considered usurious (Inst. 1 15 3). Grotius distinguished between
two types of loan (3 10 9); while both Van der Linden and Grotius looked to reasons why the
borrower required the money. If the borrower looked to the loan in order to obtain necessities, the
loan ought to be granted, according to Grotius, without any expectation of return. If, however, the
borrower required the loan in order to make a profit, or for his convenience, it would only be
natural to require a return from the loan. Grotius deemed lenders to be generally selfish and
therefore concluded that their unchecked rates may in time have burdened borrowers; thus
requiring provisions stipulated by the Municipal laws to come into effect (Dyason v Ruthven 295).
Loenius in his 21st case stated that in Holland there was no certum modum usurarum, but that the
rate of interest allowable at common law was regulated according to the circumstances of time,
places and persons, and therefore it was never seen that any one from the circumstance of his
taking higher interest was accused of usurious practices (Decis. 21; Dyason v Ruthven 296). In
effect however, Loenius, one of the Judges of the High Court, was not advocating a non-
interventionist approach. In 1610 certain interest rates were adjusted in various cases in
38
In the same fashion, Roman-Dutch law permitted charging of interest subject to
certain maximum rates at various developmental periods.194 In Roman-Dutch
law ‘interest properly so called’195 was only of two kinds: either an estimation of
damage to property or loss suffered that consequently led to a prevention of
recovery of anticipated profit.196 It was thus left to judges, whom had to make
use of the guidance of fixed general rules to make accurate estimations of
interest due according to the specific circumstances in the cases before them.197

Interest for money loans was referred to as ‘usury’ or ‘rent’.198 Usury was
payment for money owed, as well as for goods handled in terms of length,
capacity and weight. Any other type of goods that could not be measured by
length, weight or capacity or any immovable property could not have this
particular interest charged to them because, it was reasoned, that to constitute
usury, the property had to be of a decisive ratio.199

accordance to the very circumstances surrounding the cases. Bell J examined various other
cases (these include: case 166 of 1563; case 248 of 1590; a case mentioned by Neostadius in
1592 and two cases commented on by Christinaeus in 1596 and 1601) that allowed the charging
of interest, with the rate always varying between 6 and 12 percent. However, Bell J held that
these cases were simply demonstrative of the Courts’ of Holland willingness to intervene, by
allowing the charging of interest where none had before been stipulated. It is shown in this case
that Van der Keessel stated that there was no express law in Holland on the matter of interest
(Dyason v Ruthven 297).
194
Van Leeuwen (Censura Forensis 1 4 4 5 and 1 4 4 9, Rooms-Hollands Regt 4 6 6), Van de
Keessel (Praelectiones 3 10 9) and Huber (Heedendaegse Rechtsgeleertheyt 3 16 3; 3 16 11; 3
16 14-15; 3 36-37) Grotius expressed the difference between the use and abuse of usury as
follows: ‘if the compensation allowed by law does not exceed the hazard run, or the want felt by
the loan, its allowance is neither repugnant to the revealed nor the natural law; but if it exceeds
these bounds then it is oppressive Usury, and though the municipal laws may give it impunity
they cannot render it just’ (De Jur. Belli et pacis, 1.1.c.12, s22).
195
Huber 1 37 1.
196
Huber 1 36 2.
197
Huber 1 36 4. Huber, here, further identifies the rules used to determine this type of interest.
198
‘Next comes usury, though, because the name is odious, we rather use in place of it the name
of rent or interest (interessen)’ (Huber 1 37 1).
199
Huber 1 37 5, D 22 1 4, D 19 5 24, Code 4 32 11, Code 4 32 12. What is interesting to note is
Huber’s constant reference to the fact that interest or usury should not be charged because loans
for consumption should be made without profit, as these were contracts to be entered ‘by way of
charity and affection’. He also stated that it was the avarice of mankind which attached usury to
these contracts under the name of interest, but that this nevertheless, could only be extracted by
way of a separate and express stipulation (Huber 1 16 11, D 12 1 17 3, Voet 12 1 4). Voet, on the
other hand, defended the charging of interest. He did not perceive interest as being in conflict
with the principles of fairness or of natural law. When use of cash, he argued, is granted to
another by a loan for consumption, the lender essentially deprives himself of the power to gain
from that money, but provides a chance for others to gain - therefore he should be entitled to
claim a moderate and definite interest (Voet 12 1 4).
39
Usury became divided into three types: ‘compensative’, ‘punitive’ and ‘lucrative’
interest.200 ‘Compensative’ was a reimbursement of any loss for damage
sustained or profit lost.201 ‘Punitive’ interest was the penalty charge paid by a
defaulting debtor for making a late payment.202 ‘Lucrative’ interest was simply
interest charged in view of making profit from money loans.203

Interest upon interest was strictly forbidden204 and a debtor who acknowledged
this interest would simply decrease, upon payment, his capital amount or
alternatively had the option to claim it back.205 This view was so strictly adhered
to that even if a debtor defaulted on a judgment debt he would not owe more
interest than that declared owed by the judgment derived from the capital
amount.206 The ratio was that a debtor not servicing his debt, implied at face
value, his depreciating financial state and that the incurrence of even more
interest upon his already outstanding interest, would evidently run him
‘aground’.207

Interest was charged in three ways: by stipulation, when a debtor was in mora
and judicial demand.208 With a stipulation, no more interest could be charged
other than that stipulated for in the contract.209 Mora gave rise to interest in all

200
Huber 1 37 6.
201
Ibid.
202
Ibid.
203
Huber 1 37 6.
204
Huber 1 37 7. This rule however was only applicable to interest upon unpaid interest (Code 4
32 11, Code 4 32 12, D 22 1 29, Code 4 32 28).
205
Huber 1 37 6.
206
Ibid.
207
Compound interest was seen as nothing more than ‘a canker to the commonwealth [… as] a
country cannot languish more quickly than by the decay of its households’ (Huber 1 37 6). The
exception to this rule lay in a debtor who acted capriciously or mala fide, delaying payment
caused not due to need, but avarice. In such cases, a judge could then order that interest upon
interest be charged, not only from the time of judgment, but even from litis contestatio (Lee 1953
128, Huber 1 37 10, Grotius 3 10 10, Voet 12 1 18, CIR v Lever Brothers 1946 AD 441 450-451).
In modern times it has been held that there is an implied agreement to pay interest on bank
overdrafts (Standard Bank v Lotze 1950 2 SA 698).
208
Huber 1 37 13.
209
Thus, if one year’s worth of interest was contemplated in the contract and the debtor did not
pay within the year, he could not be charged more interest on this debt. If, however, a debtor paid
beyond the stipulated time this would amount to a tacit agreement on further interest (Huber 1 37
15-16).
40
spheres of contract, with the exception of book debts, which required stipulation
in order to bear interest.210

Thus, we see how the birth of consumer credit protection was really founded in
the control of interest rate charges. It is submitted that regulating other aspects
of the credit transaction was a necessitated and natural development which
advanced from the regulation of interest. The first way that a consumer could be
taken advantage of was through excessive, unregulated interest rates.
Thereafter, as the commerce of money and credit transactions evolved and
became more widespread, so the need to broaden the spectrum of regulation to
incorporate, if not the entire, at least a broad range of the debtor-creditor
dynamic, took root.

After the initial struggle of whether interest was morally acceptable and should be
levied at all, the debate really centred on what rate interest charges should be
limited. An ebb and flow of changes in the maximum amount of interest is
identifiable through Roman and Roman-Dutch law. A pattern that has continued
into contemporary times and that is certain to continue, as the volatile, global
economic climate vacillates. The same dynamic can be noted with reference to
the regulation of many aspects of the credit relationship, a case in point being the
regulation of the procedure to be followed when looking to enforce a debt. The
following sections take an in-depth look at the evolution of credit regulation as a
whole in South Africa. As will be seen, legislative control of the procedure
relating to the steps that a credit provider must take prior enforcement when
faced with a breach by the consumer, only formed part of twentieth century
legislation.211 Prior to which it was the common law that regulated this aspect of
the credit relationship.

210
Huber 1 37 17.
211
It was section 12 of the Hire Purchase Act 36 of 1942 and section 11 of the Credit Agreements
Act 75 of 1980, which started the regulation of pre-enforcement procedures in South Africa.
41
2.3 South African Law

2.3.1 Common Law

Consumer credit protection in South Africa has developed slowly and perhaps
not always under the guise of this label. It initiated or rather came to the fore, like
in all other countries, through the continued and increased ‘commerce’ of money.
Throughout human history and as exemplified in the preceding paragraphs,
lending and lending rates have always been critically debated themes. South
Africa’s teething problems in the area of consumer credit protection started with a
public requirement of the control of interest rate charges. These controls
developed both through the common law and legislative enactments. The
advancement of these enactments was, however, slow and developed in
piecemeal fashion. At first, there was no statutory or common-law control over
finance charges.212 The discussion that follows examines South Africa’s
common law evolution and legislative development.

The history of South African common law with its Roman origins, and mostly
fostered on the Old Testament,213 consists also of the history of Roman-Dutch
law and its transportation to and reception in South Africa.214 Roman-Dutch law
came to South Africa with the arrival of the Dutch East India Company in 1652.215
The Law of Holland was applied for the next 150 years in the Cape, with some
variations.216 Early in the nineteenth century the Cape came under British rule,
but remained under Roman-Dutch law.217

In Dyason v Ruthven,218 one of the earliest South African cases dealing with the
extension of credit, the court looked at the laws of Holland as authority, in the
absence of specific local enactments or declarations.219 An examination of the

212
Otto and Grové 1991 19.
213
Grové 1989 8 and Grové and Otto 1991 18.
214
Hahlo and Khan 1973 324.
215
Hahlo and Khan 1973 330.
216
Ibid.
217
The Roman-Dutch law, in the Netherlands, then under French domination, was replaced by
the Napoleonic Codes (ibid).
218
3 Searle 282.
219
Watermeyer J expressed himself as follows: ‘I shall endeavour to state succinctly the rules
which appear to me to have guided the Courts of Holland in deciding questions of interest or of
42
laws of Holland turned the discussion to Roman law, which was viewed as
‘provid[ing] the most essential foundations of the “civilian tradition”’.220

As indicated, the South African common law is of Roman and Roman-Dutch

extraction. Thus, understandably, the first cases to deal with the question of
usury, as shown above, looked to these authorities in order to settle the common
law position. It is submitted that ‘awareness’ of the need for consumer protection
legislation to be put into place arose from the abuses and malpractices derived
from lending practises and charging on interest. Initially, according to common
law, usurious contracts were considered void.221 However, no certum modum
usurarum or stipulated common law maximum rate of interest was established222
(and still none exists).223 This is regulated by statute.224 Where an illegal rate of
interest has been stipulated, the maximum rate may still be recoverable.225 The
common law gives the courts the power to decrease excessive interest rates and
allow the remaining terms of the contract to be enforced.226

usury, and the foundation upon which these rules rested. In the absence of direct local
enactments absolutely fixing a rate of interest, the law which prevailed in Holland is our law’
(305).
220
Zimmermann 1990 167.
221
Sutherland v Elliot Brothers 1841 1 Menz 99, Dyason v Ruthven supra, Wessels stated: ‘The
practical difficulty is to determine when a contract is usurious and when not’ (The Law of Contract
in South Africa 2 21 1951 573).
222
Dyason v Ruthven supra, Reuter v Yates 1904 TS 835, per Wessels J in S.A. Securities v
Greyling 1911 TPD 352: ‘It is difficult for me to find any definite principle upon which a case of
usury has been or can be decided. I think the most you can say is that the transaction must show
that there has been extortion or oppression or something akin to fraud’. This case involved a
holder of a promissory note for £100, refusal to renew the note unless the promissor agreed to
pay £140 after 4 months. The court did not find any fraud, extortion or oppression and thus
ordered the payment of the £140.
223
Cf Structured Mezzanine Investment (Pty) Ltd v Dawids and Others 2010 6 SA 622 (WCC)
and Structured Mezzanine Investments (Pty) Ltd v Basson NO and Others (22732/2009) [2013]
ZAWCHC 63 (24 April 2013).
224
Section 105 of the National Credit Act as read with regulation 42 (GG 28864 of 31.05.2006).
Section 105 came into operation on the 1 June 2007. The Minister of Trade and Industry after
consulting with the National Credit Regulator may prescribe the maximum rate of interest
applicable to each subsector of the consumer credit market. Prior to its promulgation, the
maximum recoverable rate of interest was determined by the Usury Act 73 of 1968 (hereinafter
the ‘Usury Act’).
225
Spencer v The Merchant’s Credit Corporation 1933 WLD 69 and Wessels 2 21 1951 583.
226
Dyason v Ruthven supra and Reuter v Yates supra. The National Credit Act prescribes when
a credit agreement is unlawful, in which event despite any provision of common law or any other
legislation or any provision of an agreement to the contrary a court when finding a credit
agreement to be unlawful, must order the credit agreement void ab initio (section 89).
Furthermore, the Act prescribes what are to be considered unlawful provisions of a credit
agreement. In any credit agreement, a provision that is unlawful in terms of section 90 is void as
from the date that the provision purported to take effect. In which event a court must sever the
unlawful provision from the agreement, or alter it to the extent required to render it lawful, if it is
43
In Dyason v Ruthven227 both Roman and Roman-Dutch authorities were
analysed, in order to assess the South African common-law position with regard
to consumer credit protection in terms of interest rate charges. The action in this
case was instituted in order to recover ₤65 together with interest owed at 12
percent per annum. It was contended by the defendant that the plaintiff was not
entitled to contract or stipulate for interest at such an amount and that the law of
the Cape Colony (as it then was) permitted only 6 percent per annum.228 The
court looked at various Governmental resolutions and Placaats issued, to
establish whether the legal rate of interest at the time - as the defendant claimed
- was in fact 6 percent.229 Having reviewed the relevant Placaats, Resolutions,

reasonable to do so having regard to the agreement as a whole. Otherwise, the court may
declare the entire agreement unlawful as from the date that the agreement or amended
agreement took effect (section 89 (5)). A credit agreement which purports to charge an interest
rate which is higher than that prescribed by the Minister does not appear to fall under the list of
unlawful agreements as per section 90 of the Act. Such a term, if incorporated in a credit
agreement, would however, it is submitted, defeat the purposes and policies of the Act. It is
further submitted that a term in a credit agreement purporting to charge a rate of interest, for a
particular credit agreement, in excess of the rate allowable in terms of the regulations would be
an unlawful provision in terms of section 90 (2)(b)(iii) in that it would be a term purporting to set
aside or override the effects of section 105 of the Act. This section, however, does not specify the
sanctions in the event of non-compliance therewith. Furthermore, it is submitted that in such
instances the courts should take the approach taken by the courts before an interest rate was
legislatively stipulated and declare interest levied on a credit agreement by a rate higher than that
stipulated in section 105 to be unlawful. While the agreement as a whole need not be unlawful or
void, the clause dealing with interest should be altered to the extent required to make it lawful,
that is a recalculation of the contractual interest should be ordered. For a discussion on unlawful
provisions generally cf Otto and Otto 2013 54 – 57 and Otto JM ‘Statutêr Verbode Bedinge in
Kredietooreenkomste’ 2011 TSAR 38.
227
Supra 767.
228
Supra 282–3.
229
The 1793 Instructions to Notaries was held to be pertinent only to notarial instruments, and
even then did not render the instruments invalid if the 6 percent watermark was not adhered to.
The court noted that the stipulation of a higher rate of interest in a notarial bond might have had
adverse effects on the notary, such as suspension for example. The court examined the
directions issued to the Government Loan Bank in 1794, which stipulated that loans under 100 rix
dollars should be charged at 9 percent per annum and anything above that should be charged at
6 percent. In 1803 the rate was altered to a standard 5 percent per annum for all loans. In 1808 a
further change was made and that was to a rate of 6 percent. The court held that this was a
direction to the Bank and did not create an overseeing rate of interest in respect of the whole
Colony, and that in any event the rate had varied from 5 to 9 percent. No invariable rate had been
fixed (301). Ordinance 42 1828, regulating the Orphan Chamber also stipulated a 6 percent
interest rate, but was held to apply only to itself and not to affect the rest of the community. A
Placaat of 1743 declaring: ‘upon all obligations [...] made by parties before their departure for
India or return to Holland, from whatever nature they may arise, in no case shall more interest be
allowed than at the highest rate of 6 percent’, was held by the court to be referring only to special
matters regarding parties leaving Holland for India and thus did not affect the Colony as a whole
(302). In conclusion Watermeyer J stated that he did not doubt that the same government which
issued various restrictive Ordinances and Placaats, would have no difficulty in ‘fixing the price of
44
Decisions, Proclamations and Comments the court concluded that no law existed
in the Colony that stipulated a fixed amount of interest be charged in loan
contracts.230 Bell J, however, held that the dictum would not lead to the
conclusion that no law regulated what interest could be charged, whether
stipulated or not.231

In Reuter v Yates232 the case of Dyason v Ruthven233 was cited with approval
and it was emphasized that there was no fixed common-law rate that would
render a loan transaction usurious per se, but that illegal and excessive interest
would not be enforced.234

In SA Securities Ltd v Greyling235 Wessels J found the common-law view in this

regard rather vague and would not consider interest charged at 120 percent per
annum as usurious.236 Rather, he found that a usurious transaction should show
‘either extortion or oppression, or something akin to fraud’.237 It is submitted that
Wessels J’s difficulty with determining a ‘definite principle’ in this regard was

money, as they had no difficulty in fixing the price of sheep, corn, and wine’; accordingly, he
stated: ‘they have left us no enactment of the kind’ (312).
230
‘I am aware that many persons have entertained an opinion that an usury law is in operation in
this Colony, […]. This may have arisen from the circumstances, which I have already averted to,
i.e. that 6 percent has been the usual and accustomed rate of interest allowed by this Court, and
stipulated between lenders and borrowers of money. But law taken for granted often fails when its
sources are reached’ (291-292).
231
As per Bell J: ‘The question whether this or that rate of interest may be taken in any particular
case will be a question of circumstances of the case, and according to what may be found to be
the current market-rate of interest from information howsoever derived’ (supra 302).
Circumstances which the Court indicated should be taken into account when considering the
legality of an interest rate charged on a credit transaction, included (i) the interest rate agreed on
by the parties; (ii) the amount of money lent; (iii) the period of repayment; (iv) the security
furnished; (v) the risk attached to the loan; (vi) the market-rates at the time of loan; and (vii) the
parties’ particular circumstances in relation to each other (Otto and Grové 1991 20). Van
Leeuwen’s statement in this regard is also relevant: ‘Where, however, it has not been stipulated
and expressed how much, and how, interest should be paid, it is computed at so much as it is
usual to contract for, according to the custom of the country or place where the contract is made’
(SA Securities Ltd v Greyling supra 356).
232
1904 TS 855 859.
233
Supra.
234
Per Innes CJ: ‘The law of Holland prohibited excessive usury; and the courts of this country,
administering that law, will refuse to enforce contracts shown on due enquiry to be usurious and
extortionate in their nature. But our law does not define any particular rate of interest as being
necessarily usurious; it does not fix a limit up to which interest is legitimate and proper, and
beyond which it becomes illegal and excessive. That must depend upon the circumstances of the
case’ (856).
235
Supra 356.
236
Supra 358.
237
Ibid. In Taylor v Hollard 1888 2 SAR 78 85 the court concluded that where an excessive rate
of interest has been agreed to by the parties such rate could be lawfully reduced because it would
not be in the public interest to allow usurious rates.
45
demonstrative of the need for legislation to regulate this area of law. As will be
seen in the following section, legislation was indeed enacted, however, the scope
was much larger than the mere regulation of interest. The legislative intervention
covered a diversity of aspects of the consumer-provider relationship.

Aronstam,238 writing in 1979 on legislative control relative to consumer protection,

made the following comment:

Generally speaking, one may remark that the lack of common-law shield in South
Africa to protect the abused consumer has led the legislature to attempts to
provide one. This shield has, in the main, been constituted out of new material.
The legislation, in other words, does not tend merely to codify the common law.
This is not in itself undesirable; there are a number of advantages attaching to a
wise legislative control of abuse. Parliament is not bound by any rules of
precedent or court procedure. It is able to intervene directly in any case of abuse,
whereas a court has to wait for litigation. Legislation can be used to regulate all
areas of contractual activity, and all would be well if it were done wisely.
Moreover, legislative remedies constitute, obviously, a useful tool for the
prevention of future abuses.

2.3.2 Legislation

Instances where persons borrow money or receive credit are rife with striking
examples of some of the problems that arise when inequality in the bargaining
process is present.239 Credit legislation protects consumers who borrow money,
buy or hire goods on credit or who obtain services on instalments.240 It is patent
that there is a need for credit transactions in the modern commercial environment
and that credit may be beneficially used; for example, by a borrower who uses
credit to bridge the gap between spending and receipt of income, or it may permit
him to purchase necessary items, at prices in excess of what is de facto
sanctioned by his own earnings and/or savings.241 However, a prospective credit
consumer may not always be seeking credit for luxury uses – often times he may
need the money urgently for some other reason, for instance, to cope with an

238
1979 47.
239
Aronstam 1979 64.
240
Otto LAWSA 1986 volume 24 paragraph 106. Once the Supreme or Constitutional Court
interepret the common law or legislation and make a finding, such ruling applies to all activities
and even to matters currently at court. Whereas legislative intervention is usually applicable to
future activity and then will still have to be subject to interpretation by the courts.
241
Aronstam 1979 64.
46
unforeseen emergency. And by virtue of such a dire need – he may be placed in
a disadvantageous bargaining position, where he may be prepared to accept any
contractual term imposed on him. Furthermore, in many instances credit
consumers are not wealthy individuals, often without immovable property or
assets to use as security for debt and with very low standards of education. The
following reflects a correct extrapolation of ground level reality:242

People with small earnings may find themselves incapable of making repayments
because of their inability to deal with unforeseen changes in their financial
circumstances. Lenders who are aware of this often take advantage of this
weakness. [...] People who live in poverty or near poverty are often tempted to
enjoy the material pleasures of prosperity so obviously enjoyed by the wealthy in
society. The consumer who is poor is exposed just as much as his rich
counterpart to the blandishments of press and radio advertising that seek to
persuade all to acquire the ‘essential’ of prosperity. [...] It is not surprising,
therefore, that such persons often incur debts they can never hope to repay. Nor
is it surprising, therefore, that persons who do grant credit facilities to such
borrowers’ attempt, by means of harsh penalties and security over the borrowers’
goods, to secure the money that they have lent or credit that they have granted.

It is precisely against the background of abuses by credit providers of the poor,

uneducated or needy borrowers that consumer protective legislation began to be
introduced, globally and also in South Africa.243 Statutes protecting and
regulating the credit relationship have been correctly described as ‘international
phenomena, which differ from country to country depending on each country’s
needs, circumstances, resources, political agenda, economic philosophy and

242
Aronstam 1979 65.
243
The South African legislature has generally waited for other countries to legislate before
following suite, many countries promulgated credit legislation much earlier than South Africa (Otto
in Scholtz 2014 paragraph 1.3.2). England for example, enacted its first consumer credit
legislation in the ninth century, while the United States passed its first legislation in the eighteenth
century (Grové 1989 80 and 91). England has appeared to be the forerunner as far as credit
legislation is concerned: in 1974 it passed the Consumer Credit Act 39 of 1974. The various
Australian states promulgated legislation in the mid-1980s and with the promulgation of the
European Union Directives on Consumer Credit in 1986 (CD 87/102/EEC of 22 December 1986
as amended by CD 90/88/EEC of 22 February 1990) – a flood of consumer credit legislation
swept through Europe in the 1990s. Bülow lists 17 European countries that passed legislation
following the EEC Directive (Heidelberger Kommentar zum Verbraucherkredietrecht 19 and Otto
in Scholtz 2014 1-4). However, Europe has seen a new scramble of national legislation to
accommodate the latest directive (2008/38/CE).
47
history of the particular country’.244 Regional trading and considerations of
uniformity may also play a role, Europe providing an accessible example.245

Due to the need to protect poor, uneducated and needy borrowers, credit
legislation often covers only those contracts which extend credit to a certain
‘ceilinged’ amount.246 Credit extended above this amount no longer falls within
the parameters of the legislation and the relationship, terms and conditions
between the provider and receiver are determined partly through their contractual
affiliation and partly through the common law. Of course, not all credit legislation
adheres to these norms and differs from country to country. South Africa,
however, fell in line with this pattern and it was in 1926 that Parliament
introduced the Usury Act.247 The 1926 Usury Act was the first national consumer
legislation passed in South Africa.248 Prior to this Act the various colonies
regulated their own consumer legislation.249 There was, however, a period
where neither statutory nor common-law controls existed.250 Both Natal and the
Free State Law Books read that people were entitled to demand as much interest
as they deemed fit.251 The Cape Colony, from 1909, had the Usury Act, 1908252
which applied to moneylending transactions but did not incorporate business
transactions and allowed different rates according to different amounts lent.253
Anyone requesting or exacting more than was allowed by that Act was guilty of
an offence, and could be ordered by a court to pay the extra interest back to the

244
The EEC directive of 1986.
245
The EEC directive of 1986 leading to the European member states passing new credit
legislation in the 1990s, with shared common principles being a prime example (Otto ‘The EEC
Directive on Consumer Credit: a Model for Southern Africa?’ 1996 SALJ 297).
246
Or sometimes to the type of consumer, for example, credit legislation may apply to any natural
persons but not to all juristic persons, as with the National Credit Act and the Consumer
Protection Act.
247
Act 37 of 1926 (hereinafter the ‘1926 Usury Act’).
248
Otto and Grové 1991 24. It must be noted that at first the Act did not create complete
homogeneity, whereas both the Free State and Cape Colony repealed their laws to make way for
the 1926 Act, Natal did not. Natal only conformed in 1967 with the Pre-Union Statute Law
Revision Act 78.
249
Grové 1989 132.
250
Ibid.
251
Free State Law Book and Act 6 of 1858 (Van Zyl FH ‘n Kritiese Evaluering van die Wet op
Beperking en Bekendmaking van Finansieringskoste LLM Dissertation 1984 7, Otto and Grové
1991 22 and Working Paper 46 1993 22-29).
252
Act 23 of 1908.
253
Cf section 5 of the Usury Act, 1908
48
debtor.254 The Act further extended to sale transactions where interest could be
charged on amounts outstanding.255 For the first time various disclosure
requirements were legislatively stipulated.256 These are what have been termed
first generation consumer credit legislation, the main feature of which was the
autonomy of the colonies.257

The 1926 Usury Act prescribed a maximum fixed interest rate.258 This rate
varied according to the principal amount loaned.259 Any person exacting more
than the prescribed rate was found guilty of an offence and held liable for a fine
not exceeding ₤100.260 The Act was not applicable to banks,261 hire-purchase
contracts262 and to commercial transactions where a moneylender was not a
party to the contract.263 The moneylending agreement had to be in writing and
the Act prescribed various other conditions regarding the form and content of the
agreements.264 This Act did not, however, prescribe any particular procedure to
be followed by a credit provider who wished to issue summons following a
breach of contract by the consumer. It is submitted that the common law on
breach and recovery regulated this process.265

In 1967 the Minister of Finance appointed a committee known as the Franszen

Committee headed by Dr Franszen to consider the 1926 Usury Act, and suggest
possible improvements.266 The committee’s main areas of focus were: how to
impose maximum prescribed interest rates; whether the 1926 Usury Act should
apply to hire-purchase and leasing agreements; and, if so, what rates should be
charged in regard to these transactions and finally, whether the credit grantor

254
Cf section 6 of the Usury Act, 1908.
255
Cf section 16 of the Usury Act, 1908, Otto and Grové 1991 23 and Working Paper 46 1993 22-
29.
256
Cf section 3 of the Usury Act, 1908 and Otto and Grové 1991 24.
257
Otto and Grové 1991 24.
258
Section 2 of the 1926 Usury Act.
259
Section 2 of the 1926 Usury Act.
260
Section 1 (2) of the 1926 Usury Act.
261
Section 14 (3) of the 1926 Usury Act.
262
Section 14 (2) of the 1926 Usury Act.
263
Section 14 (4) of the 1926 Usury Act.
264
Cf section 5 of the 1926 Usury Act.
265
Cf Chapters 5 and 6 for discussions on breach and remedies in terms of the common law.
266
First Franzsen Report (Report of the Committee of Inquiry into the Usury Act (Chairperson D
G Franzsen) (1967) GP 11/1968) and Second Franzsen Report (Report of the Committee of
Inquiry into the Usury Act (Chairperson D G Franzsen) (1977)).
49
should be obliged to furnish the credit receiver with information regarding the
total cost of the loan (interest and all other sundry charges thereto related). The
report was extensive and shortly thereafter the Limitation and Disclosure of
Finance Charges Act267 was passed,268 thereby repealing the 1926 Usury Act.269
The Limitation and Disclosure of Finance Charges Act was drastically amended
in 1980270 and on various occasions thereafter.271 In 1986 it was once again
renamed the Usury Act.272 In 1992 the first micro loan exemption, under the
Usury Act, was published exempting loans under R6000 from interest rate
ceilings;273 with the Usury Act Exemption of 1 June 1999 exempting loans under
R10 000 from interest rate ceilings where the repayment period did not exceed
36 months, where such credit was not advanced by credit card or overdraft.274
Once again the 1968 Usury Act as amended did not purport to regulate the
procedure to be followed by a credit provider when faced with breach of contract
by the consumer, the common law remained the ruling force.

The 1926 Usury Act did not cover finance for the purchase of goods on credit,
better known as hire-purchase contracts.275 It regulated only moneylending
transactions. This is why, in 1942, the Hire-Purchase Act276 was brought into
force. The two Acts affected different transactions.277 The Hire-Purchase Act
was passed in order to protect consumers who purchased goods in this way.278

267
Act 73 of 1968 (hereinafter the ‘1968 Usury Act’).
268
The purpose of this Act, according to its preamble, was to provide for the limitation and
disclosure of finance charges levied in respect of moneylending and credit transactions and to
deal with matters incidental thereto. The term ‘interest’ was replaced by the term ‘finance
charges’, an attempt to provide an all-embracing concept in order to attempt to prevent its
circumvention (Otto 16 1 Fundamina 2010 261).
269
The new Act did not replace the Hire-Purchase Act (Otto and Grové 1991 27).
270
By Act 90 of 1980.
271
By the Limitation and Disclosure of Finance Charges Amendment Act 42 of 1986, the General
Law Amendment Act 49 of 1995 and the Usury Amendment Acts 62 of 1987, 100 of 1988, 91 of
1989, 67 of 1990, 30 of 1993, 81 of 1995 and 10 of 2003.
272
By section 9 of Act 42 of 1986.
273
GN 3451 of 31 December 1999. Capitec was founded in 2001. With African Bank being
renamed in 1999.
274
This led to large scale unsecured lending in South Africa, for example through the likes of
Capitec and African Bank.
275
Otto and Grové 1991 24. It is interesting to note that the supply of goods or services on credit
is not considered to constitute a loan in England (Goode RM Consumer Credit Law and Practice
April 2014 paragraph 1.8).
276
36 of 1942 (hereinafter the ‘Hire Purchase Act’).
277
Otto and Grové 1991 24-26.
278
The contract of hire-purchase was not found in Roman-Dutch law. As a substantive form of
contract it was only implemented in the commercial world in the middle of the nineteenth century
50
The Hire-Purchase Act was described as an example of many attempts made by
the legislature to protect those whom it regarded as incapable of protecting
themselves.279 The hire-purchase contract fulfilled a social and economic need
and legislatively filled a gap in the common law.280 It was viewed as a relatively
simple piece of legislation which protected purchasers and certain lessees of
movable goods against certain provisions in contracts, by limiting the rights of the
sellers and by curtailing the cancellation of contracts.281 The Act, however,
covered only a small number of transactions and this, coupled with rapid
developments in commerce, led to its replacement by the Credit Agreements Act
of 1980282 which had a far wider scope.

The Credit Agreements Act covered sales and leases of movable goods but had
a higher ceiling of application. Whereas the Hire-Purchase Act applied to
contracts where the purchase price was not in excess of R4 000, the Credit
Agreements Act applied to contracts where the cash price was up to
R500 000.283 In terms of the Hire-Purchase Act, a creditor was not entitled to
enforce any provision in the agreement for the payment of any amount as

in Europe (Otto Die Regte van ‘n Huurkoper t o v Beëindiging van die Kontrak LLD Thesis 1980
5). A variety of factors led to an enormous growth in the hire-purchase trade, but it was not until
the end of the nineteenth century that the hire-purchase contract was put to use in South Africa
(Van Waasdijk Hire Purchase Credit 24). Interestingly enough, the first legislation known to deal
with hire purchase was the German Act of 1894; many other countries such as Austria, France,
the Scandinavian countries and Switzerland soon followed suit (Otto 1980 14).
279
Diemont and Aronstam 1982 1.
280
In Roman-Dutch law, in a cash sale, ownership in the merx is transferred against delivery of
the thing and simultaneous payment of the price. In a credit sale ownership is transferred by
delivery (Eriksen Motors v Protea Motors 1973 3 SA 685 (A)). Thus a seller would lose his most
important form of security – dominium. This was solved by incorporating a pactum reservati
dominii in credit agreements. In terms of which the purchaser receives delivery, pays the price in
instalments but only becomes owner of the goods once he has fulfilled his obligations in terms of
the contract. This type of financial agreement became known as the hire-purchase agreement
(Kennedy v Botes 1979 3 SA 836 (A), AA Farm Sales (Pty) Ltd v Kirkaldy 1980 1 SA 13 (A) and
Otto 16 1 Fundamina 2010 262).
281
Otto 16 1 Fundamina 2010 264.
282
75 of 1980 (hereinafter ‘Credit Agreements Act’).
283
Otto Credit Law Service 1991 paragraph 6. The Sale and Service Matters Act 25 of 1964,
previously known as the Price Control Act also played a role in the consumer credit protection
realm, as certain conditions pertaining to credit agreements were promulgated under this Act (GN
R722 and R723 Government Gazette 2137 of 11 April 1975). However, these were repealed (GN
R430 Government Gazette 3147 of 27 February 1981) and similar regulations promulgated under
the Credit Agreements Act. The Price Control Act conferred on the (then) Minister of Economic
Affairs and the Price Controller the power to regulate prices at which goods could be sold and to
determine the terms and conditions of sale. The Price Controller was given power, in terms of
section 9 of that Act, to make regulations relating to the terms and content of conditional sale
contracts. His powers thus extended to hire-purchase and credit agreements (Diemont and
Aronstam 1982 352).
51
damages, or for any forfeiture or penalty, or for the acceleration of the payment
of any instalment, unless he had made written demand providing no less than ten
days within which the consumer could remedy the default and the consumer
failed to do so.284 In terms of the Credit Agreements Act, the credit provider was
not, when faced with a breach by the consumer, entitled to claim the return of the
goods to which the credit agreement related unless the credit provider had in
writing notified the consumer that he had so failed and required him to comply
with the obligation in question within such period, being not less than thirty days
after said notification, and the credit receiver had failed to comply with such
requirement: Provided that had the consumer failed on two or more occasions to
comply with obligations in terms of any credit agreement and the credit provider
had given notice as aforesaid, the said period was reduced to fourteen days.285

There was some overlap between the Usury Act and the Credit Agreements Act,
although there were also important distinctions between the two, and the Acts
had to be applied jointly to credit transactions.286 This arrangement made the
area of consumer credit ‘an extremely difficult and confusing environment’.287

This fragmented approach to credit protection was to set a trend that remained in
vogue until the Consumer Credit Bill was published and subsequently the
National Credit Act, passed in 2005 as Act 34 of 2005 and assented to by the
President in 2006 by Government Notice 230 in Government Gazette 28619 of
15 March 2006. The National Credit Act contains 173 sections with 3 schedules.
The regulations were published in the first half of 2006 in GN R489 Government
Gazette 28864 of 31 May 2006 and were amplified and amended by GN R949
Government Gazette 29 245 of 2 September 2006, GN R1209 Government
Gazette 29 442 of 30 November 2006, GN 789 Government Gazette 30225 of 28
August 2007, GN 713 Government Gazette 28893 of 1 June 2006 and GN R362
Government Gazette 35 327 of 10 May 2012. The Act came into operation in a
piecemeal fashion, apparently to give creditors an opportunity to get their

284
Cf section 12 (1)(b) of the Hire-Purchase Act.
285
The section 11 notice of the Credit Agreements Act is discussed in greater detail in Chapters 4
and 5.
286
Cf the following chapter for a discussion on both of these Acts.
287
Otto in Scholtz 2014 paragraph 1.3.3.
52
financial systems, contracts, documents and other forms into place and to
register as credit providers.288 Various parts of the Act came into force on 1 June
2006, others on 1 September 2006 and yet others on 1 June 2007.289 The
National Credit Act 19 of 2014 was published in Government Gazette 37665 of
14 May 2014 and at the time of writing the Act has not come into force.

The various credit areas, namely the purchase of goods or services on credit,
leasing of goods or services on credit, money loans and the alienation of land on
credit had up until 2005 been governed by separate acts: the Credit Agreements
Act, the Usury Act and the Alienation of Land Act.290 The National Credit Act
repealed both the Credit Agreements and Usury Acts in an attempt to implement
current, cohesive and effective legislation. Although affected by the National
Credit Act, the Alienation of Land Act is still in force today. Schedule 2 of the
National Credit Act provides that the provisions of the Act enjoy preference over
the provisions in Chapter II of the Alienation of Land Act.291 The result is that the
two Acts will apply jointly with the National Credit Act taking preference when
conciliation between the two Acts is not possible. Examples of such differences
are the provisions dealing with prohibited terms in contracts292 and with the
provisions dealing with the termination and enforcement of contracts.293

288
Otto and Otto 2014 8.
289
For a detailed summary cf Otto and Otto 2013 8-10.
290
Act 68 of 1981 (hereinafter ‘Alienation of Land Act’).
291
The sale of immovable property on instalments is another form of credit common to the
modern economy. In 1973, the sale of land on instalments became regulated by the Sale of Land
on Instalments Act 72 of 1971 (Otto and Grové 1991 28). This Act was dubbed ‘a failure’ (Otto in
Scholtz 2014 paragraph 1.3.4) and described as ‘ill-conceived, theoretically unsound and poorly
drafted’ (Van Rensburg ADJ and Treisman SH The Practitioner’s Guide to the Alienation of Land
Act 1984 1). Usually the contract in such agreements for the sale of land provides that the seller
shall retain ownership until the final instalment is paid. The Sale of Land on Instalments Act was
amended on various occasions but even in its amended version, could simply not resolve the
many problems which arose in the property market in the 1970’s with regards sale of land on
credit. This Act was therefore subsequently replaced by the Alienation of Land Act. The Alienation
of Land Act was perceived a much better Act it being the result of many bills, commentaries and
recommendations (Otto and Grové 1991 28).
292
Section 15 (1) of the Alienation of Land Act and section 90 (2) of the National Credit Act.
293
Section 19 of the Alienation of Land Act and section 129 and 130 of the National Credit Act
(Van Rensburg De Rebus 1981 584 and Otto in Scholtz 2014 paragraph 1.3.4). This is somewhat
of an ineffective manner of drafting legislation, especially given that the National Credit Act
replaced a legislatively fragmented area of law. One would have expected the new legislation to
have been comprehensive. To still have various legislative enactments regulating one area of law
simply results in confusion and either ends with costs (of litigation) being downloaded onto the
consumer, as it will be the consumer who will need to clarify the confusion while seeking to
53
Thus the credit legislation in South Africa has in the last eight years been almost
completely revamped. The National Credit Act bringing with it a fresh set of rules
by which consumers and providers must abide by. This has led to quite a
number of cases being brought to the courts in order to iron out certain
discrepancies and interpretational difficulties in the Act, not least of all in relation
to the remedies available to the creditor when faced with a breach of the
agreement by the credit consumer. By studying the movements in history, not
only of legislative intervention but of judicial trends one can see the direction that
the pendulum is swinging. For example, the more the courts distance
themselves from declaring a common law ceiling rate, the more the legislature
will have to regulate this area of law. It is submitted that with the latest spate of
cases on this matter,294 it would be of no surprise if the legislature brought out
legislation to ceiling the amount of interest that may be charged by persons or
institutions to persons who do not fall under the protection of the National Credit
Act. It is submitted, however, that whilst a slower trend to legislate the remedies
available to the credit provider in the event of breach by the consumer, now long
established in the common law, will be notable, codifications of the procedure
which the credit provider is obliged to respect before he may institute action
against the consumer is now well entrenched in the credit legislative culture. It is
further submitted that such procedures will keep being regulated through
legislative enactments well beyond the promulgation of the successor of the
National Credit Act.

2.4 European Union

Since South African law of contract is a mixed legal system partly founded on the
civilian tradition and partly on the common law one,295 the historical development

protect his rights, or more detrimentally in people just ignoring the rules or opting to use the
‘easier’ legislation.
294
Structured Mezzanine Investment (Pty) Ltd v Dawids and Others 2010 6 SA 622 (WCC) and
Structured Mezzanine Investments (Pty) Ltd v Basson NO and Others (22732/2009) [2013]
ZAWCHC 63 (24 April 2013).
295
This was due to the fact that a civil law system based on Roman-Dutch law was already well
established by the time of the British occupation at the end of the eighteenth century and thus
54
of these two systems, using the jurisdictions of Italy and England as respective
examples, will be briefly examined against the context of the European Union in
order to induce a better understanding of the concept of the credit agreement
against its background setting.296

The European civil tradition is a milieu of multifarious influences. It is,

historically, a product of Roman law, sixteenth century natural law scholastic
influence and the nineteenth century influence of the so-called ‘will theory’ on
contract law.297

In broad terms, in Roman law, the enforceability of a contract depended on its

category.298 Contracts were binding because there was consent,299 delivery,300 a
formality had been carried out301 or because they did not fall in any of the above
three categories and were informal promises to barter, known as innominate
contracts.302 Initially Roman jurists did not explain these distinctions in theory but
were only concerned with the practicalities of working out the rules.303 In
medieval times in much of continental Europe where there was no local statute or

South African law became enhanced rather than replaced by the English common law rules and
principles (Cartwright P Contract Law: An Introduction to the English Law of Contract for the Civil
Lawyer 2007 9).
296
The following is an interesting justification as to the dynamic between comparative law and
legal history: ‘The relationship between comparative law and legal history is surprisingly complex.
At first sight one is tempted to say that while comparative studies legal systems coexistent in
space, legal history studies systems consecutive in time. But there is more to it than that. For one
thing, all legal history involves a comparative element: the legal historian cannot help bringing to
the study of his chosen system, say Roman law, the various preconceptions of the modern
system he is familiar with; thus he is bound to make comparisons, consciously if he is alert,
unconsciously if he is not. Again, unless the comparatist is content merely to record the actual
state of play, he really has to take account of the historical circumstances in which the legal
institutions and procedures under comparison evolved’ (Zweigert K and Kötz H Introduction to
Comparative Law 1998 8).
297
Gorderly J The Enforceability of Promises in European Contract Law 2001 2-10.
298
Gorderly 2001 4. Roman law has been examined in greater detail in paragraph 2.2 infra.
299
Contracts consensu, which included sale, lease, partnership and mandatum.
300
Contracts re or ‘real contracts’, which included loan of goods gratuitously for consumption
(mutuum) or use (commodatum), the pledge of goods (pignus) or to deposit them gratuitously for
safekeeping (depositum).
301
Large gifts required a document describing the gift executed before witnesses and officially
registered (insinuatio) and stipulatio was an all-purpose formality which could be used to make
almost any promise binding.
302
Gorderly 2001 2.
303
Ibid.
55
custom and Roman law became a type of substitute law.304 While some found
them puzzling,305 the medieval jurists preserved these distinctions.306

In the sixteenth century a group of philosophers and jurists referred to as late

scholastics or Spanish natural lawyers, attempted to incorporate philosophical
Aristotelian and Aquinian theories with the Roman law.307 These jurists were the
first to look for theoretical justifications of the Roman rules.308 They explained
contract law in terms of three Aristotelian virtues: fidelity, liberality and
commutative justice.309 In time the views which the late scholastics ascribed to
natural law became accepted as positive law and most progressively innominate
contracts became enforceable.310 By the eighteenth century this view had
become widely accepted.311 However, by the nineteenth century the contract
theories of the late scholastics and natural lawyers were replaced by, what
became known as, ‘will theories’, where a contract would be defined in terms of
the will of the parties.312 Consequently, the principle that contracts are binding
on consent was now understood to imply that whatever the parties willed was to
be enforced.313

304
Ibid.
305
Cf Iacobus de Ravanis Lectura Super Codice (published under the name of Petrus de
Bellapertica) (Paris, 1519, repr. Opera Iuridica Rariora vol 1 Bologna 1637, C 4 64 3).
306
Gorderly 2001 3.
307
Gorderly 2001 4. Bix posits that the best known ancient formulation of a natural law position
was offered by the Roman orator Cicero, although he admits that Cicero, together with many
writers on Roman law, was strongly influenced by the works of Greek Stoic philosophers
(Jurisprudence: Theory and Context 2003 66).
308
Ibid.
309
Gorderly 2001 4.
310
Ibid.
311
Gorderly 2001 4 and 7.
312
Gorderly 2001 7. A very influential natural law thinker whose work emphasises ‘will’ when
analysing natural moral law, is Francisco Suárez. Though Grotius did not share Suárez’ focus on
‘will’ he was greatly influenced by his writings (Bix 2003 70-1). The following from Harker is
noteworthy: ‘Individual freedom and the corollary freedom to contract were seen as the insignia of
civilized society: the idea was that individuals should be free to regulate their affairs by entering
into contracts which were beneficial alike to themselves and to society. Contractual justice during
this period and, indeed, up until the mid-twentieth century was seen almost solely as a question
of procedural justice. Proivided that the law ensured that the agreement was entered into freely
and voluntarily by adults of competent understanding, it was believed that the ensuing contract
would be substantively just also’ (‘The Role of Contract and the Object of Remedies for Breach of
Contract in Contemporary Western Society’ 1984 101 SALJ 121 123).
313
Ibid.
56
European law as we know it today, in the form of the various directives, was not
known until relatively recently. The unifying law of Europe was Roman law,
which influence was strongly felt in the Middle Ages.314 It was, however, only in
the twentieth century when the broader concept of creating a liberal market in
Europe through the establishment of equality of laws, developed and thus the
concept of a European Union came to fruition.

The principles of European contracts are the product of work that was carried out
by the Commission on European Contract law, a body of lawyers drawn from all
the Member States of the European Community.315 They were inferred as a
response to a need for a community-wide infrastructure of contract to consolidate
the rapidly expanding volume of community law regulating different types of
contracts in Europe.316 However, a bigger ideology preceded this collaboration
and that is the concretisation of Europe as a community and thereafter as a
union.317

In 1992 it was agreed at Maastricht to create a European Union,318 of which the

European Community, first established by the Treaty of Rome in the 1950s,319
would form part.320 The European Union321 finds its roots in a broader concept –
the ‘European Community’. Initially, there were three European Communities:
the first of these was formed in 1952 and was the European Coal and Steel
Community; the second and third were created in 1958 by the Treaties of Rome
314
Cf paragraph 2.2 infra for a detailed discussion on the history and influence of Roman Law.
315
Olando O and Beale H The Principles of European Contract Law Part 1: Performance, Non
Performance and Remedies Part 1 1995 XV.
316
Ibid. For an interesting discussion on consumer contract law and contract law in the European
Union cf Grundmann S The Architecture of European Codes and Contract Law 2007 16-17.
317
Olando and Beale 1995 XV.
318
Treaty of Maastricht 7 February 1992.
319
The Treaty of Rome was agreed in 1957 and came into force in 1958, the Treaty of Maastricht
on 7 February 1992. The Treaty of Lisbon amends these two treaties which comprise the
constitutional basis of the European Union. The Lisbon Treaty was signed by the European Union
member states on 13 December 2007, and entered into force on 1 December 2009. It amends
the Treaty on European Union (Maastricht Treaty) and the Treaty establishing the European
Community (Treaty of Rome) (Weatherhill S EU Consumer Law and Policy 2005 1).
320
Weatherhill 2005 1-2. The reasons and benefits for a formulation of principles of contract law
within Europe are many, some of these, in relation to consumer credit, are explored in Chapter 3.
It is submitted that the broader objective of creating a liberal market in Europe and creating
equality of laws applicable to consumers contracting in different European countries (see the
Preamble of the Directives on Consumer Credit) is as applicable to laws relating to general
commerce as it is to consumer credit.
321
Hereinafter ‘EURATOM’.
57
and were the European Economic Community and European Atomic Energy
Community.322 The largest and most influential of these was the European
Economic Community which was concerned with economic integration across all
economic sectors and to achieve a political restructuring of the European
continent.323 The European Economic Community’s ambitions were powered by
a treaty that gave it the muster to possess its own institutions and adopt
legislation in those areas that had been transferred to it from national areas.324
Thus the vision of economic integration was to be realised through the
application of legal rules.325 The Treaty of Rome was not significantly amended
until 1987 when the Single European Act326 came into force.327 The vision was to
secure the completion of an internal European market by 1992.328 The pattern of
consumer protection policy in Europe was altered with the entry of the Treaty on
European Union on 1 November 1993.329

In 1991 the Member States of the European Community meeting in Maastricht in

the Netherlands agreed on the restructure of the European Community in a
Treaty on European Union.330 The Treaty advocates a ‘common market’ with a
view to the free circulation of the factors of production; that is the ‘four freedoms’
as the cornerstone of the notion of the common market: free movement of goods,
persons, services and capital.331 The ideal was to lose individual State
independence over trade policy and create a common external commercial
policy.332 The treaty on European Union was followed by the Treaty of

322
Howells GG and Weatherhill S Consumer Protection Law 1995 100.
323
Ibid.
324
Ibid.
325
Howells GG and Weatherhill S 1995 100
326
Hereinafter ‘SEA’.
327
SEA’s main purpose was to set a deadline for the creation of a full single European market by
1992. It also created deeper integration by making it easier to pass laws, strengthening the
European Union Parliament and laying the basis for a European foreign policy
(http://www.civitas.org.England/eufacts/FSTREAT/TR2.htm) (27.05.2010). Article 100a of SEA
permitted the adoption by majority vote of measures required to secure the completion of an
internal European market by the end of 1992 (Howells and Weatherhill 1995 80 and Cuthbert M
Nutshells European Union Law 2006 1).
328
Howells and Weatherhill 1995 100.
329
Howells and Weatherhill 1995 101 and Cuthbert 2006 1.
330
The Treaty came into force on 1 November 1993.
331
Howells and Weatherhill 1995 101.
332
The theory behind these goals was that removal of borders would create increased
competition – generating wider consumer choice; ideally with higher quality goods and services.
With production runs being extended allowing for more efficient use of plants and thus lowering
costs of production (Howells and Weatherhill 1995 82).
58
Amsterdam, 1997, the Treaty of Nice, 2001 and the Treaty of Lisbon, 2007.333
Critical to such amalgamation was the European Court of Justice, which was
renamed the Court of Justice of the European Union with the Lisbon Treaty,334
which consistently tried to interpret the law, in cases of doubt, in a manner
conducive to integration.335 For example, in the Cassis de Dijon336 case the
Court insisted that European Community law could be enforced at national level
– the principle of direct effect337 – and further that the European Community law
should be applied by national courts in preference to any conflicting national law
– the principle of supremacy.338 The Court was of the view that without such
principles the system of integration envisioned by the Treaty would not come to
fruition.339 Thus the rulings of the Court of Justice of the European Union340
empowered individuals to enforce their rights at national level by challenging
public authorities in national courts.341

In 1987 the European Commission enacted a Directive342 approximating the

laws, regulations and administrative provisions concerning consumer credit.343
This Directive placed emphasis on information provisions, contained rules
requiring the supervision of creditors, restricting creditor’s remedies, allowing for
rebate if credit is repaid ahead of time and introducing a limited form of
connected lender liability for the quality of goods supplied.344 The Directive was

333
Rott in Goode Consumer Credit Law and Practice 2014 paragraph 121.2.
334
Rott in Goode Consumer Credit Law and Practice 2014 paragraph 121.3.
335
For an in depth study of the influence and importance of the courts cf Alter KA Establishing the
Supremacy of the European Law 2001, where besides examining the influence of the courts, she
argues that it was by enforcing European law through the national courts which helped to create
an international rule of law in Europe.
336
Formally known as Rewe Zentrale v Bundesmonopolverwalting für Branntwein Case 120/78
1979 ECR 649.
337
Van Gend en Loos Case 26/62 1963 ECR 1.
338
Costa v ENEL Case 6/64 1964 ECR 585.
339
Ibid.
340
Article 177.
341
Howells and Weatherhill 1995 85.
342
Directive 87/102/EEC for the Approximation of the Laws, Regulations and Administrative
Provisions of the Member States Concerning Consumer credit OJ 1987 L 42/48 (hereinafter the
‘1987 Directive’).
343
Howells G and Weatherhill S Consumer Protection Law 2005 297. Goode Consumer Credit
Law and Practice 2014 paragraph 121.4.
344
Howells and Weatherhill 2005 298.
59
a minimal harmonisation directive, in that it did not preclude Member States from
retaining or adopting more stringent provisions to protect consumers.345

The Directive was amended by Directive 90/88/EEC,346 to introduce a common

method of calculating the annual percentage rate of interest.347 In April 2008 a
new Consumer Credit Directive348 was adopted by the European Parliament and
the Council of the European Union. The 2008 Directive repealed Directive
87/102/EEC and Member states had to adopt the regulations laid down therein
into their national laws before 12 May 2010.349 An analysis of the national laws
transposing the 1987 Directive, as amended, showed that Member States used a
variety of consumer protection mechanisms, in addition to the 1987 Directive, on
account of differences in the legal or economic situation at national level.350 The
de facto and de jure situation resulting from those national differences in some
cases led to distortions of competition among creditors in the European
Community and created obstacles to the internal market where Member States
adopted different mandatory provisions more stringent than those provided for in
the 1987 Directive.351 It restricted consumers' ability to make direct use of
gradually increasing availability of cross-border credit.352 Those distortions and
restrictions were seen to have the potential to threaten the demand for goods
and services.353 In the years leading up to the 2008 Directive, types of credit
offered to and used by consumers evolved considerably and new credit
instruments appeared.354 The European Parliament saw it fit to therefore amend
existing provisions and to extend their scope, where appropriate. Accordingly, it
was found that ‘full harmonisation’ was necessary in order to ensure that
consumers received equivalent levels of protection of their interests in order to

345
Article 15 of the 1987 Directive.
346
Council Directive of 22 February 1990 Amending Directive 87/102/EEC for the Approximation
of the Laws, Regulations and Administrative Provisions of the Member States Concerning
Consumer Credit 90/88/EEC OJ 1990 L 61/14.
347
Ibid.
348
Council Directive 2008/48/EC L 133/66 of 23 April 2008 on Credit Agreements for Consumers
and Repealing Council Directive 87/102/EEC. The 2008 Directive for Consumer Credit became
effective on June 2010 (hereinafter the ‘2008 Directive’).
349
Article 27(1) of the 2008 Directive.
350
2008 Directive Preamble paragraph 3.
351
2008 Directive Preamble paragraph 4.
352
Ibid.
353
Ibid.
354
2008 Directive Preamble paragraph 5.
60
create a genuine internal market.355 In terms of the 2008 Directive, Member
States are not allowed to maintain or introduce national provisions other than
those laid down in the 2008 Directive.356 In 2010 the Consumer Credit (EU
Directive) Regulations 2010357 were promulgated in order to assist in the
implementation of the 2008 Consumer Credit Directive.

Both England and Italy are member states of the European Union and therefore
their laws must comply with the harmonisation provisions of the 2008
Directive.358 In areas which it covers, European Union law must take precedence
over English and Italian law.359 It is against this background that the history of
these two jurisdictions is examined below.

2.5 England

Although the term ‘common law’ extends beyond only English law, as many other
legal systems, most particularly South Africa, use this term – it has been
submitted that the origin of the ‘common law’ is found in England and that other
modern ‘common law’ legal systems trace their genealogy historically to their
roots in English law.360 In its narrowest sense the term ‘common law’ means that
law which is found in or traced back to the decisions of a particular group of
courts, known as the King’s courts or the common law courts, that existed in
England from the early middle ages to the late nineteenth century.361 Another
meaning, however, which is ascribed to the term ‘common law’ is that law which

355
2008 Directive Preamble paragraph 9.
356
It is to be noted that such restriction only applies where there are provisions harmonised in the
Directive. That is, where no such harmonised provisions exist, Member States remain free to
maintain or introduce national legislation. Member States may, for instance, maintain or introduce
national provisions on joint and several liability of the seller or the service provider and the
creditor. Another example of this possibility for Member States could be the maintenance or
introduction of national provisions on the cancellation of a contract for the sale of goods or supply
of services if the consumer exercises his right of withdrawal from the credit agreement. In this
respect Member States, in the case of open-end credit agreements, are allowed to fix a minimum
period needing to elapse between the time when the creditor asks for reimbursement and the day
on which the credit has to be reimbursed (2008 Directive Preamble paragraph 9).
357
SI 2010/1010.
358
By virtue of the Treaty Establishing the European Community, as amended by subsequent
Treaties, Rome, 25 March 1957, more specifically article 100A.
359
Costa v ENEL Case 6/64 1964 ECR 1964 CMLR 425 ECJ.
360
Cartwright 2007 1.
361
Ibid.
61
is found in the decisions of the courts in general and this is contrasted with the
law which is to be found in legislative enactments.362

Unlike Germany and Holland, England did not have a wholesale reception of
Roman law but was nonetheless influenced by it to a large extent.363 However,
prior to the twelfth century the influence of Roman law in England was small.364
With the defeat of the Anglo-Saxons in the Battle of Hastings in 1066,365 the
Norman kings and their officials had a profound influence on the administration of
law.366 The Normans introduced an integrated and simply organised feudal
system, with the King as the supreme feudal overlord.367 The Normans then
developed a central royal authority, from which were born the central courts
during the twelfth and thirteenth centuries; these were staffed by judges capable
of acting in the absence of the King and fixed at Westminster.368

During the twelfth and thirteenth centuries England received a great influence
from Roman law as explained by the Glossators.369 During the thirteenth century
Roman law also played an important part; judges were found quoting large parts
of the Institutes and Digest in their judgments.370 After the thirteenth century
there was a sharp decline in Roman law influence for various reasons.371

362
Cartwright 2007 4. It is submitted that it is this second meaning of common law to which South
Africa subscribes. The South African common law refers to the law, inter alia, developed in the
case reports (precedent). It is differentiated from acts of parliament. The two, however, cannot be
viewed as mutually exclusive concepts. While the legislature may deem it necessary to
particularly legislate one area of the law, as with credit law and the National Credit Act, it is the
common law which is used by judges and practitioners to supplement and interpret these
legislative enactments. Furthermore, the South African common law and legislation has since
1993 had an added enhancement by way of the Constitution of the Republic of South Africa,
1996. The values enshrined therein, more particularly those in the Bill of Rights are slowly
seeping into the common law, which in turn seeps into the interpretative process of legislation. Cf
paragraph 3.2.2 infra, for a discussion on the influence of the Constitution.
363
Hahlo and Khan 1973 504.
364
Ibid.
365
Zweigert and Kötz are of the view that the Norman influence was so great after 1066, that any
earlier influences of law can be ‘confidently ignored’ (1998 3).
366
Zweigert and Kötz 1998 182.
367
Ibid.
368
Zweigert and Kötz 1998 183.
369
Many English students travelled to the University of Bologna and other Italian universities to
study the law at its source. Two major works on the law are Glanvill (c. 188), whom wrote a
commentary of various writs and Bracton (c. 1256) both entitled De Legibus et consuetudinibus
Angliae and were strongly influenced by Roman law (Hahlo and Khan 1973 504).
370
Hahlo and Khan 1973 505.
371
Ibid.
62
English kings did not view themselves as successors of ancient Roman
Emperors; England achieved a large measure of political unification and thus
found less of a need to rely on Roman law as a basis for centralization (like
Germany, for example) and there was a strong emotional attachment of
Englishmen to their indigenous institutions.372

Although there was an influential decline after the thirteenth century, Romanistic
influences did not vanish.373 They played a role on equity jurisdiction during the
fourteenth and fifteenth centuries.374 They also played a role in the ecclesiastical
courts, which exercised jurisdiction in matters of marriage until 1857 and the
courts of admiralty, which gradually extended their jurisdiction in maritime and
commercial cases.375 The English borrowed from Italian maritime, mercantile
and insurance law, with English constitutional law being influenced by Roman
law.376

The English law of contract initially developed around a form of action known as
the action of assumpsit.377 This was a remedy which became used in the early
sixteenth century as a remedy for breach of informal agreements reached
orally.378 It was only three centuries later that the common law courts acquired
general jurisdiction over both formal and informal contracts.379 This did not
mean, however, that no forum existed for the contractual business – only that the
remedies were sought elsewhere through a diversity of courts which fell outside
the common law system.380 These included country courts, borough courts,
courts of markets and fairs, university courts, courts of the Church, courts of
manors and courts of privileged places.381

372
Hahlo and Khan 1973 505.
373
Hahlo and Khan 1973 506.
374
Ibid.
375
Ibid.
376
Hahlo and Khan 1973 507.
377
Chesire Fifoot and Furmston’s Law of Contract 1986 1.
378
Early common law of England developed around the twelfth century but was concerned with
crime and land tenure. Glanvill writing in about 1180 stated ‘it is not the custom of the court of the
Lord King to protect private agreement’ (Glanvill X, 18).
379
Chesire Fifoot and Furmston’s 1986 1.
380
Ibid.
381
Chesire Fifoot and Furmston’s 1986 2.
63
Being a money economy the necessity to recover debts was eminent and thus
debt (known as debt sur contract) and detinue could be enforced.382 Attempts,
however, were soon made to replace the action of debt sur contract with
assumpsit.383 From the 1520’s the King’s Bench allowed the plaintiff to elect
between the older and the newer remedies, and in the 1570’s the Court of the
Common Pleas did the same.384 However, in the late sixteenth century the
practice became a matter of controversy between the two courts, the Court of the
King’s Bench allowed assumpsit to supersede debt sur contract, whereas the
Court of the Common Pleas was of the view that this was improper. This debate
was settled in 1602 with Slade’s Case,385 in which case the plaintiff could use
assumpsit in place of debt sur contract; thereby making assumpsit the general
remedy on informal contracts.386

For a very long time England lagged behind in the commercialisation of

consumer credit and while in urban centres there were specialist ‘usurers’,
lenders were mostly the more prosperous members of the community.387 In

382
Chesire Fifoot and Furmston 1986 3.
383
Ibid.
384
Ibid.
385
4 Co Rep 91a, Yelv 21, Moore KB 433, 667.
386
The common law was not taught at universities until the nineteenth century as common
lawyers until then were either practitioners or judges, and little literature existed on contract law,
except that which was to be found in reported cases. The first treatise on the common law of
contract was by Powell in 1790 (Simpson ‘Innovation in Nineteenth Century Contract Law’ LQ
Rev 1975 247 250-1). What is known as the English common law of contract grew from two writs
(Medieval law). The one was a covenant which could be used to enforce a promise given under
seal. This was a formality originally performed by making an impression in wax on a document
containing the promise and the other, as indicated, was ‘assumpsit’. Assumpsit, originally a cause
of action for delict was formally recognised as an action for a breach of promise in the sixteenth
century with the case of Pickering v Throughgood 1533 93 YB Sel Soc 4 (Chesire Fifoot and
Furmston 1986 4-6). Another principle evolution of the sixteenth and seventeenth century was the
doctrine of consideration (Chesire Fifoot and Furmston 1986 7). While at first the common law
judges did not look to precisely explain the doctrine of consideration, the treatise writers began to
explore a more systematic approach. ‘The English law of contract […] was evolved and
developed within the framework of assumpsit, and, so long as that framework endured, it was not
necessary to pursue too fervently the search for principles. But when the forms of action were
abolished this task could no longer be avoided’ (Chesire, Fifoot and Furmston 1986 19). One
school labelled the rules that governed the actions of covenant and assumpsit as constituting the
English law of contract, while another innovation was to attempt to define consideration. Pollock
defined consideration as one party abandoning some legal right in the present, or limiting his
legal freedom of action in the future, as an inducement for the promise of the other party
(Principles of Contract 1921 186). Consequently, semblances appeared between continental law
and the common law of contract. The contract, in common law, was either a bargain, in which
event it was enforceable without a formality in assumpsit, or it was a liberality in which case it was
enforceable with the formality of the seal of a covenant (Gorderly 2001 10-12).
387
Philpott and Neville et al 2009 2.
64
1545, the Act in Restraint of Usury, permitted interest for the first time, capped at
10 percent.388 Capitalism, during this period was on the rise and many evasions
were deployed to circumvent the legislation, for example, loans with interest were
disguised as payments for fictitious consideration, or sales goods were priced as
double to incorporate the interest component.389 Eventually, in 1572 charging of
interest was once again permitted at 10 percent.390 In 1713 England passed the
Statute of Anne in order to lower interest rates to 5 percent.391 This Act was very
influential and remained in place, until 1854 with the Usury Laws Repeal Act of
1854, which ushered in a period of uncontrolled interest rates.392

Nineteenth century England was heavily influenced by continental law,393 mainly

through Pothier’s Treatise on the Law of Obligations, which was translated into
English in 1806 and in 1822; its authority was declared to be ‘as high as can be

388
Crowther Report 1971 32, Grove 1989 81-2 and Philpott and Neville et al 2009 2.
389
Duggan AJ and Lanyon EV Consumer Credit Law 1999 paragraph 1.1 and Philpott and Neville
et al 2009 2.
390
Under rule of Elizabeth I (Philpott and Neville et al 2009 2). The prohibition of usury had gone
somewhat full circle, with its ban under Edward VI, its re-imposition under Elizabeth, although
lowered to 8 percent and fixed at 5 percent under the reign of Anne (Duggan and Lanyon 199
paragraph 1.1).
391
Chesire, Fifoot and Furmston 1986 19.
392
Duggan and Lanyon suggest that thereafter interest rates were left to find their ‘own level in
the market’ (1999 paragraph 1.2). However, the result of the legalisation of interest charges was
that loans between neighbours, ordinarily not subject to interest, began to resemble business
credit. The state was then faced with a social problem, as opposed to a moral one. Furthermore,
there was a steady rise in standards of living of the general population which meant that
consumer credit in England was moving away from ‘being predominantly offsetting of misfortune
to being a method of anticipating future income’ (Crowther Report paragraph 2.17, cf fn 415;
Philpott and Neville et al 2009 2).
393
Nineteenth century common lawyers found additional ways to limit the enforceability of
promises which brought the common law even closer to the continental law, as it appeared to be
more compatible with will theories of the continent. The two further limitations included the
necessity that the parties intended their promise to be legally binding (accepted by the English
court in 1919: Balfour v Balfour 1919 2 KB 571 578) and the second limitation was the doctrine of
offer and acceptance (Payne v Cave 1789 3 Term. R. 148; Cooke v Oxley 1790 3 Term. R. 653;
Adams v Lindsell 1818 1 Barn and Ald 681). Common law jurists explained it as a consequence
of the will theory, that is, the contract being the will of the parties required each party to express
his will to be bound (Gorderly 2001 14). The following passage gives reasons as to why the
nineteenth century was regarded as the classical age of English contract law: ‘The first is that the
century witnessed an extensive development of the principles and structure of contract law into
essentially the form which exists today, […]. The second involves a change in the attitude of
thinking lawyers to contract. In previous years lawyers, in so far as they troubled themselves at
all, conceived of contract law primarily as an adjunct to property law. In the nineteenth century a
powerful school of thought, originating in the work of Adam Smith, saw in the extension of
voluntary social co-operation through contract law, and in particular through ‘freedom of contract’,
a principal road to social improvement and human happiness, and one distinct from the static
conditions involved in the possession of private property’ (Chesire Fifoot and Furmston 1986 11).
65
had, next to a decision of a court of justice in this country’.394 Furthermore, this
century was influenced by economic theory, where:395

Individualism was both fashionable and successful: liberty and enterprise were
taken to be the inevitable and immortal insignia of a civilised society. The state,
as it were, delegated to its members the power to legislate. When voluntarily and
with a clear eye to their own interests, they entered into a contract, they made a
piece of private law, binding on each other and beneficial alike to themselves and
to the community at large. The freedom and the sanctity of contract were the
necessary instruments of laissez-faire, and it was the function of the courts to
foster the one and to vindicate the other.

This outlook greatly influenced the nineteenth century stance on consumer

protection.396 Whilst contract law was dominated by commercial contracts (in
what would now be regarded by the contemporary jurist as consumer
transactions) the view of judges tended to assume that a gentleman purchasing
goods could look after himself;397 hence this superb statement capturing the
essence of the ideology:398

Economic theory might proclaim that in the market place the consumer was king
but in the law courts he was uncrowned.

Before the second half of the nineteenth century buying goods on extended
credit had become common practice.399 Prices were inflated to compensate for
the risk and enforcement for default could be severe.400 Imprisonment for small
debts had slowly been limited over the eighteenth century, though a debt of £20
could still lead to imprisonment after 1827.401 Only during the second half of the
nineteenth century, when in 1846 the Country Courts were set up, did a more
modern approach to credit arise.402 These created an effective system for
execution through the courts.403 During this period there was a rise in franchising
or branch stores and department stores which lent to the development of shop

394
Per Best J in Cox v Troy 1822 5 B and Ald 474 480.
395
Chesire Fifoot and Furmston 1986 18.
396
Ibid.
397
Hopkins v Tanqueray 1854 15 CB 130 from Chesire Fifoot and Furmston 1986 18. ‘The
chancery mends no man’s bargain’ per Lord Nottingham in Maynard v Mosekey 1676 3 Swan
651.
398
Chesire Fifoot and Furmston 1986 23.
399
Philpott and Neville et al 2009 2.
400
Ibid.
401
Ibid.
402
Philpott and Neville et al 2009 2.
403
Philpott and Neville et al 2009 3.
66
credit as we know it today. This replaced extended credit with payments against
weekly or monthly accounts.404 Apart from enactments controlling usurious loans
and pawn broker activities,405 consumer credit as a subject of regulation in
England was essentially ignored by monarchs, Parliament and the common law,
until 1854 which saw legislative intervention through the first Bills of Sale Act
1854.406 Only much later in 1900 was the Moneylenders Act promulgated.407
However, abuses continued and further legislation was introduced in the form of
the Moneylenders Act 1927.408 This Act imposed many detailed requirements on
contracts by moneylenders and pawnbrokers that lent over £50.409 It introduced
a licensing system and provided that if the interest rate exceeded 48 percent per
annum, the interest was to be presumed excessive and the transaction harsh
and unconscionable.410 Certain formalities had to be followed,411 failing which
the credit agreement would be unenforceable.412 The effect of the stringent
requirements of the legislation encouraged growth of other forms of credit that
was not moneylending, such as the sale of goods and services on credit.413 The
continued growth of abuses in this unregulated industry led to further legislation.

404
Ibid.
405
Pawn broking caused particular concern and hence it was one of the first credit activities to be
subjected to legislative control in 1603. This legislation was to prevent the sales of pledges before
redemption at a time when pawnbrokers still largely serviced the wealthy. During the eighteenth
century similar legislation followed which also controlled interest rates on small loans, with low
rates of interest being considered inappropriate for short-term loans on small sums. By the
beginning of the nineteenth century, the Pawnbrokers Act of 1800 laid down requirements relating
to records and receipts, the sale of pledges and the rate of interest. During this century the poor
were reliant on pawn broking and the law on pawn broking was repeatedly amended until the
Pawnbrokers Act 1872 which provided comprehensive regulation. The 1872 act introduced a
licensing system and set out requirements for loans below £5 and loans between £5 and £50,
loans over £50 were not covered. This Act was subject to some minor amendments, but
effectively remained in force until after the coming into force of the Consumer Credit Act 1974, by
this time, however, pawn broking had become a minor source of consumer credit (Philpott and
Neville et al 2009 3).
406
Later amended by the Bills of Sale Amendment Act 1866 (Philpott and Neville et al 2009 4).
This Act was eventually replaced by the Bills of Sale Act 1878, which was supplemented by the
Bills of Sale Act (1878) Amendment Act 1882 (Howells and Weatherhill 2005 299 and Goode,
Rosenthal and Makin in Goode Consumer Credit Law and Practice 2014 paragraph 1.2 and 1.3).
407
Which was to control ‘harsh and unconscionable’ contracts by moneylenders, cf section 1
(Philpott and Neville et al 2009 3). This Act came into force after the Report of the House of
Commons Select Committee on Moneylending was published in 1898, reporting serious abuses
in the industry (Howells and Weatherhill 299 and Goode 2010 paragraph 1.4).
408
Philpott and Neville et al 2009 4.
409
Ibid.
410
Ibid.
411
The date, the amount of the loan and the rate of interest had to be placed in writing, signed
and a copy delivered to the borrower.
412
Philpott and Neville et al 2009 4.
413
Ibid.
67
The Hire-Purchase Act 1938 was one such act, followed by the Hire-Purchase
Act of 1954 and then 1964. The 1964 Hire-Purchase Act implemented a number
of recommendations made by the Molony Committee on Consumer Protection.414
The 1938, 1954 and 1964 Acts were replaced by the Hire-Purchase Act 1965.

It was the Committee on Consumer Credit producing the Crowther Report,

published in 1971, that saw the most wide-ranging review of consumer credit
undertaken in England.415 The Committee, after a detailed evaluation of the law
relating to credit transactions, concluded that the existing law was defective and
that it would be useless to approach the status quo through piecemeal
amendments and thus recommended the repeal of the entire range of existing
legislation affecting credit and security in personal property and the replacement
thereof by two new Acts, the Lending and Security Act and the Consumer Sale
and Loan Act.416 While the details of the Government’s response to the Crowther
Report are not pertinent to this discussion, it shall suffice to say that the Report
was shortly followed by and culminated in the Consumer Credit Act of 1974. 417

414
Final Report on Consumer Protection (Cmnd 1781). While this Act contained many of the rules
regarding the formalities, as had the Moneylenders Act 1927, subject to cancellation notices
required for cancellation of agreements not signed at the premises of the credit provider, the court
could allow enforcement of the agreement even if any of the details had been omitted, provided
that the non-compliance did not prejudice either party and it was just and equitable to dispense
with the requirement (Philpott and Neville et al 2009 5). The increased regulation of hire-purchase
agreements caused some companies to change to rental contracts as a means of circumventing
regulation. This resulted in the Crowther Committee recommending that hire agreements be
brought within the scope of credit legislation (Howells and Weatherhill 2005 300). It is notable that
the supply of goods or services on credit has never been considered to constitute a loan in
English Law and thus such transactions did not attract the operation of the Moneylenders Acts
(Beete v Bidgood 1827 7 B & C, Olds Discounts Co Ltd v Cohen 1938 3 All ER 281n). Likewise a
reservation of ownership under a conditional sale or hire-purchase agreement is not viewed as a
security for loan and therefore outside of the Bills of Sales Acts (McEntire v Crossley Bros Ltd
1895 AC 457 1999 GCCR 11 HL). Furthermore, the finance charge added to a cash price under a
hire purchase or instalment transaction is not viewed as interest but merely a ‘time-price
differential’, a higher price for payment in the future than for payment immediately (Goode 2010
paragraph 1.8).
415
There had been a Report of the House of Commons Select Committee on Moneylending
published in 1898 – which resulted in the Moneylenders Act of 1900, however, the subject topic in
the latter report was much less encompassing than that in the Crowther Report, which covered
the entire field of consumer credit in Britain (Goode 1979 6 and Goode 2010 paragraph 1.41).
416
Ibid.
417
(Commencement no 8) order 1983, SI 1983/1551 made under the Consumer Credit Act 1974
section 182 (2), 192 (2) and (4).
68
Since then, the twentieth century, with its massive mechanical and technical
advances, saw a need for additional consumer protection.418 Consumers faced
with products and credit abound, organised themselves into pressure groups419
in an attempt to seek protection.420 The law of contract followed suit aiming to
protect consumers.421 Legislative enactments were the most obvious steps
taken by England to achieve this goal, including such acts as the Unfair Contract
Terms Act 1977, Fair Trading Act 1973 and the Consumer Credit Acts of 1974422
supplemented by the more recent 2006 Act.

The Consumer Credit Act 1974 came into force on 6 April 2007.423 The main
provisions of the 2006 Act were to extend the scope of the Consumer Credit Act
1974, to create an Ombudsman scheme, and to increase the powers of the
Office of Fair Trading in relation to consumer credit.424 In addition, it permits
borrowers to challenge ‘unfair relationships between creditors and debtors’ in
court. The 2006 Act brings two further types of agreement under the scope of
the 1974 Act: consumer agreements above £25,000, to reflect growing levels of
consumer borrowing and debt and to include small, one-man businesses and
partnerships of up to three people.425 The 2006 Act gives consumers the option
of using the Financial Ombudsman Service if they are unhappy with their lender's
dispute resolution service, whether the lender consents or not. Complaints may
also be raised against other types of credit related companies, such as debt-

418
Goode 1979 6 and Goode 2010 paragraph 1.41.
419
As examples: the Office of Fair Trading and the National Consumer Council.
420
Ibid.
421
Ibid.
422
Cf discussion by Goode, Rosenthal and Makin in Goode Consumer Credit Law and Practice
2014 paragraph 1.6.2B for a discussion on the structure of consumer credit legislation
immediately after the Consumer Credit Act 1974.
423
Goode states that it is ‘principally an amending act’. And while it largely amended the
Consumer Credit Act 1974, it also amended the Financial Services and Markets Act 2000 by
applying the Financial Services Ombudsman Scheme to consumer credit agreements and
consumer hire agreements (2010 paragraph 1.64A).
424
As of 1 April 2014, responsibility for the regulation of consumer credit activities has been
transferred from the Office of Fair Trading to the Financial Conduct Authority. This transfer has
been accompanied by a significant change in the legislative regime governing consumer credit
regulation. The Consumer Credit Act 1974, as amended, no longer provides the statutory
framework for consumer credit regulation. Instead, the regulatory regime has been brought under
the Financial Services and Markets Act 2000 and by the Financial Services and Markets Act 2000
(Regulated Activities) (Amendment) (No.2)
(http://www.2tg.co.uk/assets/docs/newsletter_documents/fca_regulation_of_the_consumer_credit
_act_the_scope_of_regulation.pdf) (27.01.2014).
425
Section 1.
69
collection agencies.426 The 2006 Act empowers the Office of Fair Trading to
investigate applicants for consumer credit licences, to impose conditions on
licences, and to impose civil penalties of up to £50 000 on companies which fail
to comply with its conditions, appeals from which lie to the First-tier Tribunal
(formerly known as the Consumer Credit Appeals Tribunal) and thereafter, with
leave, to the Upper Tribunal.427

The 1987 Directive428 set minimum harmonisation requirements and was seen to
have had little practical impact on English consumer credit legislation.429
However, the revised 2008 Directive,430 a maximum harmonisation Directive, had
dramatic effect on the English credit legislation,431 and is implemented by the
Consumer Credit Directive Regulations,432 Consumer Credit Total Charge for
Credit Regulations,433 Consumer Credit Advertisements Regulations,434
Consumer Credit Disclosure of Information Regulations435 and the Consumer
Credit Agreements Regulations.436 The Directive has resulted in a two-pronged
consumer credit regime: agreements with individuals for credit which do not
exceed £60 260 fall within the ambit of the Directive whilst agreements with
individuals for credit exceeding this amount remain governed by the Consumer
Credit Act 1974, as amended and fall outside the scope of the Directive.437 Thus
the two are regulated by differing sets of regulations.438 What is interesting about
such a bifurcated system is its resemblance to the South African credit regime.
The National Credit Act creates a similar two-pronged approach to the regulation

426
http://www.legislation.gov.England/Englandpga/2006/14/introduction (7.06.2011).
427
Ibid. Cf for a further discussion Goode, Rosenthal and Makin in Goode Consumer Credit Law
and Practice 2014 paragraph 1.64A and Chowdhury, Makin Mawray and Rosenthal in the same
publication Chapter 21.
428
87/102/EEC.
429
Goode Consumer Credit Law and Practice 2014 paragraph 1.100A.
430
2008/48/EC. It is to be noted that ‘The Study of the Effects on the English Economy of the
Revised Consumer Credit Directive’ stated that the Directive was to be implemented in English
law by no later than 11 June 2010 (Department for Business Enterprise and Regulatory Reform
Copenhagen 14 May 2009).
431
Although it does not regulate consumer hire (Goode Consumer Credit Law and Practice
2014).
432
SI 2010/1010
433
SI 2010/1011
434
SI 2010/1012
435
SI 2010/1013
436
SI 2010/1014 and Goode 2010 paragraph 1.100A.
437
Goode, Rosenthal and Makin Consumer Credit Law and Practice 2014 paragraph 1.100A.
438
Ibid.
70
of consumer credit, albeit not due to regional legislation but due rather to the
limited scope of this legislation. For example, it applies to juristic persons whose
asset value or annual turnover is below a certain threshold.439 The National
Credit Act regulates specific credit agreements and in some instances regulates
them differently, the details can be found elsewhere in the thesis.440 However,
conceptually the South African jurist, much like the English one, finds that he will
have to apply different “rules” to different transactions.

2.6 Italy

Italy is viewed as having a strong claim to being considered the cradle of

European legal culture, because it was in Italy that Roman civil law was first
developed in the ancient world and it was also in Italy that this system re-
emerged in the Middle Ages to become the foundation upon which the majority of
European states chose to erect their modern legal systems.441 This influence
does not stop on the European continent but can be seen to have reached all
those nations that established their legal systems upon the traditions received
when they were European colonies.442 When Justinian came into power in the
sixth century, he made as one of his goals as emperor, the restoration of the
classical law of Rome, which had been diluted for various reasons; such as
change from a republican to an imperial government under the Caesars,
conversion of people from paganism to Christianity and the shifting of the centre
of the government from west (Rome) to the east (Constantinople).443 At the time
the sources of law were to be found in mainly two places: the enactments of his

439
Currently it is at R1 000 000 (section 4 (1) and section 7 (1)(a) of the Act).
440
Cf paragraph 4.4.3 infra.
441
Roman civil law began as the legal system of Rome, at that time a small city state, and as it
grew and became the largest empire the world had seen, so its legal system came to influence
much of Europe, the Middle East and North Africa (Glyn Watkin T The Italian Legal Tradition
1997 1). However, a debate exists as to whether one can talk about the actuality of the history of
Italian law prior to the political unity of Italy in 1860. In fact, the ‘History of Italian Law’ only
became part of the studies at the law schools in 1876. Debate over the subject was intense and
prolonged, as the recent unification of the Peninsula, that is the modern nation-state of Italy
known today, called for the search for a pre-existent national identity (Lena JS and Mattei U
Introduction to Italian Law 2002 1).
442
Glyn Watkin 1997 1.
443
Ibid. Cf also Lena and Mattei 2002 2.
71
imperial predecessors and the works of classical jurists.444 Accordingly, Justinian
appointed a series of commissions to examine the voluminous sources and to
extract from them those rules which were to remain valid, amend those which
required updating, discard what was no longer necessary and present their work
in a systemised, accessible form. The first commission produced the Codex
Vetus promulgated in 530 AD and later due to changes in the law was revised
and republished as the Codex Repetitae Praelectionis.445

The second commission produced in 533 the Digest or Pandects.446 Justinian

soon realised that the work of the Digest, despite its merits, was not
appropriate447 for law students, accordingly he appointed three of the
commissioners who had worked on the Digest to produce a more succinct
work.448 By the end of 534 a student textbook, was produced.449 It was divided
into four books and became known as Justinian’s Institutes.450 The Code, the
Digest and the Institutes became the sole source of law in the Byzantine
Empire.451

During the fifth century Italy was invaded by the Ostrogoths, who moved from the
north to dominate the peninsula, their leader, Theodoric, promulgated a crude
and simplistic code, known as the Edict of Theodoric.452 During the sixth century,
the Ostrogoths were displaced by the Lombards, who settled in Italy more
permanently.453 The Lombard leader, Rothari, also promulgated a code of laws,

444
Glyn Watkin 1997 2
445
Glyn Watkin 1997 3 and 4.
446
Which consisted of fifty books. Glyn Watkin postulates the appropriateness of both titles, with
‘pandects’ illustrating its comprehensiveness and ‘digest’ pointing to the degree of assimilation
achieved (1997 3).
447
The phrase ‘easily digestible material’ comes to mind.
448
Glyn Watkin 1997 4.
449
Glyn Watkin 1997 5.
450
Ibid.
451
Posthumously, these three works were later termed the Corpus Iuris Civile (Glyn Watkin 1997
4).
452
This consisted in the main of lists of compensation payments, detailing fixed amounts to be
paid in the event of wrongs committed, for example so much for a broken arm, so much for a
broken leg and so on (Glyn Watkin 1997 4).
453
Glyn Watkin 1997 5 and Lena and Mattei 2002 2.
72
named after him, the Code of Rothari, which code was not much more
sophisticated than its predecessors.454

The Christian Church was the only great institution of the Roman Empire that
survived its fall in the west and continued to govern western Christendom from
Rome.455 The monasteries and cathedrals were effectively the only centres of
learning during the Dark Ages in Europe and preserved what little was known of
classical literature, history and philosophy.456 While the main subject of study in
the cathedral schools and monasteries was theology, humanities were also
studied, especially with the revival of learning in the ninth century.457 Law was
studied at certain centres and during the tenth century the cathedral school at
Pavia emerged as a very important centre of legal studies.458 The law studied
there was mostly the feudal law of the Lombard kingdom.459 A great revival of
learning occurred in Europe during the eleventh and twelfth centuries and one of
its products was the University of Bologna.460 Here a scholar named Irnerius
discovered what appears to have been the sole surviving copy of Justinian’s
Digest.461 Irnerius and his contemporary found this manuscript far superior, more
sophisticated and therefore more worthy of serious study then the law codes by
which they were governed.462 Irnerius started the work of glossing the Digest in
order to remove all apparent contradictions; his dedicated efforts, were followed
by the four doctors, Martinus, Hugo, Jacobus and Bulgarus, whom are generally
known as the Glossators.463 This work took two centuries to complete.464 The

454
Ibid.
455
Ibid.
456
Glyn Watkin 1997 5.
457
Known as the Carolingian renaissance. The Carolingian period stretched from 774 to 888 AD
and was marked by the introduction into Italy of new laws and customary rules which were mostly
of Frankish origin (Lena and Mattei 2002 3).
458
Glyn Watkin 1997 6.
459
Ibid.
460
Glyn Watkin 1997 8.
461
Ibid.
462
Glyn Watkin 1997 9.
463
Glyn Watkin 1997 9. The Renaissance of Roman law studies in Italy during these centuries
was taken up in the South of France; the study of the Corpus Iuris was well established at the
Universities of Montpellier and Toulouse in the twelfth century. Thus acquaintance with the
Roman law gradually filtered northwards; it did not however, displace the traditional customary
law of the Franks (Zweigert and Kötz 1998 75).
464
Zweigert and Kötz 1998 75 and Lena and Mattei 2002 4.
73
Glossators worked at the school of law in Bologna and finally published the
complete gloss, the Glossa Ordinaria, in 1260.465

From the thirteenth through to the sixteenth century many of the city states and
communes of northern Italy, saw a considerable expansion in trade and
commerce.466 These commercial developments required laws to facilitate the
growth in trade and thus people turned to the university trained jurists of the time
to provide solutions to particular problems.467 These jurists turned to the Digest
to find suitable answers to these problems, but when the Digest or the Glossa
Ordinaria, which was considered of equal authority, did not provide an exact
solution, the jurists would then use their legal expertise in order to develop
solutions.468 These jurists came to be known as the Commentators.469 From the
sixteenth century on, the centre of legal culture in Europe shifted for the first time
outside of Italy to other European countries.470 The eleventh through to the
sixteenth century, a period of flourishing in Italy, saw a new science of law
developed in Bologna and spread quickly across Europe, eventually forming a
vast system of common law, the ius commune, which did not depend nor was it
limited by national or linguistic boundaries.471

After the unification of Italy, in the nineteenth century,472 the political class of Italy
had to decide on a model upon which to construct the legal order of the new
state.473 A unitary centralised model, fashioned largely along the lines of the
French model, was ultimately adopted.474 The Constitution of the Kingdom of

465
Glyn Watkin 1997 8-9.
466
Lena and Mattei 2002 3 and Glyn Watkin 1997 13.
467
Glyn Watkin 1997 13.
468
Glyn Watkin 1997 13 and Lena and Mattei 2002 5.
469
And were said to have taken the revived Roman law out of the classroom and into the
courtroom (Glyn Watkin 1997 13 and Lena and Mattei 2002 5).
470
During the sixteenth century the school of Roman legal studies was in France at the University
of Bourges, and in the second half of the sixteenth century, at the Theological School in
Salmanaca in Spain (Glyn Watkin 1997 18-9 and Lena and Mattei 2002 6).
471
Lena and Mattei 2002 3.
472
Italy became a unified state in 1860.
473
Lena and Mattei 2002 16.
474
Prior adoption of the centralised model, there was debate with regard adopting a federal
model which advocated the preservation of the specificity and legal traditions of the pre-
unification states and the unitary model (ibid). The French Code Civil had entered Italy through
Napoleon’s armies. While Sicily and Sardegna escaped French occupation due to the English
fleet, in the rest of Italy the Code Civil came into force, even if only for a short while. The Code
74
Sardegna of 1848 was maintained as the constitutional text of the Kingdom of
Italy and it remained in force until the approval of the republican Constitution in
1948.475 In the period following unification the new civil and commercial codes,
together with the new Codes of civil and criminal procedure, were approved and
subsequently adopted in 1865.476 A new Commercial Code was adopted in
1882.477 In 1942 the Civil Code478 was passed and this is still in force today.479

The sources of law in Italy are constituted from written text.480 That is, codified
legislation; for example the Constitution and amendments,481 the Italian Civil
Code482 as well as other legislative enactments.483 These codifications are
rigorously hierarchical.484 Section 1 of the Civil Code of Italy was enacted in
1942485 and indicated four main sources of law: legislation, regulations, corporate
rules and customary rules or laws.486 This list has been substantially amended;
the corporate laws were amended after the fall of fascism in 1944,487 and the
Constitution488 as well as regional legislation489 were later introduced changing

Civil was repealed in 1814 almost everywhere in Italy, however its influences remained (Zweigert
and Kötz 1998 105).
475
Lena and Mattei 2002 16.
476
Ibid.
477
Ibid.
478
R.D 16 March 1942 n.262 (G.U. 4-4-1942 n. 79 ed. straord (hereinafter referred to as the
(‘Civil Code’)).
479
Lena and Mattei 2002 17-8.
480
It seems that the idea of creating a unified normative system in order to create a general code
sprung from the egalitarian (equalitarian) ideology of the French Revolution. It was believed that
the more general the laws the more this would tend to regulate all aspects of the private
relationship between persons and consequently the better such laws would protect the individual
from discriminations that could occur from legislation based on class privileges. The first civil
code in the modern sense was enforced in France by Napoleon in 1804, which code formed the
model which inspired the Italian legislator to dictate the first unified code in 1865. The 1865 Code
did not, however, regulate corporate law, which laws were later regulated by the Commercial
Code of 1882 (Gazzoni Manuale di Diritto Privato 2009 24).
481
Costituzione della Repubblica or La Carta Costituzionale.
482
The Code covers the entire span of private law in Italy, made up of 2969 sections and
represented in six volumes including law of persons and family law, law of succession, property
law, labour law, law of obligations and protection of rights.
483
Gazzoni 2009 20.
484
Gazzoni 2009 21.
485
There are sixteen preliminary articles to the Italian Civil Code which dictate the arrangement of
the laws in general.
486
Translated from the term used in Italian ‘consuedtudini’ the customary law is generally
accepted standard procedures that are uniformly repeated over extended periods accompanied
by the belief that a legal rule is being observed, or more plausibly from a tacit expectation of
reciprocity (Bessone Lineamenti di Diritto Privato 2009 16).
487
Decreto legislativo luogotenenziale 44/369.
488
Promulgated in 1948.
489
Costituzione della Repubblica article 117 (1960).
75
the list (and hierarchy) of sources as follows: the Constitution, national
legislation, regional legislation, regulations and customary laws.490 A last
category which the Italians label legislazione speciale or special legislation491 are
enactments relating to the various disciplines of private law, these special
enactments are said to work alongside the Civil Code and regulate, inter alia,
bills of exchange, cheques, patents, copyright, lease, divorces, adoptions and
issues relating to movable property.492

Despite these historical developments, during the twentieth century, under the
Italian legal system, the majority of Italian scholars acknowledged a lack of
effective protection for consumers.493 Courts refrained, on what appears to be
the majority of occasions, to protect consumers in disputes concerning standard
terms, for example by allowing clauses that excluded the provider’s liability for
non-performance or malperformance, nor were those clauses that imposed
excessive penalties in the event of delay or non-performance struck down.494
Niglia495 argues that this was due to socio-economic and political reasons.496
During this period Italy was characterised by heavy state interventionism in the
economy, in that the state was actively involved in the economy as producer of
goods and services and interested in defending its near monopolistic position in
the market.497 Almost every sector of the economy, from banking to energy and
insurance to transport, were directly administered by the state.498 Niglia499

490
Gazzoni 2009 20.
491
Own translation.
492
Gazzoni 2009 25.
493
In fact Niglia states that this has been unanimously acknowledged by Italian scholars (The
Transformation of Contract in Europe 2003 55 cf fn 96).
494
This, despite the fact that Article 1384 of the Codice Civile, authorises judges to reduce
excessive penalties (or any penalty in case of non-performance (Niglia 2003 55 and fn 97). This
non-protective stance, applied by the courts was based on Articles 1341 and 1342 of the Codice
Civile These two articles provided a control of unfairness in that they conferred upon the judge
the power to strike down standard form terms, or ‘terms unilaterally predisposed for an
indeterminate number of addressees, under either of the following conditions: a consumer being
unaware of standard terms, except in the event of ‘negligent ignorance’ and in the event of a
consumer’s failure to countersign or sign next to a series of burdensome terms. In reality the
court practised on the latter type of control and even then harsh terms were nonetheless
permitted in the case of a consumer’s approval in writing.
495
2003 57-60.
496
Cf also the views of Lena and Mattei, who posit the view that the authoritarianism of the
regime of the fascist period (1922-1942) only in part affected legislation (2002 17).
497
Irti N ‘Iniziativa Privata e Concorrenza’ 1997 Giurisprudenza Italiana IV 225 226 and cf also
Amato G ‘Il Mercato nella Constituzione’ 1992 Quaderni Costituzionali 7.
498
Niglia 2003 57.
76
argues that protecting consumers through unequivocal rules would have
undermined the power of the state to control social and economic processes
through its policies, with reference to goods and services, as consumer-
protectionist rules would have set rigid boundaries in the form of mandatory
rules.500 This would have had to be incorporated in a set of consumer-
protectionist standards to be inserted in any government standard from contract,
thereby diluting government discretion.501 Accordingly, the courts, viewed as
‘governmental machines whose work governments have set in motion and whose
output they ultimately control’502 were seen to avoid any form of consumer
protection enforcement, since such protection would have meant preventing the
major economic actor of the time, the state, from exercising its discretionary
powers.503 Niglia504 argues that this was due to a change in the political climate
in Italy, with a decline of an interventionist state to liberalisation and
marketization of the economy.

Contemporarily, there is a greater tendency in Italy, to enact ‘special

legislations’505 as opposed to updating the law by amending the Civil Code.506
This tendency has resulted in diminishing the absolute centrality of the Code,
which some authors feel should have been maintained.507 This due to the fact
that these special enactments, so called, reintroduce privileges in favour of new
corporations and thus detract from the principles of uniformity, which lay at the
very base of the idea of codification.508 Furthermore, the continual amplification
of certain areas of law, through the enactment of special legislation, such as that

499
Niglia 2003 58.
500
Ibid.
501
Ibid.
502
Slaughter AM and Stone Sweet A The European Contract and National Courts – Doctrine and
Jurisprudence, Legal Change in Its Social Context 1998 328.
503
Niglia 2003 58. For example, in March 1999 the Corte di Cassazione declared that banking
contractual practises that calculate interest rates to the disadvantage of the clients, that is the
practise of anatocism (compound interest), was unfair. A decision made on Article 1283 of the
Civil Code opposite to what the courts had allowed for 18 years prior to that judgment (Niglia
2003 59-60). Article 1283 reads: ‘In the absence of contrary usage, interest due can only produce
interest from the date of institution of an action or as a result of an agreement subsequent to its
becoming due, and provided that such interest has been due for at least six months’.
504
Niglia 2003 60.
505
Translated by writer from the Italian legislazione speciali.
506
Niglia 2003 60.
507
Ibid.
508
Ibid.
77
of consumer laws, is said to resemble the old divide between the Civil Code and
the Commercial Code.509

Legislative authority of the laws in Italy, however, does not only derive from the
Constitution but from sources of international law and from rules and regulations
of the European Community.510 The international norms are recognised by
section 10 of the Italian Constitution and are binding on Italy, limited by the fact
that such international norms must observe certain fundamental principles, more
specifically customary rules.511 International rules must be ratified by a decree
by the President of the Republic of Italy and are sometimes given legislative
authority through ordinary enactments.512 These international rules, known as
‘community norms’513 interfere with national as well as ordinary legislation.
Enactment 57/1203 recognised the Treaty of Rome,514 which treaty constituted
the European Community, which in turn formed the basis of the European
Union.515

Compared to other European countries516 the Italian consumer found relief in

national legislation directed at his protection, only relatively recently.517 Towards
the end of the eighties discussions opened up in Italy with regards consumerism,
before which the issue of consumer protection did not appear particularly
important.518 Consumer protection was limited to the sale of goods on credit,
with deferred payments, interest and retention of ownership, controlled by the
Civil Code of 1942.519 Even consumer protection organisations, until the 1980’s,

509
Niglia 2003 60.
510
Gazzoni 2009 26.
511
Ibid.
512
Ibid.
513
Translated from the Italian – le norme communitarie.
514
10 March 1957.
515
Refer to paragraph 2.5 supra for the discussion on the development of the European Union.
516
Like England, Germany and France.
517
Bertuzzi S and Cottarelli G Il Codice del Consumo 2009 21.
518
Bertuzzi and Cottarelli 2009 20 and Dona M I Singoli Contratti del Consumo 2008 VII. Galletto
states that the Italian situation in relation to consumer protection differed, prior to the intervention
of the European Union Directives, to the English, French and German experiences (Visintini G
Trattato della Responsabilità Contrattuale vol II 2009 674).
519
Visintini 2009 679.
78
were not prevalent in Italy.520 It was the progresses in the European Union in this
area that promoted and stimulated the Italian jurisprudential interest with regards
consumer protection.521 The first interventions by the national legislature in Italy
were essentially implementations in the Italian system of European norms or
directives, received by Italy.522 Besides efforts by the Minister of Trade and
Industry, various conferences were held and organisations were formed in order
to assist on a consultative basis.523 The Italian body of law was decisively
deficient in this area as neither the Constitution nor the Civil Code, save as
indicated above,524 dealt directly with consumer protection rights and the
consumer, prior the influence of the European directives, had to rely on indirect
measures for the protection of his rights.525 The non-interventionist mentality in
the consumer credit area prior to the 1980’s in Italy is astonishing, especially
when one’s exposure to consumer credit protective legislation and practises
predate the 20th century. Perhaps this phenomenon can be ascribed to the
socialist milieu of Italy, where unlike in South Africa, the average salaried
individual did not have to pay for private medical aid, ensure private pensions
were in place and where public transport was available – circumventing the
absolute need for a vehicle, vehicle finance and maintenance. The differences in
dynamics are fundamental, however, as will be seen in the next chapter, by
joining the European Union, Italy had to make perhaps the biggest strides out of
the three jurisdictions compared in this work, in order to align its laws with the
contemporary consumer protection ideology of the European Union.
520
In fact, until the 1980’s only two consumer associations were in existence; L’Unione Nazionale
Consumatori (National Union of Consumers) [own translation] founded in 1955 and the Lega
Consumatori (Consumer League) [own translation] founded in 1971 (Bertuzzi and Cottarelli 2009
20 and fn 16).
521
Ibid. More particularly Directives 87/102/CEE and 90/88/CEE.
522
Bertuzzi and Cottarelli 2009 21. These included Law 19 February 1992 number 142 (sections
18 – 24) which was a law that directed the reception of the European Community Directives
(Vistinini 2009 680). As well as Decreto Legislativo number 385 of 1 September 1993 Testo
Unico delle Leggi in Materia Bancaria e Creditizia, as amended by article 1 of d.lg.n. 37/2004
(hereinafter ‘T.U.’). The title of this legislation can be translated as the Unitary Text of the Laws
on Credit and Banking Matters [own translation]. The T.U. covers a variety of aspects such as
defining the concept of consumer credit, defining who is entitled to dispense finance, TAEG
(which is the effective interest rate per annum), marketing and advertising, training, the contents
and validity of contracts, execution of the contract, invalidity, and breach of contract by the credit
provider (Dona 2008 3 - 4). Interestingly enough neither the banking T.U nor the Consumer Code
deal with breach of contract by the consumer.
523
Bertuzzi and Cottarelli 2009 21.
524
Limited to the regulation of sale of goods on credit.
525
Thus consumers were sought to be protected by the same general principles which were used
to protect the individual.
79
CHAPTER 3: BACKGROUND TO AND RATIONALE FOR THE NATIONAL
CREDIT ACT
________________________________________________________________

3.1 Rationale for Consumer Law and Policy Generally

Moneylending transactions, […] have at all times posed a challenge to the

legislator.526

In the period after the Second World War, the world, led by Europe and America,
embarked on massive production and delivery ventures of novel goods and
services.527 This manufacturing profusion led to a plethora of consumerist
behaviour;528 which conduct was presaged by various factors, including the
growth in consumer income which led to the emergence of a large scale ‘middle
class’ purchasing power that in turn led to high demand for consumer goods,
which in turn exacted a need for a variety of credit arrangements.529 This
evolution of society has been explained as being caused by the growing
affluence of the population.530

Economists and sociologists noted that the growing affluence of the population
during the post-World War Two period, together with changes in occupational
structure, began to produce a large and stable consumer market.531 This

526
Zimmerman R The Law of Obligations – Roman Foundations of Civilian Tradition 1990 166.
527
Ramsay I Consumer Law and Policy: Test and Materials on Regulating Consumer Markets
2012 2.
528
By this is meant that a frenzy of purchasing consumer goods by cash or credit occurred. The
psychology of the post-world war consumer, whether due to intense advertising or simply
abundance in availability, was fixated on acquisition of goods. Harvey advocates that ‘freedom’
has become associated with ‘mindless consumerism’ (A Brief History of Neoliberalism 2005 taken
from Ramsay 2012 8).
529
Ramsay 2012 2. The expansion of commerce and trade has been proposed as the more
significant mainspring for the development of a general theory of contract, with religion as the
second main force (Harker R ‘The Role of Contract and the Object of Remedies for Breach of
Contract in Contemporary Western Society’ 1984 101 SALJ 121 123).
530
Offer A The Challenge of Affluence: Self-Control and Well-Being in the United States and
Britain since 1950 1996 1. It is submitted that a similar development is evident in post-1994 South
Africa, albeit not precisely for the same reasons. The repeal of racially prejudiced laws that had
curbed the earning capacity of the majority of the population thereby limiting their access to
credit, amongst many other sanctions imposed, resulted in a sudden intensification of demand for
durable goods. This (delayed) greater demand was fashioned by the bulk population joining the
previous (minority) market as equal role players in the consumer emporium.
531
Ramsay 2012 2.
80
development was seen as the beginning of the breakdown of traditional class
barriers.532 This evolution was dubbed ‘embourgeoisment’, essentially ‘the
working class was gradually being assimilated, through consumption of products
similar to those of the middle class, to the style and manners of that class’.533

It is submitted that with the rise in consumerism came the rise of hypotheses on
how to best protect the consumer – if he was to be protected at all.534 And since
the turn of the millennium the regulation of consumer credit has been at the
centre of policy discussions in many parts of the world.535 Selection processes or
rationale for legal frameworks for particular jurisdictions are entangled with
difficult economic, political and institutional choices. What is prevalent, however,
is the similarity in policy concerns across jurisdictions. Often, reports, research
and findings on the topic of consumer protection in one country are relied on or
reflected in another’s. Thus, what follows is a discussion on the rationale for
consumer policies, drawn from various jurisdictions; demonstrating that the
overlap of problems encountered and solutions implemented in the various
jurisdictions are common. Furthermore, it will be shown that rationale

532
Ramsay 2012 2. The following is a poignant remark by Sir Henry Maine: ‘movement of
progressive societies has hitherto been a movement from status to contract’ (from Harker 1984
SALJ 121 122 fn 13).
533
Goldthorpe JH et al The Affluent Worker in the Class Structure 1969 198. Again, the situation
can be assimilated to the twenty year old South African democracy. The difference being that the
contemporary assimilation was not crossing a class barrier (although on a certain level this
happened as well: the majority of black people were from a working class background; however,
not due to custom or legacy but due to ‘legalised’ constraint) but the major shift was the crossing
of the colour bar. The ‘consumer society’ of goods (and obviously of credit) increased by a vast
percentage as people, that had been previously discriminated against due to race, were now
provided with the same access to consumer goods and credit as those that had not been
subjected to the same restrictions.
534
The degree of sophistication of legal theory has historically been closely linked to the level of
economic activity within a given society (Harker 1984 SALJ 121). As historic examples one can
look at the revival of trade which followed in the wake of the crusades, this has been advanced as
the revival of the study of Roman law on the continent (cf Hahlo HR and Khan E The South
African Legal System and its Background 1973 487); the golden age of the Dutch Republic is the
period during which Roman-Dutch law achieved its full flowering (cf Hahlo and Khan 1973 543);
the advances in the English law of contractual obligation followed in the wake of the self-
sustained economic growth of the Industrial Revolution, which began to take off around 1760 to
1770 (cf Atiyah PS The Rise and Fall of Freedom of Contract 1979 2244ff and 398ff) (from Harker
1984 SALJ 121 fn 5).
535
The history of consumer credit regulation is, however, as old as consumer credit itself. The
first civilizations known in history had already endeavoured to find a balance between facilitating
economically useful credit extensions and protecting vulnerable borrowers against abuse by
lenders (Franken in Niemi et al Consumer Credit, Debt and Bankruptcy Comparative and
International Perspectives 2009 127). Cf Chapter 2 above for a detailed discussion in this regard.
81
motivating the change in legislation in South Africa as well as other jurisdictions
were founded on past experience.

Broadly speaking, two central policy strategies or approaches to the study of the
consumer market exist: some theorists posit that competition and market forces
are the best protection for consumer interests;536 other views tend to favour a
redress of the imbalance of power between producers and consumers through
public regulation.537 The former viewpoint is based on the idea of liberalization of
the credit market with the empowerment of the consumer,538 while the latter
envisions regulation of both the procedure for granting credit as well as the
content of the contract to ensure fair and secure contracts that protect
consumers.539 The two disparate regulatory strategies are dubbed ‘neo-liberal’
and ‘social-market’,540 respectively. Niemi541 posits that the United States and

536
Board of Trade, Final Report of the Committee on Consumer Protection (Molony Committee)
Cmnd 1781/1962 (hereinafter the ‘Molony Report’).
537
Committee on Consumer Credit 1971 Report of the Committee on Consumer Credit under the
presidency of Lord Crowther Cmnd 4596 (hereinafter the ‘Crowther Report’). Cf also Cartwright:
‘[W]e need to consider the relationship between consumer protection and the market economy. It
is sometimes argued that the state, through the law, should play only a restricted role in
protecting consumers, because consumer protection is most effectively achieved by the operation
of free and open markets. Law should be used to ensure that the markets function as freely as
possible. Where markets do not work perfectly, the law should intervene to address this failure,
provided this can be done cost effectively’ (Consumer Protection and the Criminal Law: Law,
Theory, and Policy in the United Kingdom 2006 1).
538
Here the consumer is assumed to follow the rational actor model in his decision making. The
‘rational actor model’ of consumer behaviour assumes that a consumer that acts with complete
information will choose outcomes that maximise his benefits and minimizes his costs (Hastie and
Dawes Rational Choice in an Uncertain World: The Psychology of Judgment and Decision
Making 2001 and Block-Lieb S and Janger EJ ‘The Myth of the Rational Borrower: Rationality,
Behaviouralism and the Misguided Reform of Bankruptcy law’ 2006 84 Texas Law Review 1481).
539
If one looks at a broader theory of contract, two main methods of regulating the production and
allocation of goods can also be identified. The first is by letting private individuals contract
autonomously and the second is through collective planning where agencies in society (such as
government) are responsible for social and economic planning and public officials by means of a
planned economy are able to achieve social purposes directly (Harker 1984 SALJ 121 136). The
latter, it is submitted, is an example of socialist ideology. Harker submits that in Western
capitalist, free-enterprise societies the former- autonomous ordering – is the preferred ideology.
For social and economic planning to therefore be accomplished through private contracting the
existence of rules is essential (ibid). This discussion is expanded in the introduction to Chapter 6
infra.
540
The following paragraph, notwithstanding it being an individual view, gives a fine indication of
what the ‘social-market’ approach entails: ‘Through its ideal of perpetual growth, the market
favours those who have and punishes those who have not, thereby increasing over-
indebtedness, and necessitating that we frame market power with a public and social ideal.
Unlike the tradition of the welfare state, I do not assume that welfare can only be introduced into
markets through centralised state power, as the creation of centralised authority can sometimes
cause more harm than good. Welfare is not synonymous with the state but has a collective
dimension. The dimension can only be introduced into individual (market) behaviour through the
82
England fall under the former model and countries such as Germany fall under
the latter model. It is submitted that South Africa, with the advent of the National
Credit Act, now definitively falls into the category of the ‘social-market’.542

Conventional justifications for interventionist regulatory policies and legislation

can elementarily be diagnosed into two camps: the correction of market failures
and ethical goals such as distributive justice.543 It is submitted that justification
for intervention in the consumer market fall under either or both of these two
camps; consumers are either suffering unjustly at the hands of providers
(distributive justice) or the economy is afflicted (market failure). One of the chief
rationale for consumer policy is the inequality of bargaining power between
consumers and suppliers of goods, services or credit.544 The disparity between
the two role players in the consumer relationship is natural and the profundity of
the imbalance authentic.

The so-called neo-liberal approach or the free market ideology545 posits that
market forces and competition are the best protections for consumer interests,

use of rules. [...] It is important to explore how these rules should be construed in order to create
the necessary political pressure to reform a system, which is not individualistic by a choice of
actors but through a compulsory legal form, serving the powerful interests of individuals and firms’
(Reifner in Niemi 105).
541
Niemi 2009 3.
542
Or in writer’s own words, the ‘regulated market’ supposition.
543
Michell adds paternalism as a further fundamental (‘Alternative Consumer Credit Market and
Financial Sector’ Canadian Business Law Journal 2001 360 363). However, it is submitted that
paternalism per se is not a standalone motive for intervention. Paternalism or paternalistic
approaches to regulation are a consequence or method of regulation, rather than justifications for
intervention. It is the basic needs of the consumer and the failure of the market which result in
what may be viewed as paternalistic government reactions in regulating.
544
Michell refers to it as ‘market power’ advocating that in certain urban neighbourhoods, for
example, companies may be able to exercise a kind of jurisdictional monopoly power because of
high transportation costs and habit and convenience, which deter individuals from shopping
outside the proximity of their neighbourhoods (Canadian Business Law Journal 2001 364).
Squires, writing from an American perspective, argues that a more fundamental transformation
that shapes credit practices is a dramatic increase in economic inequality: ‘Over the past three
decades, the trajectories of inequality that have most dramatically changed the face of the
nation’s metropolitan areas are the persistence of racial segregation, concentration of poverty
coupled with increasing economic inequality, and sprawl [...]. The world of financial services has
been hardly immune to these forces. In many ways, restructuring of financial services both
reflects and reinforces these patterns of inequality and uneven metropolitan development. A two-
tiered system of financial services has emerged, one features conventional products distributed
by banks and savings institutions primarily for middle- and upper-income, disproportionately
white, suburban markets, and the other featuring high-priced, often predatory products, offered by
check-cashers, payday lenders, pawnshops, and others targeted at low-income and
predominantly minority communities concentrated in central cities’ (Niemi 2009 12-3 and 17).
545
Terminology in writer’s own words.
83
thus creating an optimally balanced and fair market.546 However, the conditions
which would create such optimal performance of a market involve making very
sanguine assumptions that are not in reality constant or continuous.547 Some of
the assumptions of a free market economy are:-548

 There are enough buyers and sellers in the market at any one time that the
activities of one economic actor (supplier) will only minimally impact the output
price in the market;
 There is free entry into and out of the market;
 Commodities sold in the market are homogenous, that is each seller trading in a
particular commodity trades in essentially the same product;
 All consumers have the same information with regards the nature and value of
commodities being traded;
 All production costs of commodities are borne by the producer and all the
benefits accrue to the consumer, that is, no externalities exist;
 Stability of individual tastes and preferences; and
 Existing distribution of wealth and resources.

In practice, the assumptions as outlined above are often not a true depiction of
the market paradigm.549 When these optimum conditions are not reached, one
refers to them as ‘market failures’.550 Market failures include situations such as
lack of competition, like in countries dominated by monopolies or oligarchies,
which is especially true of small economies such as that of South Africa. There
may be barriers to entry, lack of product homogeneity,551 information gaps

546
Ramsay 2012 7-13.
547
The following comment not only interesting but humorous: ‘It may be useful to begin with a
model of an economic system which is as alluring as it is unrealistic. […] A society based on this
model of ‘perfect competition’ in the market should secure the best of all possible worlds for the
consumer. The consumer, indeed is dominant. He or she exercises the power of commercial life
or death over suppliers in the shape of his or her purchasing decisions. The consumer will be
supplied according to his or her preference and, for society generally, there will be no waste of
resources. […] Increased demand will in theory lead to an increase in price, but corresponding
increase in supply will quickly restore equilibrium between supply and demand (Howells and
Weatherill 2005 1).
548
Ramsay 2012 42 and 47.
549
Ramsay I Consumer Law and Policy: Test and Materials on Regulating Consumer Markets
2007 55.
550
Ibid.
551
That is, the existence of qualitative differentiation between products.
84
between producer/provider and consumer,552 and external costs which are not
incorporated in the market price.553 Ramsay554 submits that market failure
occurs where there is a failure in one or more of the conditions for the optimal
operation of a competitive market.

Reasons for market failures include such issues as monopoly power, price fixing,
abuse of a dominant position in the market, information gaps, switching costs,555
lack of confidence in a particular market, unsophisticated consumers’ inability to
make informed decisions about complex issues556 or consumers’ inability to
obtain redress.557

Adequate information on prices, quality and terms of the products or services

provided are essential to the smooth functioning of trade – it allows consumers to
make efficient choices when purchasing.558 The perception that many
consumers are inadequately informed as to the nature and consequences of their
transactions has provided justification for the institution of consumer protection
measures.559 The discussion below on rationale for South Africa’s legislative
credit consumer protection demonstrates that indeed, concerns over imperfectly
informed consumers, was a motivating factor for intervention by the legislature.560
The problem with this rationale is that consumers, in general, will rarely have all
the information and different markets will provide differing quantities and qualities

552
Caplovitz posited that such information gaps were the cause of fraud and deception in lower
income markets (The Poor Pay More 1967 and cf Michell Canadian Business Law Journal 2001
364).
553
Ramsay2007 56.
554
Ramsay 2007 55.
555
Switching costs refers to the expenses that a consumer would have to embrace in order to
switch to another product or provider, for example the expenses time and energy that a consumer
would have to expend changing banking institution including the time that he would require in
order to understand and choose the new institution.
556
Gailbraith is of the view that larger firms are able to manipulate consume demand through
strategies such a sproduct promotion, on which much money is invested (Gailbraith 1987 85) and
further the concept of ‘false consciousness’ describes the situation where consumers in modern
society cannot under such circustances really know what they want’ (Kennedy D ‘Distributive and
Paternalist Motives in Contract and Tort Law, with Special Reference to Compulsory terms and
Uneuqal Bargainaing Power’ 1981 - 1982 41 Maryland Law Review 563).
557
In 2005 the Department of Trade and Industry of England resolved this criteria for determining
whether, and if so how, the Central Government should intervene in the markets (DTI A Fair Deal
for All: extending Competitive Markets: Empowered Consumers Successful Business 2005).
558
Ramsay 2012 15.
559
Ramsay 2007 16.
560
Cf paragraph 3.2 infra.
85
of information.561 Thus, it has been suggested that the rationale of the
uninformed or imperfectly informed consumer will continuously motivate for
further interventions.562 A limitation on this would be a balancing between the
costs and benefits of any proposed intervention that is ensuring an adequately
informed consumer as opposed to a perfectly informed consumer.563

Another perceived market failure is one often criticised as derisory, that is the
institutional framework which secures the performance of market exchanges, the
already existing structure that ensures protection of rights and maintenance of
obligations of the parties to the consumer transaction – this is the private law
system of individual enforcement.564 It is submitted that the following view is an
exemplary illustration of one of the principal motivational rationale for intervention
and regulation in the consumer market:565

A major issue in consumer protection has been the perceived inadequacy of this
system of individual private law litigation to secure the performance in a mass
consumption economy where the impact of harm is large in the aggregate but
small for any one individual. Since the transaction costs (information, time and
trouble, uncertainty of outcome) of enforcing individual consumer claims may
often outweigh the ‘expected recovery, the private law system may fail either to
deter socially wasteful activity or to compensate for violations of rights.

In short, the redress provided by private law or common law of contract is

perceived as expensive and risky, with inherent time delays. This often results in
lack of confidence in the system.

Although market failure is viewed as a dominant rationale for intervention,

Ramsay566 submits that it is not always a sufficient rationale, because it is
necessary to estimate the effect of the failure on the price, quantity and quality of
goods or services and thereafter to compare these with the cost of remedying the
failure.567 Government intervention is not without cost and an analysis of the

561
The credit market and the vehicle market, for example, will avail different information in
different formats and media.
562
Ramsay 2007 25.
563
Ibid.
564
Ramsay 2007 21.
565
Ibid.
566
Ramsay 2012 42.
567
Ibid.
86
costs and benefits of intervention and the potential impact of a remedy on the
market and the behaviour of the consumer who is affected is necessary.568
Market failure may lead to potential inefficiencies in the price, quality or quantity
of goods and services produced in a particular market. Since almost all markets
will be imperfect, it is important to diagnose the extent of any particular market
failure and its effects on these three aspects. Minor imperfections may not justify
corrective action, since such corrective action will itself entail costs and may have
unintended side effects.569 Market failures, such as those indicated above, are
principal motivating factors which propel governments to regulate the consumer
market, through legislative intervention.570

A further fundamental rationale for intervention is the notion of the injudicious

consumer, that is, perceptions that consumers do not act rationally when making
choices.571 Consumers often make impulsive decisions which, in retrospect were
not beneficial to them.572 While the topic is largely grounded in behavioural
economic theories and research, it has been mentioned here because, when
considering intervention in the credit market, legislators should and often do take
such comportment realities into consideration. Providers may manipulate
marketing practices for gain and many consumers fall into the same or similar
behavioural pattern.573 Furthermore, a consumer may only choose from what is
available, which in turn is limited to the institutions of the society they live in and

568
Ibid. Cf Michell Canadian Business Law Journal 2001 365.
569
Ramsay I ‘Rationale for Intervention in the Consumer Marketplace’ IDC 1984 17.
570
Ibid.
571
Ramsay 2012 42.
572
Ibid.
573
Research during the past decade suggests that there may be failures in the credit card market
caused by consumer behavioural biases. Initial work by Ausubel (1991, 1997) concluded that
credit card companies in the United States earned supra normal profits because individuals
underestimate the future extent of their borrowing on the card. Since they did not intend to use
the card as a borrowing mechanism from the outset (reflecting also over-optimism) they paid little
attention to the interest rate charged on the card but were concerned about the immediate costs
of the annual fee (Ausubel, 1991; Bar-Gill, 2004). Since competition will focus on the annual fee,
this will result in pressure to reduce the annual fee but maintain a high interest rate and increase
late payment charges and fees. Research on low interest introductory offers also indicates that
consumers underestimate the amount of their future borrowing on the new card and overestimate
the benefits of switching cards (Ausubel, 1999). Neoclassical economists countered Ausubel’s
explanation with the argument that consumers borrowed on credit cards because of the lower
transaction costs of doing so, compared with other forms of short-term borrowing (Brito and Hartly
1995 from Ramsay 2007 79-80).
87
the relative economic position of the consumer and the other party to the
contract.574

Equity has also been viewed as an important component motivating consumer

protection legislation.575 In fact consumer laws and policies are often recognized
as attempts to redistribute power and resources, such as rights, from providers to
consumers.576 This theory comes, however, with the proponent that in general
consumers are less wealthy and have less means than providers or producers.577
Aronstam578 encapsulates the issues by remarking:

The poor and less-educated, because of their ignorance both of the credit market
and the protection afforded to them by the law, are frequently placed in a position
where their ignorance is abused by moneylenders. They may be charged
usurious rates of interest or inveigled into entry into unduly burdensome credit
transactions. They may be presented with contracts worded so obscurely as to
be unintelligible to them.

It will be shown in the section below that South Africa is perceived as precisely
such a model, with the majority population being considerably poorer and less
equipped than the wealthier counterparts to the credit transaction - the credit
providers. It is submitted that commercial society does appear to be weighted in
favour of the wealthy. A simple example is banking costs in South Africa:
depending on what tier a consumer ‘qualifies for’, which is measured according
to the amount of money that he earns – then the costs of borrowing credit and of
banking decrease. Ramsay579 observes that ‘[a]n efficient policy is ultimately
justified by equity since consumers are able to obtain goods and services of a

574
Zweigert K and Kötz H Introduction to Comparative Law II: The Institutions of Private Law
1977 7-9.
575
Ramsay 2012 70.
576
Ibid.
577
Ibid.
578
Aronstam PJ Consumer Protection, Freedom of Contract and the Law 1979 65.
579
Ramsay 1984 12. However, the fact that low income consumers pay more, whether the
discrepancy is merely relative or direct, cannot be discounted. Interest rate ceilings have been
one attempt to redress the unfairness. However, views have been posited that attempts to
redistribute wealth are futile, as long as individuals remain free to contract business will ‘pass
along’ the costs to consumers and where businesses are prevented from so doing, they may be
unwilling to contract with consumers. Particular to the credit market, this could result in credit
providers refusing to supply credit. Consequently consumers may resort to illegal methods of
borrowing such as from loan sharks. A further counter argument is that redistribution should be
handled through taxes and transfers and the burden thereof should not be placed solely on the
shoulders of the providers (Michell Canadian Business Law Journal 2001 366-7).
88
quality, on terms, and at the price that they are willing to pay’. As far as
redistributive policies relating to credit are concerned, one needs to look at the
central question in relation to low-income markets, which is whether redistributive
policies of consumer protection are legitimate or an effective method of achieving
more general redistributive goals; examples of such policies are the regulation of
interest rates to protect high-risk, low-income consumers and restrictions on
creditors’ remedies.580

Community values, including such concepts as honesty, fair-dealing and loss-

sharing are also advanced as rationale for intervention. Furthering such line of
thinking is the broader view of creating trust and similar values in order to create
an efficient market.581 Consumer policy and regulation is viewed as one of the
tools for creating security in the market environment.582 It is submitted that an
economic society has to be sufficiently sophisticated to rely on such conceptual
rationale to motivate intervention.

The above has been an exposition of some of the rationale that propel
intervention in the consumer market through policy and legislation. It is
submitted, however, that the question is no longer whether to regulate, but how
much to regulate. It is further submitted, that regulation in this global profit-
based, credit-reliant, economic environment is a necessity. Cartwright583
suggests that the market, buttressed by private law, is important for ensuring that
consumers are able to operate comfortably in terms of goods and services that
they want, and suggests that intervention which assists the proper functioning of
the market is valuable. It is submitted that the buttressing by private law is not

580
Ramsay 2007 97. In terms of South African legislation, the National Credit Act regulates how
credit providers may pursue the credit consumer that has reneged on his contractual
obligations. It is submitted that the Act does not, however, and in terms of remedies, provide or
fashion any therapies or procedures that have not been available to credit providers prior its
enactment. Nor does the Act so severely restrict creditors’ remedies so as to truncate access to
relief from errant consumers. The Act does, however, introduce novel concepts to South Africa
with regards debt counselling and debt review procedures. It is how these new procedures
interrelate to the remedies that produce a different consumer legislation matrix to that of the
previous legislative dispensation. This discussion is expanded in Chapter 6 infra.
581
Ramsay 2012 80.
582
Ramsay submits that the European Union Commission appeal to this value by promoting
harmonisation programmes for consumer law in the European Union (Ramsay 2012 80).
583
Cartwright 2006 2-3.
89
only necessary to bring comfort and a sense of stability of the contractually
based consumer market to the consumer but to both role players in the credit
relationship, that is consumer and credit provider.584 A credit provider that is
ensured that the credit it provides to a consumer will be recouped through the
legal process in the event of breach of the agreement by the consumer will
extend credit and probably at a better interest rate than a credit provider that is
expected to operate within an unstable environment.585 It is further submitted
that while the National Credit Act, initially brought about some concern regarding
recoupment of fees, the courts assisted by precedent and academic
interpretation do and have stabilised the credit environment.586

It is submitted that three main considerations that should be measured when

assembling policy or deciding upon which regulations to adopt and which to
discard are:
(a) the cost effectiveness of the particular rules and consequences of
implementation thereof;
(b) that the direct result of such legislation does not disproportionally benefit
one class of consumer;587 and
(c) that state intervention does not completely remove the judgment from the
(d) consumer and thus essentially and incrementally erode freedom of
contract.588 Knowing that a contract freely and voluntarily entered into is or
will be enforceable is in effect the necessary basis upon which a contracting
party enters into a contract.

584
It is further submitted that in the South African context the common law, within which any
legislation is ‘birthed’, creates a sense of security in the market for the contracting parties.
585
Or in an unsecured environment, such as with unsecured loans.
586
Some political theorists have, however, argued that government endeavours to bring about
substantive public objectives through legal directive would be at the cost of the ‘over legalization
of social relations and would ultimately be ineffective’ (Offer C Contradictions of the Welfare State
1984 280).
587
While low-income consumers are generally perceived as necessitating relatively more
protective measures in policy making, this cannot be to the detriment of middle or high income
earners- such policies would have a pejorative effect on consumer markets and may result in
discrimination by providers.
588
The ideas have largely been adopted from Ramsay 2007 Chapter 2. Cf fn 597 below for an
elaboration on the meaning of freedom of contract.
90
Firstly, any decisions to intervene in the market and the extents of such
intervention have to be weighed against the costs and the benefits of the
intervention, the behaviour of those affected by it and the equitable effects of the
costs and benefits amongst different groups of consumers and providers.589
Economists are great proponents of cost benefit analysis made up of identifying
the sources of the problems in the market and analysing alternative responses in
terms of benefits to both consumers and providers; compliance costs; costs of
drafting and implementing the legislation; costs of enforcement and
consequential costs to buyers and sellers.590 Thus it is advocated that ideally
efficient legal intervention should minimise these costs and require that the
economic benefits exceed the costs.591 It is submitted that this is a very
‘economic theorist’ outlook – but again, that in reality the law maker, especially
with reference to the credit market should take such matters into consideration.
Not accurately analysing the costs of regulating may have two results: the first is
that it may eventually harm the very consumer that the legislation is attempting to
protect – as the costs may be downloaded on to him. The second is that the
credit provider may withdraw from the market or a certain sector of the market
because the costs of compliance are simply curtailing too much of the profit
margin.592

The second consideration of consumer protection is important, that is that the

direct consequence of legislating does not disproportionately benefit one class of
consumer, this is because measures are often designed to protect particular
groups of consumers, for example low income or vulnerable consumers.593 The
concern here would be to ascertain whether such measures would benefit the
individuals targeted594 and would not result in the excessive cost being
reassigned to other consumers, whether directly or indirectly.

589
Ramsay 1984 17.
590
Ibid.
591
Ramsay 1984 18.
592
Cayne and Trebilcock have argued that consumer protection laws can be exclusionary, where
lenders refuse to supply credit, or even degenerative – where consumers turn to the black market
(Cayne D and Trebilcock M ‘Market Considerations in the Formulation of Consumer Protection
Policy’ 1973 UTLJ 396)
593
The elderly or the young.
594
Ramsay 1984 17.
91
‘Paternalism’ is a factor that must be contemplated in relation to consumer
legislation.595 Consumer legislation naturally takes somewhat of a paternalistic
role in that it must protect the vulnerable consumer whilst ensuring that this is not
done to the detriment or harm of the provider, whilst and at the same time
protecting the consumer-provider relationship. ‘Paternalism’ per se is not
necessarily to be construed as a negative notion; it is the extent of the intrusion
that may distort the concept.596

Coupled with the slippery nature of paternalism is the issue of erosion of freedom
of contract through too stringent regulation.597 As will be seen in the discussion
below on economic necessity and legal certainty,598 the National Credit Act has
already been criticised as ‘almost paternalistic’.599 A balance is required with any
legislative intervention, whether consumer related or otherwise. And, it is
submitted that this is where South African law which, unlike the civilian tradition,

595
If removed of the familial connotations, ‘paternalism’, may be understood as a ‘protective’
attitude or stance.
596
The following is an economic explanation of paternalism: ‘Paternalistic measures override
individual preferences, substituting government judgment for that of the individual. These
interventions are often based either on distrust of the consumer’s ability to evaluate information or
on the fear of individuals, even with accurate information, will act irrationality, mis-estimating
product risks. It is associated with regulation where mistakes by consumers might have costly
consequences [...] or where consumers’ short-term preferences appear to need to be overruled in
favour of their long-term interests. The behavioural literature has underlined the slippery nature of
paternalism for it may not be easy to distinguish between situations where intervention accords
with an individual’s real preferences [...] and those where government overrules an individual’s
real preferences, substituting its own judgment’ (Ramsay 2007 100).
597
The following from Zewigert and Kotz gives an excellent understanding of the concept of
freedom of contract: ‘Freedom of contract has always had many meanings, even if we confine
ourselves to obligational contracts. Given that the limits of public order are not overstepped …
freedom of contract means the freedom to select and enter contracts of any imaginable type, the
freedom to decide whether to contract or not and the freedom of each contractor to fix the terms
of his own promise, subject to the agreement of the other party. The freedom to choose what type
of contract to adopt is just a variation of the freedom to choose what the content and
consequences of one’s contract are to be, so in asking whether freedom of contract is still a vital
principle today we can confine ourselves to the question whether parties still have a free choice
whether to conclude a contract and how, or on what terms. Indeed the ‘whether’ and ‘how’ of
contract often, perhaps even usually, coalesce into just one single question, since whether a
person will contract at all commonly depends on the terms open to him’ (1977 8). In
contradistinction to the above, Harker provides an interesting view on freedom of contract:
‘Freedom of contract, as a general principle, simply does not exist in contemporary society. The
legal order may require that certain contracts be made, or it may dictate the terms which must or
may not be included in contracts into which the parties do voluntarily enter. Moreover, true
freedom of contract is a workable social norm only in so far as it presupposes economic and
social equality between the parties to the contract. Freedom of contract in this sense is itself a
chimera, a fantasy which has never existed in any way as a reality; it certainly does not exist
today – the age of mass production and standardized transactions’ (1984 SALJ 121 129).
598
Cf paragraph 3.1.1 infra.
599
Cf Otto JM and Otto R-L The National Credit Act Explained 2013 14.
92
based on the common law, nourishes legislation through the interpretative
function of the courts, which rely on precedent, creating a certitude for all role-
players. The principle of legal certainty is discussed later in this chapter,600
however, it must be mentioned here that a requirement for a stable contracting
environment is that performance must be certain. And while state legislative
intervention is welcomed in protecting the consumer, a line must be drawn to
ensure that a credit provider is ensured of enforceability. It must be certain at the
time of contracting that the agreement will be enforced, especially in the event of
breach. An overly regulated regime will result in the attrition of such
fundamentals, and is to be guarded against.

3.1.1. Economic Necessity and Legal Certainty

Economic concerns601 are one of the most important considerations that the
lawmaker must contemplate when deciding on legislative frameworks, especially
in the credit market. The legislative and regulatory framework that is requisite to
have a smoothly flowing economic market is largely dependent on economic and
social factors being taken into consideration by the policy maker. The legislator
must consider the type of population that makes up the country. Is it a largely
educated and sophisticated consumer market, or an uneducated and
unsophisticated market or, as with the South African market, he has to consider
whether there is a large discrepancy between the wealthy and educated and the
poor and uneducated. The rules that a state decides to implement and the
extent of the intervention will be determined by such considerations. However,
the counter balancing consideration is that legal certainty cannot be forsaken.
World Bank policy has long recognized the importance of open and efficient
courts to sustained and widely shared economic growth, the fact that contracts
must be enforced, property rights must be protected and foreign and domestic
investors must have confidence in the legal security of their investments.602 This

600
At paragraph 3.1.1.
601
And often times social ramifications.
602
The World Bank, Human Rights and Development: The Role of the World Bank, 23188
September 1998 15 (http://www.worldbank.org/html/extdr/rights/hrtext.pdf) (30.11.2009).
93
evidences the importance placed on the enforcement procedures and protection
of rights as relative to healthy economic growth.

Once again, emphasis must be placed on achieving the right balance as criticism
of paternalism is often levelled at policy makers. The following extract is
relevant:603

Paternalism is an important concept in discussions of consumer policy. It is

frowned upon by economists who make the assumptions of market economics
since it assumes that government knows better than an individual what he or she
wants or what is good for him or her. Yet the growth of the pejorative connotation
of the term ‘paternalism’ is relatively recent, coinciding with the dominance of
liberal individualism (Kleining 1983: 3). Paternalism is viewed by some as both
compassionate and humanitarian – as an attempt to overcome the alienation of
individualism and to show sympathy for others (Kennedy 1976; 1982). [...]
Paternalism also invites us to question the assumption of the market model (and
liberal individualism?) that individuals are the best judge of their own interests
and that they prefer what they choose in the market-place (Offer, 2006: ch 2).
Economists have traditionally considered preference and choice synonymous –
reinforcing the doctrine of consumer sovereignty.

How does one, however, fit what appears to be scholarly rhetoric to pragmatic
ground level legislating - if at all? If one looks at debt and over-indebtedness, it
can be seen that these concepts are defined by those who have the power to
decide, including such role players as the state, suppliers of goods and services
and investors or creditors. Unmonitored, it will be credit providers that tend to
define who will be counted as indebted or over-indebted.604 Indebtedness or
over-indebtedness is scrutinised as a tangible sign of inadequate prospects for
an economically feasible future that would ultimately require credit thrust.605
Thus, any negative diagnosis by creditors would result in low ‘score’
assessments or rather a negative credit history606 of particular credit consumers.
It is such practical concerns that plague the lawmaker:607

[A]ny freedom in the choice of intervention is constrained by the fact that

measures which directly attack over-indebtedness tend to have redistributive
effects. This is why regulatory approaches that want to avoid changing the legal
system, in which insolvency procedures lead to a significant loss of income,
mostly favour the more subjective forms of prevention. They propagate ‘(a)

603
Ramsay 2007 101.
604
Or in a completely unregulated environment not to bother to make a determination either way.
605
Reifner in Niemi 2009 107.
606
Cf section 70 of the National Credit Act.
607
Reifner in Niemi 2009 107.
94
 financial literacy’, ‘(b) microlending’, ‘(c) responsible lending and borrowing’
(‘reduced access’), ‘(d) debt advice with supervised repayment plans’, or on rare
occasions ‘(e) anti-usury laws’. Each of the above-mentioned measures pretends
to know the reasons for over-indebtedness: unconscious and unskilled behaviour
(a), lack of access to adapted loans (b), over-generous offers and too much
borrowing (c), unprofessional handling of debt (d), or the exploitation of
weakness (e).

The preventative methodology of legislating, described above, is akin to the

measures laid out in the National Credit Act. A cursory view of the Act will
demonstrate that the legislature covered the abovementioned inventory, that is:
financial literacy,608 responsible lending and borrowing,609 reduced access to
credit according to the consumer’s means,610 debt advice with supervised
repayment plans611 and anti-usury laws.612 However, as correctly pointed out by
Reifner,613 these agenda seem to have little result on the degree of over-
indebtedness in society. A consequence of which is that the emphasis then falls
on the effectiveness of the legal rules put in place to regulate the relationship
between the credit provider and the credit consumer once the consumer is in
breach of his credit commitments.

Credit provides access to supplementary resources, which resources are

calculated on the approximation of future liquidity of the borrowers.614 While on a
realistic level the credit consumer is borrowing the savings of others, the
extension of credit, access to it and repayment methods are factually and legally
organised so that the consumer borrows from his own future income.615
Reifner616 submits that the availability of this income, together with the repayment
structure as legally and contractually arranged ‘are the two pillars that balance
consumer credit relations’. He argues that in order to prevent over-indebtedness
of consumers two options are available: the first, by structuring debt enforcement
practices so that the consumer adapts to the repayment requirements of the

608
Literacy and the right to access comprehensible and complete information. Cf sections 62-65;
69,70,72,73, 77, 92, 107-115 of the Act.
609
Cf sections 78-82 of the Act.
610
Cf sections 82, 43 of the Act and GG 29442 30 November 2006.
611
Cf sections 82-88 of the Act.
612
Cf sections 100-106 of the Act.
613
Reifner in Niemi 2009 107.
614
Ibid.
615
Ibid.
616
Reifner in Niemi 2009 107.
95
credit provider; the other, through implementing methods of refinancing,
rescheduling and discharge, in order to adapt credit to the actual needs and
capacities of the consumer.617 It is submitted that South Africa has adopted the
latter approach. The conceptual terminology used in the National Credit Act are
‘debt review’, ‘suspension’ and ‘re-arrangement’.618 It is notable that the South
African legislature has adopted the consumer protection route. This attitude
brings into question the neo-liberal approach or market economy. The question
to be posed, is then: should the market respond to the needs of the people or
should people adapt to the needs of the market? With his view posited against
the neo-liberal nuance of consumer protection, Reifner619 postulates, that while
the basic democratic answer is obvious, it is also unrealistic:

If people rule they should also rule the economy and the market. But
representative democracy, as the only form of democracy that has proved
effective, is no suitable means where the welfare of individuals is concerned.
Nobody knows what ‘people need’ but only what ‘people want’. This is why the
socialist dream of a planned economic democracy is misleading. But the ‘needs’
remain the goal, while ‘profit orientation’ can only be addressed as a tool to
satisfy these human needs. Consumer protection is thus a complementary
programme that intends to defend consumer needs rather than merely defending
aggregate demand.

Although the above comments are essentially theoretically sound, the delicate
balance between protecting that which is a ‘need’ and discarding that which is a
‘want’ is no small legislative task. Abandoning the consumer protection
responsibility to the market economy is not, it is submitted a viable option for
South Africa given its first-world/third-world impasse, nor has South Africa
evidently taken a neo-liberalist stance. On the contrary, the consumer orientated
National Credit Act is a sign of a more regulated market approach. Furthermore,
the extensive Consumer Protection Act,620 is a sure sign of the very pro-active
steps that the legislature is taking in order to stalwartly protect the consumer.
The preamble of the Consumer Protection Act states that the people of South
Africa recognise that apartheid and discriminatory laws of the past have

617
Ibid.
618
Cf Chapter 4 Part D of the Act.
619
Reifner in Niemi 2009 107.
620
Act 68 of 2008 (hereinafter the ‘Consumer Protection Act’). The Act became operative 18
months after the date on which the President signed the Act, save particular sections which took
effect on the date one year after the date on which the Act was signed by the President
(Schedule 2). The Act was signed by the President on the 29 April 2009.
96
burdened the nation with unacceptably high levels of poverty, illiteracy and other
forms of social and economic inequality, and therefore it is necessary to employ
innovative means to fulfil the rights of historically disadvantaged persons and to
promote their full participation as consumers; protect the interests of the
consumers, ensure accessible, transparent and efficient redress for consumers
who are subjected to abuse or exploitation in the marketplace; and to give effect
to internationally recognised customer rights. Amongst other reasons offered,
the Consumer Protection Act motivates its enactment in order to promote and
protect the economic interests of consumers.621 These are not the objectives of
a government seeped in neo-liberal ideology.

Both the National Credit Act and the Consumer Protection Act commence by
concentrating on the ‘marketplace’: the former Act purports to ‘promote a fair and
non-discriminatory marketplace’622 in relation to credit, while the latter purports to
‘promote a fair, accessible and sustainable marketplace’ in relation to consumer
products and services.623 What becomes of concern in a regulated market
economy, as it has been of concern in Europe, is the risk of financial exclusion,
which is symptomatic of consumer weighted policies. Thus, where legislation is
over-protective of the consumer and becomes zealous in its recriminations of the
credit provider, and where the credit provider faces risks such as suspension of
its credit agreement with the credit consumer if found to be a reckless lender,624
then the credit provider may rebuff certain credit applications.625

Reifner626 indicates that consumer credit law has shifted responsibility for the
asocial effects of the credit system onto the consumer. It assumes, he argues,
that markets offer all the essential opportunities to avert over-indebtedness

621
Preamble to the Consumer Protection Act.
622
Preamble to the National Credit Act.
623
Preamble to the Consumer Protection Act.
624
The effects that the relevant sections in the National Credit Act (sections 80-84) have on the
essentialia of the credit agreement are discussed in Chapter 6 infra.
625
The counter argument is that the creditor does not really face the risk of suspension of a credit
agreement if it has properly assessed the credit history of the consumer; however, it is not
impossible that a debt re-arrangement or suspension may affect a credit provider that was not
responsible for lending recklessly. The courts will have to take a very pragmatic approach to
these sections (Cf Vessio ML ‘Beware the Provider of Reckless Credit’ TSAR 2009 2 274).
626
His view is obviously European in focus.
97
through rational choice.627 He refers to the European Commission, criticising it of
using out dated research and he submits that according to the Commission, in a
competitive European market, consumers will only need three tools to overcome
their predisposition to spending, namely: education, information and reflection.628
These tools will in turn create the virtues required of the average ‘good’
consumer629 who will not only gain strength, but simultaneously create the
necessary competitive market. Reifner630 criticises this line of thinking saying
that ‘[c]ompetition is not the outcome but the precondition of rational choice’. He
concludes that despite ‘this misconception, most specialised credit law, and
particularly the new EU-Consumer Credit Directive follow the path that
perpetuates that the debtor has to adapt himself to the requirements of the
market’.

The European Coalition for Responsible Credit,631 an advocate of ‘productive

credit’,632 is of the view that where consumers have a true and empirically
verifiable chance to use productive credit through informed choice, this should be
preferred to legal intervention. The role of legislation would then be to provide
frameworks to markets in order to induce them to favour productive credit and
punish exploitation.633 The ECRC’s principles of responsible credit campaign the
facilitation of market pressure, orientation and the development of legal
frameworks for responsible credit. These principles are not posited as legal
rules, but are ‘one-sided and an expression of social interest to balance the basic
627
Reifner in Niemi 2009 107.
628
European Union Commission, Consumer Policy Strategy 2007 2013 COM.
629
Wilhelmsson T et al Private Law and the Cultures of Europe 2007 243.
630
Reifner in Niemi 2009 108.
631
Hereinafter ‘ECRC’. The ECRC is a networking and policy influencing association of consumer
agencies, academics, and other nongovernmental organisations formally created in 2006 during
the concluding sessions of the international ‘Responsible Credit’ conference in Brussels. The
Coalitions goals are to further the idea of responsibility in credit and banking and promote a set of
principles for responsible credit and fair lending; organise and maintain a continuing dialogue
among consumer and money advice organisations, social welfare organisations and trade unions,
alternative financial institutions and other NGOs; influence bank thinking, strategies, products and
services to benefit underserved and excluded groups; promote the production of research and
transparency; organise conferences and other forums that increase people’s and NGOs’
understanding and abilities to promote fair access to lending products and services and act as a
collective voice for underserved people to the public with respect to financial services
(http://www.responsible-credit.net/index.php?id=2520) (20.11.2009).
632
‘Productive credit’ is credit which renders a return for the borrower that is higher than the cost.
‘In short a credit is productive if it neither leads to impoverishment nor to over-indebtedness’
(Reifner in Niemi 2009 end note l).
633
Reifner in Niemi 2009 109.
98
countervailing economic interest of profit maximisation’.634 What is being
supported here is ‘a moral purpose-driven form of quasi-legal principles’ which
does not have to comply with the rule of law and which may incorporate
economic language with its formulation being brought closer to the interests of its
supporters.635 Whereas legally framed principles (of law), states Reifner,636
‘offers more shelter from political misuse than economic or moral norms which
through their purpose-driven formulation hinder the creation of self-certainty,
legitimacy and collective behaviour’. The problem, however, is that the law of
contract is unsympathetic to social interest. Reifner637 argues that the solution
lies in the integration of the principles for responsible credit to be incorporated
into the rule of law:

Consumers are seen as buyers or borrowers instead of indebted hungry persons

and dependent wage workers. They are addressed as debtors and not as
overindebted families who have seen their contractual relation cancelled.
Likewise, evicted persons are not seen as homeless and garnished debtors are
not seen as poor people. Principles of responsible credit would introduce human
needs into the flow of capital and social rights into formal contracts. Thus, they
would break the immunity of legal formalism, which turns social reality into a
purposeless game, for which behavioural finance and game theory, instead of
poverty and needs, provide explanations.

This is quite a tall order for any jurisdiction. However, it is submitted that the
National Credit Act’s principles and sections are not too far removed from this
line of thinking. The legislature has, by enacting the National Credit Act,
attempted to prevent discrimination in the market place, making responsible and
affordable credit available to all.638 Although, it must be argued that no
legislation, much less credit legislation, can truly achieve this principle, as the
cost of credit and its fluctuations together with the dissuasive value that a credit
consumer’s lack of financial security (be it in terms of income or assets) may
have on a credit provider, cannot be controlled by legislative enactments, no
matter how sophisticated. The Act has further attempted to make credit relations
transparent and understandable with its accurate credit cost disclosure

634
Reifner in Niemi 2009 110-11 and cf also Reifner ‘European Coalition for Responsible Credit –
Principles of Responsible Credit’ in Twigg-Flesner et al The Yearbook of Consumer Law 2008
419-27.
635
Ibid.
636
Reifner in Niemi 2009 112.
637
Reifner in Niemi 2009 113.
638
Cf the Preamble and sections 3, 60, 61 and 62 of the Act.
99
regulations.639 The Act advocates responsible lending and penalises reckless
lending, with debt re-organisation and if necessary suspension of consumer
obligations in terms of the credit agreement.640

Contracts, entered into freely and voluntarily, are and must be enforceable.
While agreements must be kept641 one must differentiate between a natural
obligation and a civil obligation. The honouring of a natural obligation is
dependent on equity and plausibly founded on morality, whilst the civil obligation
is rooted in law. Blurring the line between these two types of obligations would
remove legal certainty from the transaction. In the realm of the credit regime, the
law which enforces the civil obligation is, in most jurisdictions, entrenched in
legislation. South Africa is no different; we have had many years of legislative
intervention, however, it is the common law within which such enactments are
ensconced that differentiates it from other jurisdictions and which provides a
stabilising ingredient. The National Credit Act, while a relatively youthful
enactment, comes into a body of law, in terms of interpretation and application
which has been preserved in case law and textbooks. It forms the very
foundation from whence the Act and consumer credit protection thinking must
emanate. The following remarks, correctly encapsulate the challenges of the
task of the legislator and the courts when protecting the interests of both parties
to the credit contract:642

Credit plays an important part in the modern management of commerce. The

rights of creditors to recover the debts that are owed to them should command
our respect, and the enforcement of such rights is the legitimate business of our
law. The granting of credit would otherwise be discouraged, with unfortunate
consequences to society as a whole, including those poorer members who
depend on its support for a host of their ordinary requirements. That does not
mean, however, that the interests of creditors may be allowed to ride roughshod
over the rights of debtors’.

639
Cf sections 63, 64, 65, 92 and regulations 28, 29, 36, 38, 40 and 41 of the Act.
640
‘The provisions of the National Credit Act dealing with the prevention and consequences of
reckless credit are not only far-reaching but also extremely importanat to all concerned’ (Otto and
Otto 2013 85). For detailed discussions cf Van Heeden in Scholtz 2014 paragraph 11.4, Vessio
2009 TSAR 274, Renke 2011 THRHR 208 and Van Heerden 2011 De Jure 39.
641
The Latin - pacta sunt servanda.
642
Coetzee v Government of the Republic of South Africa 2005 4 SA 631 (CC).
100
The efficiency of the judicial system and its procedures, including debt
enforcement, have long been recognised as necessary prerequisites for a
functioning credit market that sustains economic growth.643 It is, however, an
unavoidable truth, that no matter how ambitious a legislative endeavour, some
credit consumers will breach their credit agreement for a variety of reasons.
While the private individual credit consumer that is, the natural person, has many
options in terms of credit restructuring and suspension,644 there will be those
credit consumers that cannot for whatever reason use these options,645 and
those credit consumers which are juristic persons and to which sections of the
Act are not accessible.646 Such circumstances will compel the creditor to make
use of the remedies available to it to recover from errant debtors. It is, then, the
remedies available to the credit provider that must ensure fair procedure for
recovery, because credit legislation must not only be preventative in nature but
ensure procedural fairness if or when there is a breach of the credit agreement.

Development of legal framework to encourage growth of credit has been

considered to be a major instrument in the conversion of third world and
communist economies to capitalism. While the Act has been criticised as an
‘almost paternalistic protective inclination of the legislature’647 and when
compared to previous legislation of its kind the Act is perceived as ‘overly
prescriptive and protectionist – an instance of the ‘nanny State’ at work’,648 it is
submitted that the National Credit Act is very much in line with global trends.
And while the emphasis of the Act is determined on prevention of over-
indebtedness due to the credit dilemma, which South Africa along with the rest of
the world finds itself in, the Act does not ignore the very necessary measures
required for recuperation after breach of contract. While extra preventative
measures have most certainly been added to South Africa’s credit regime in
place of old or absent regulation of the past, it is submitted that the protection of

643
Niemi 2009 98 and Striglitz J Globalization and its Discontents 2002 139.
644
Cf Part D of Chapter 4 of the Act.
645
Ibid.
646
Cf section 6 of the Act and the discussion on applications and transactions excluded from the
ambit of the Act in paragraph 4.4.3 infra.
647
Otto and Otto 2013 14.
648
Scholtz 2014 paragraph 2-2.
101
rights of both parties, in particular that of the credit provider have not been
ignored or neglected by the new regime.

3.2. Rationale for Credit Reform in South Africa

The general rationale for implementing new consumer laws in a country are
typically universal and the reasoning for the new credit legislation in the
preceding paragraphs are undoubtedly applicable to the South African dynamic.
This section serves in addition thereto and examines challenges that carried
particular influence in the local legislator’s considerations.

A single reason for the research, investigation, preparation and final

promulgation of the Act does not exist. There is no one pivotal fact that
catalysed the paradigm shift in the legislative credit regime, but rather a
conglomeration of factors that together motivated the reform.

South Africa’s discriminatory legal history resulted in the development of a credit

market which was viewed as inappropriate for the contemporary economic and
social context of South Africa.649 South Africa’s credit market has been dubbed a
bi-economic market: one market is described as being ‘modern, globally
integrated and producing most of the country’s wealth,’ while the other market
has been characterised by underdevelopment and criticised as being structurally
disconnected from the first and the global market.650 The market as a whole is
thus viewed as having a lack of transparency, limited competition with a high cost
of credit and limited consumer protection.651 With these telling signs, the only

649
Dr Johan Erasmus National Credit Act Seminar Presentation 3 August 2006 Rosebank –
Johannesburg. See also Standard Bank of South Africa v Dhlamini 2013 1 SA 219 KZN 227
where the court referred to the Act as part of a ‘raft of national legislation aimed specifically at
consumers, to reverse historical socio economic inequalities and adjust the imbalances’.
650
Dr Johan Erasmus National Credit Act Seminar Presentation 3 August 2006 Rosebank –
Johannesburg.
651
Ibid.
102
solution was that government should step in to better regulate the credit
industry.652

Much focus was placed on credit legislation being inapt due to South Africa’s
politically tarnished history, in order to propel the initiative for new legislation in
this field. The following, taken from the 2003 Consumer Credit Review,
emphasises the point:653

The need for a review of the consumer credit legislation has long been
recognized. There is broad agreement that current laws are weak and out dated;
they reflect the political reality of the apartheid era. The Department of Trade and
Industry made certain changes to address specific problems such as increasing
the protection on micro-loans, one change that was introduced in the revised
exemption notice. The approach has, nevertheless, been piecemeal and a
thorough and holistic assessment became essential.

It is submitted that the law is and has to be a dynamic animal which must exist in
a ‘mutualistic’ relationship with political, social and economic realities and
advances. Without evolving, the law would be but a ‘ball and chain’ locked
around society’s ankles, preventing progressive and necessary improvement.

Logically, credit legislation need, too, move with the current trends.654 It is
submitted, however, that the fallibility of legislation cannot only be specifically
attributed to a particular political agenda, but rather to changing trends inclusive
of political but also, and perhaps more importantly, social and economic trends.

As far back as 1991 the South African Law Commission655 identified certain
exploitative practises in the Usury Act and recommended the replacement of the
bi-legislative system of credit in South Africa. However, it must be stated that
countries without a past of racially discriminatory laws and political systems are

652
Ibid. For a general discussion cf Worker T ‘Why the Need for Consumer Protection
Legislation? A Look at Some of the Reasons behind the Promulgation of the National Credit Act
and the Consumer Protection Act’ Obiter 2010 217.
653
The Department of Trade and Industry Credit Law Review August 2003: Summary of Findings
of the Technical Committee ‘Credit Law Review: Setting the Scene’ 1 (hereinafter ‘Credit Law
Review 2003’).
654
The influence which the Constitution, more particularly the Bill of Rights, has had on the
common law and will still have on the common law are a contemporary example. For a more
detailed discussion of the interrelation between the Constitution and the Act, cf paragraph 3.2.2
infra.
655
Otto JM and Grové NJ The Usury Act and Related Matters 1991 Project 67 Working Paper 67.
103
constantly changing their credit systems and legislation to accommodate
changing times, trends and influences.656 The global market, internal long-term
economic fluctuations and other less politically infused reasons also motivate
change. The degree of sophistication of legal theory has generally and
historically always been closely related to the level of economic activity within a
given society.657

Same can be said for the degree or volume of legislation which a government,
through its legislature, churns out. The gross domestic profit in 2000 for South
Africa was 922 148 million rand and in 2005 it rose to 1 523 254 million rand.658
Such a rapid increase in economic growth must also have acted as a catalyst
need for greater legislative intervention in the area of credit law.

In South Africa, in particular, the disarming of a racially based system and the
subsequent empowerment, due to increased income flows to the black
population (previously disadvantaged by discriminatory practices) had, and still
has, major stimulating effects on the economy. An increased need for housing,
vehicles and consumer goods by the majority segment of the population
(previously denied these rights) has augmented the demand for credit. To
suggest that the previous credit legislative dispensation was out of kilter with
modern times is sanctionable – but to say that the credit legislation – that is the
Credit Agreements and Usury Acts reflected any political agenda is unfounded.
These two acts were not per se racist laws.

In the 1991 Review, the Law Commission identified and isolated numerous
shortcomings of the Credit Agreements and Usury Act. The list of these
shortcomings will not be provided here as it is beyond the scope of this
discussion. However, upon a study of the shortcomings it is evident that the
legislation was weak in many respects.659

656
The changes in the credit regimes of England and Italy are two such examples.
657
Harker ‘The Role of Contract and the Object of Remedies for Breach of Contract in
Contemporary Western Society’ 1984 SALJ 101 121.
658
http://www.indexmundi.com/facts/south-africa/gdp (11.12.2009).
659
For a detailed exploration cf Otto and Grové 1991 104-119.
104
The inadequacies of credit legislation, however, will never be able to curtail the
disposition of human nature to gain or acquire, which in consumer terminology
translates into ‘spending’. This ‘weakness’ can be attributed largely to today’s
modern consumerist society. Global trends, since the end of World War II have
noted a manifest increase in the number of credit consumers. This has largely
been due to rising incomes creating an increase in the equal distribution of
wealth to a larger segment of society. Due to this universal benchmark increase
in affluence, family unit desires and needs have increased and in turn,
consumption has increased.660 The satisfaction level of the family unit has not
increased proportionally to the household income, and thus it is no longer
possible to satisfy demands and needs for credit.661 The following paragraph,
used here as an academic example, is a conceptually relevant statement by the
erstwhile Chairman of the Civil Imprisonment Committee:662

There can be no question that the evidence put before us shows very clearly that
very many people are tempted to buy goods that they cannot afford at all,
because of the easy terms of payment offered to them, or they are tempted to
buy goods at a far higher price than they can afford to pay.

At the same select Committee the erstwhile Government spokesman stated that:

[P]eople are losing money which they cannot afford to lose and this is the
fundamental reason for the introduction of this hire-purchase legislation.
Something must be done to protect the poorer people from the consequences of
these transactions.

The concerns of the modern legislator have not changed drastically, if at all.

Consumer law and regulation are aimed at protecting consumers and providing
them with rights against providers, whether of goods, services or credit. It is thus
not surprising that much of the rationale posited by research commissioned by
government, which led up to the promulgation of the National Credit Act, is very

660
Cf Vessio ML ‘The Preponderance of the Reckless Consumer’ 2006 THRHR 649 for an in-
depth discussion.
661
Stephenson G Consumer Credit 1987 3.
662
He was giving evidence before the Select Committee of the House of Assembly in 1939 on the
subject of the Hire-Purchase Bill; the Bill was introduced that same year.
105
sympathetic towards the consumer and more precisely towards vulnerable663 or
low income consumers. The credit market is one that by its very nature is based
on an unequal footing between borrower and lender, the tendency being to
protect the borrower, he often with fewer resources to ensure protection of his
rights. Goode664 posits the view that consumer credit legislation, though often
associated with the protection of the indigent, is neither designed nor equipped
for the special needs of the low-income consumer. He points out that there is
nothing that consumer credit legislation can do to provide the consumer with a
good job, a reasonable income or a roof over his head, these being questions of
social welfare and therefore the responsibility of governments.665

The protection of the consumer is and has, in most countries become a common
feature of all legal systems. Although the nature and scope of consumer
legislation may differ, such legislation nevertheless exists for the protection of the
consumer, as consumer contracts can and do give rise to misuse but also for the
regulation of the credit provider-credit consumer relationship. The consumer is
often exploited by contractual credit agreements, the terms of which he may not
understand, together with alluring methods of payment, which may leave him
exposed and liable. Some terms may even prove to be dishonest, or may be
misrepresentations of the truth excluding, inter alia, liability and common-law
warranties and including exorbitant finance charges or forfeiture clauses with
drastic rights of cancellation in favour of the provider.

The consumer is often helpless against these forces, especially in light of the
most common standard form contracts.666 Furthermore, because the consumer-
borrower is usually in a weaker economic position (this is why he is seeking a

663
The term has been taken from Scott C and Black J Cranston’s Consumer and the Law 2000 4.
The term, however, appears to have originated from research published by the Office of Fair
Trading in England in 1998, which identified seven categories of vulnerable consumers: those on
low income, unemployed persons, those suffering from long-term illnesses or disabilities, persons
with low level education, members of ethnic minorities, older people and the youth (Office of Fair
Trading Vulnerable Consumer Groups: Quantification and Analysis Research Paper 15 Ramil
Burden 1998).
664
Goode RM Consumer Credit 1978 98. It is submitted that a government must protect the weak
but not at the cost of alienating or prejudicing the strong, alternatively, there is a risk of shifting
from democratic governance to a socialist regime.
665
Goode 1978 98.
666
Nagel CJ et al Business Law 2006 164.
106
loan) it is likely that without protection his position may be exploited.667 Thus,
governments and courts have stepped into this realm to assist the consumer in
his plight, through legislative enactments and developments in the common law.

It was these concerns which prompted the Department of Trade and Industry,
after a long gestation period, to publish the Consumer Credit Bill of 2004,668 and
why the President signed into law, on 24 March 2006, the National Credit Act.669
The bill was intended as a practicable reflection of the call for more prominent
progress in consumer protection and more specifically in the consumer credit
protection field. South Africa’s consumer debt crisis was alleged to have been
costing the country an approximate R500 million a month in productivity
losses.670 The Bill purported ‘to promote a fair and non-discriminatory
marketplace’ providing general regulation of consumer credit.671 The same
wording was used in the Act.672

The goal of a new and unified Act was to ‘make the world of credit safer for
debtors, and thus more sustainable for the industry’.673 While the centrepiece of
this creation is to facilitate and expedite competition, the question remains as to
whether too much consumer protection and not enough credit provider protection
may in the long run fetter the credit market or send those ‘uncreditworthy’
consumers scampering to elicit ‘underground’ loans. While the credit provider is
one of the most elemental ingredients in the credit market economy; even more
basic are the supplier’s investment and profit motives. The drastic reduction or

667
Zimmerman 1990 166.
668
Government Gazette vol 470 no 26678, Cape Town 17 August 2004.
669
Government Gazette 28619 of 15 March 2006. Certain sections of the Act became operative
on the 1 June 2006, while the remainder of the Act on the 1 June 2007. Cf Otto and Otto 2013 8-
11 for a detailed discussion of how and in what phases the Act was implemented.
670
A recent study by the Department of Economic Affairs and Tourism revealed that 40% of
households nationally were experiencing financial difficulty, unable to pay loan instalments to
micro lenders and other credit providers (‘Debt sinking into Poverty’ Pretoria News 2004 –10-04 1
and Renke R and Roestoff M ‘The Consumer Credit Bill – A Solution to Over-Indebtedness?’
2005 THRHR 115).
671
From the Preamble of the Consumer Credit Bill 2004.
672
Cf section 3 of the Act. For a detailed discussion of the purposes of the Act cf paragraph 3.3
infra.
673
Credit Law Review 2003, Credit Contract Disclosure and Associated Factors’ 2. A Market
Research Report, incorporated in the Credit Law Review, was conducted by Rudo Research and
Training and AfriData Research, their objective: to obtain comments on the perceived
weaknesses in the previous credit legislation in South Africa with the further aim to improve the
protection of consumers of credit.
107
regulation of the turnover may not encourage competition within the provider
market but may rather dissuade providers to invest in the lending panorama, and
in effect dramatically decrease competition, which may, in turn, increase both the
price of credit and seriously hamper availability across all levels of income
groups. Bertelsmann J in ABSA Bank v Myburgh674 captured this dynamic as
follows:

The Act is the latest in various attempts by the Legislature to put enactments in
place that regulate the granting of credit to the consumer and restrict the financial
gains that credit providers garner from this enterprise that has often been more
than a little controversial, it replaces the Usury Act and the Credit Agreements
Act and creates a new dispensation that is intended to ensure that the consumer
is effectively protected without restricting access to affordable credit provided and
obtained in a responsible fashion.

While it is important to understand that one of the functions of consumer

legislation is to protect the consumer from exploitation,675 it is equally important
to keep in mind that additional costs for additional services will have to be ‘down-
loaded’ onto credit consumers. Consumer credit legislation is a costly procedure,
and the capacity of the credit industry to absorb new credit legislation is limited.
Costs or additional costs are often ‘down-loaded’ onto the consumer and where
legislation limits these charges and they cannot be underwritten directly to the
credit provider then indirect ‘subsidisation’ will occur.676 ‘Indirect’ cost osmosis
may be carried out by means of cross subsidization, such as for example,
investors receiving lower interest rates on deposits or cash buyers having to pay
higher prices.677 Credit legislation need thus be cost-effective. The social
attractiveness of consumer credit legislation is often the founding motive behind
it, with economic considerations neglected.

The underlying principles for the creation, existence and/or modification of

consumer credit legislation are often determined by the attractiveness of their
social charisma and economic deliberations are often not adequately considered.
The relevant question to be posed is therefore: which policy issues should

674
2009 3 SA 340 T paragraph 24.
675
Grové and Otto 2002 4.
676
National Commission on Consumer Finance: Consumer Finance in the United States 1972
103 - 105: Grové and Otto 2002 3 – 4.
677
Ibid.
108
endure in this regard? It is not the establishment of legislation ‘that may at the
very best save the consumer from petty vexations’,678 without considering the
advantages against the disadvantages it entails, but a weighing up of the
demands of the individual consumer for protection in any given transaction as
against the interests of society at large, that must be endorsed.679 Thus, it is
policy issues that need to be considered and sometimes some will override
others. The following is a notable view:680

Before consumer legislation is introduced, the legislature should weigh up the

demands of the individual consumer for protection in a particular transaction
against the interests of society at large. This is a daunting task.

The caveats cannot, however, completely deter the regulation of credit. There
are obvious significant economic benefits to a credit market that works, such as
helping individuals accumulate interest on savings and exploiting economic
opportunities and assisting businesses to grow and thus to create new jobs. The
credit market is an industry that requires relatively high levels of regulation681 to
ensure that potential consumer abuses are minimised.682 Whilst bearing lots of
benefits, the credit-market is not risk free and a considerable imbalance of power
exists between consumers and credit providers. The South African credit market
has low levels of consumer education; consumers are poorly informed regarding
their rights683 and thus there exists an inability of these consumers to enforce
such rights either through negotiation or legal action; marketing practises are
often deceptive and weak disclosure of information results in enticement to
contract for credit. In this manner and when used unwisely, credit borrowing has
the potential to cause financial hardship and destruction of households.684

678
Credit Contracts: Report of the Contracts and Commercial Law Reform Committee
(Chairperson C I Patterson) 1977 18-19, from Grové and Otto 2002 4.
679
Grové and Otto 2002 4, where they end by stating that these demands made on the
lawmakers make for ‘a daunting task’. For a fuller discussion on these views see Vessio 2006
THRHR 649.
680
Grové and Otto 2002 3.
681
Even at the risk of being criticised as overly protective (Scholtz 2009 paragraph 2-2).
682
2004 Policy Framework 6.
683
The opening statement of the 1999 White Paper on consumer law in England states:
‘Confident Consumers, making informed decisions in modern, competitive markets, promote the
development of innovative, good value products’. It was also pointed out that about two-thirds of
people living in England are not aware of their legal rights (Department of Trade and Industry
Modern Markets: Confident Consumers Cm 4410 1999).
684
2004 Policy Framework 6.
109
Sometimes already indebted consumers borrow extra credit in an attempt to pay
back existing loans which often only leads to a downward debt spiral.685 It is for
these and other similar reasons relating to the regulation of the credit market and
protection of the consumer that the State took a highly prescriptive regulatory
approach to consumer credit through its endeavours to design and promulgate
new credit legislation.686

The South African financial sector is a complex one; it is comprised of both a

highly developed formal sector and an informal financial market that serves about
85% of the population.687 Prior to the promulgation of the National Credit Act,
South African consumer credit legislation was seen to have remained behind the
increasing sophistication and complexity of the modern consumer credit market,
with problems developing in the years leading up to the promulgation to the Act,
in the consumer credit market as well as in the small loans market, and thus the
need for regulatory reform became patent.688 Inappropriate legislation, whether
in the form of the Usury Act, the Credit Agreements Act or the debt collection
procedures that were in the Magistrate’s Court Act,689 together with a lack of
enforcement contributed to what was viewed by government as an unacceptable
state of affairs. These factors as well as an increasing use of credit by low-
income consumers resulted in an urgent need for closer examination of the
previous legislation.690 As a result, the Department of Trade and Industry691
appointed a Technical Committee to investigate and assess the position and

685
Ibid.
686
Ibid. Closely linked to this discourse is the importance of attention to every detail of the
legislation. The legislature need ensure that every facet of the credit agreement and credit
relationship is correctly controlled and regulated. Inattention to one regulatory area of the credit
agreement, for example that of recovery by the credit provider due to breach by the credit
consumer, an area which may have been overshadowed by too much attention to areas such as
prevention of over-indebtedness, may create much confusion and frustration both to credit
providers and legal practitioners brought in to assist them, not to mention Magistrates that are
asked to adjudicate the quandary. All the while the costs of ‘ironing out’ the difficulties being
placed onto the consumers.
687
FinMark Trust The National Credit Act and its Regulations in the Context of Access to Finance
in South Africa 8.
688
Technical Committee, Summary of Findings of the Technical Committee DTI 2003 8.
689
Act 32 of 1944 (hereinafter ‘Magistrates’ Court Act’).
690
Technical Committee, Summary of Findings of the Technical Committee DTI 2003 9.
691
Hereinafter ‘the DTI’.
110
ultimately make proposals for a policy framework for the regulation of consumer
credit.692

3.2.1. The Department of Trade and Industry Policy Framework

In 2004 the Department of Trade and Industry published a Policy Framework for
Consumer Credit, which reiterated the inefficiency and inappropriateness of the
then credit regulatory system.693 The credit market was described as one that:694

692
Technical Committee, Summary of Findings of the Technical Committee DTI 2003.
693
In March 2002, the DTI established a task team to undertake a review of the legislation that
impacted on consumer credit and make proposals for a new regulatory framework for consumer
credit in South Africa. The task team drew on several reports, including the 1992 South African
Law Commission review; the 1995 South African Law Commission report on debt collection; the
2001 investigation into SME finance by a task group of the Policy Board of Financial Services and
Regulation and Ntsika’s 1999 National Small Business Regulatory Review (2004 Policy
Framework 8). The need for reform had, however, been identified decades earlier. In 1990 the
Registrar of Financial Institutions and his staff found considerable difficulties in applying the Usury
Act 73 of 1968. For the most part the problems arose due to differences in interpretation to which
the Usury Act gave rise and the lack of mechanisms in the Usury Act for the speedy resolution of
disputes, inadequate sanctions that could be applied in the event of contraventions and the fact
that the inspectorate of the Registrar was often unsuccessful in instituting criminal proceedings
(Cf Grové ‘Renteberekening, Regshervorming en die Woekerwet 73 van 1968’ 1990 53 THRHR).
Consequently, the Registrar approached the South African Law Commission (established by the
South African Law Commission Act 19 of 1973) which in turn appointed a Research Committee to
investigate the then consumer credit legislation in South Africa with a view to providing simplified
and homogenous legislation in this field (through the Centre for Banking Law at the Rand
Afrikaans University, now University of Johannesburg) the South African Law Commission
requested a Research Committee consisting of Professor NJ Grové, Professor FR Malan and
Professor JM Otto) (hereinafter the 1992 ‘Research Committee’). At first the Research Committee
were requested to look only at the Usury Act, however, the Committee was of the view that the
credit legislation in South Africa should rather be examined as a whole and consolidated as far as
possible, as an investigation relating solely to the Usury Act would once again result in
fragmented and unsatisfactory legislation (Otto and Grové 1991 2)). More particularly, the
Committee was required to look at problems which arose from the Usury Act, the Credit
Agreements Act and the Lay-by Regulations of 1980 and finally to recommend in draft form less
complicated credit legislation (Otto and Grové 1991 2-3). The Task Team endeavoured to meet a
number of policy objectives. For example, to provide simplified legislation which would not be
susceptible to give rise to too many problems of interpretation and which would be difficult to
apply. Another main consideration was the necessity to consolidate the Usury and Credit
Agreements Act. The Committee found that the two Acts essentially (except for money lending, to
which only the Usury Act applied) regulated the same type of contract but in different ways. This
state of affairs gave rise to considerable confusion in practice as it was necessary to determine
from case to case whether a particular contract was subject either to the one Act or the other,
both or neither. This placed a difficult burden on credit providers, credit consumer’s and their legal
representatives. The Committee found that it was no longer acceptable in the consumer credit
field to have diverse legislative enactments; unless really good reasons existed for regulating a
particular matter separately, as, for example, instalment sales of land where problems and
practices warrant a separate Act, such as the Alienation of Land Act. The Usury Act was
administered by the Department of Finance while the Credit Agreements Act fell under the
111
 Reflects but also reinforces, the two economies of South Africa – one economy
that is modern, globally integrated and producing most of the country’s wealth;
the other characterised by underdevelopment and structurally disconnected from
the first and the global economy. It is furthermore a market that is characterised
by a lack of transparency, limited competition,695 the high cost of credit and
limited consumer protection.

These reasons, inter alia, according to the 2004 Policy Framework are what
necessitated a fundamental review of the consumer market and its regulation.696

According to the 2004 Policy Framework, research in the areas of consumer

credit and SME financing revealed that financial markets were segmented into
two markets, one for low-income consumers and SME’s characterised by limited
access to credit at high cost and the other market, serving primarily middle and
high-income consumers and large enterprises with easy finance to credit and

Department of Trade and Industry (hereinafter ‘DTI’). The Committee were of the view that it was
undesirable for different Government Departments to administer credit legislation and
recommended that the appropriate department was that of Trade and Industry. While the
Committee was in the process of writing the Report the administration of the Usury Act was in fact
transferred to the DTI (GN 2434 11.10.1991). Further policy considerations, included, but were
not limited to issues of access to credit to all sectors of society and the issue of consumer
legislation as a fiscal and monetary measure. It is the ‘balancing of interests’ concept that
commands some attention. The Committee found that ‘consumer credit legislation is nothing but
the accommodation of divergent and conflicting interests’ (58). The Committee was faced with
often opposing requests regarding the inclusion or deletion of various proposed draft sections,
depending on whether the request was made by a credit provider or a consumer or body or
person concerned with consumers’ interests. While the Committee started from the premise that
credit legislation is aimed primarily at protecting consumers, they maintained that credit providers
also have, or ought to have rights. A one sided view, which loses sight of the provider’s interests
would not suffice. Thus, the Committee took the view that while there should be no hesitation in
protecting consumers in the event of proven or potential exploitation, simultaneously the credit
provider’s reasonable expectation of profit and the recovery of his expenses should be protected
(59). For various reasons, the recommendations of the 1992 Committee were not actioned by the
legislature. And, as indicated above, the matter was once again reignited in 2002.
694
‘Credit Contract Disclosure and Associated Factors’ Prepared by Reality Research Africa for
the Department of Trade and Industry December 2002, Credit Law Review 2003, hereinafter
‘Reality Research Africa Findings’. It is submitted that much of the conclusions reached in the
2004 Policy Framework appear to have been based on the findings of the Technical Committee
of the Credit Law Review 2003. In particular, research to determine public awareness of credit
contract disclosure and associated factors was co-ordinated by the MFRC on behalf of the
Technical Committee.
695
The Technical Committee highlighted the particular importance of cultivating a culture of
competitiveness: ‘[I]t has become clear that neither the cost nor the access to consumer credit or
SME finance will improve substantially and in a sustainable manner if there is not more effective
competition between banks, and between bank and non-bank credit providers. This is the key to
sustainable improvement in the access to finance and lowering of the cost of finance’ (Credit Law
Review 2003 31).
696
2004 Policy Framework 12.
112
preferential costs.697 Furthermore, the 2004 Policy Framework indicated that
under the old legislative regime credit was often inflated by other costs such as
credit life insurance, loan application fees, administration fees, club fees,
irregular service charges and various bank charges.698 These additional charges
were often badly disclosed and a survey demonstrated that the cost of different
products indicated that such charges could increase the cost of certain products
by up to two to three times the interest rate cap as had been set by the Usury
Act.699 The Framework also posited that the situation in the consumer credit
market was largely mirrored in the enterprise finance market as a clear distinction
existed between the volume and cost of credit made available to small
businesses and that extended to medium-sized and large businesses. The split
in the credit market was consigned to the old bi-legislative regime.700

However, the fragmented and out dated nature of the old credit regime was not
the only factor which, according to government, contributed to a need for reform.
A major contributing factor was South Africa’s history of ‘systematic
discrimination against the majority of the population and the stripping of their
asset base,’701 which required, according to the 2004 Policy Framework, special
measures in order to address the ‘historical legacy of apartheid economic
policies and of apartheid educational policies, which placed black people at a
fundamental disadvantage’.702 The old legislative regime dated from the late
1960’s to the early 1980’s which was a time of limited access to credit by the
black working class in South Africa.703 This lack of access to credit proscribed

697
The Finmark Trust was commissioned to collate data through primary and secondary research
programmes in order to establish credible benchmark levels of access to credit and financial
services; profile the characteristics of those who lacked access to credit by their age, race,
geographical distribution and literacy skills and to establish reasons from consumers about why
they lacked access to credit and how they might respond to different types of product offered as a
means of expanding access (‘Finmark Trust Pilot Study Findings Credit Habits and Attitudes
Addendum 1’ from Reality Research Africa Findings).
698
2004 Policy Framework 12.
699
Ibid.
700
Ibid.
701
2004 Policy Framework 16.
702
Ibid.
703
It must, however, be noted that the problem of financial exclusion is not exclusive to South
Africa. In 1999 the British government considered how the rules surrounding credit unions could
be altered to increase their role in providing credit to people with low incomes (HM Treasury
Taskforce Report: Credit Unions of the Future November 1999). The government also appointed
a review of competiveness of the British banking industry (Review of Banking Services in the
113
investment in housing, education and economic opportunities generally.704 In the
late 1980’s and early 1990’s there was an increase in the provision of credit to
black South Africans by furniture and clothing retailers.705 However, the same
opportunities were not extended to finance in other sectors such as for business
start-ups and education.706 The 1992 Exemption707 increased availability of
money loaned to lower income groups giving consumers freedom in terms of use
of credit but also gave rise to abuses.708 Furthermore, the exemption did not
address the issue of lack of enterprise finance; the loans were also short-term in
nature and inappropriate to finance real asset accumulation.709

The 2004 Policy Framework dealt quite extensively with the issue of availability
and enforceability of collateral being a critical component of credit with reference
to capital accumulation.710 The premise being that a close relationship exists
between having a mortgage on a property and the cost of credit in general, as
consumers with a mortgage will generally have better access to credit as well as

United Kingdom, Banking Review: Interim Report (1999); Competition in United Kingdom Banking
March 2000) and the Office of Fair Trading conducted a survey on the access that vulnerable
consumers had to basic financial services. Basic financial services were identified as bank or
building society accounts, home content insurance, short-term credit and long-term savings
(Vulnerable Consumers and Financial Services, The Report of the Director General’s Inquiry
Office of Fair Trading 1999).
704
2004 Policy Framework 77.
705
2004 Policy Framework 78
706
Ibid.
707
Towards 1992, government realised that the Usury Act and its stringent limitations on the cost
of credit had contributed to inadequate access to credit for the majority of the population.
Consequently, in 1992, to promote better access, government introduced the first Exemption
Notice to the Usury Act (GN 3451 of 31 December 1992). This exempted all loans below R6 000
from the Usury Act. This Exemption Notice was the main factor that precipitated the
establishment of a formal micro-lending industry
(http://www.theforumsa.co.za/forums/showthread.php?t=1441).
708
Whilst the 1992 Exemption was successful in providing more access to credit, government
was concerned about certain abuses and malpractices that developed in this unregulated
environment. These malpractices included the retention of bank cards, pins and identity
documents by the micro lenders, as well as abusive collection methods. Government introduced
a second Exemption Notice in June 1999. In terms of this notice, micro-lenders were still
permitted to charge unlimited interest for credit disbursed, but they were required to register with
a regulatory entity (Micro Finance Regulatory Council or MFRC). The Exemption Notice also
prescribed minimum standards of conduct and operations that micro-lenders were required to
comply with. The MFRC was given authority to monitor and enforce compliance with these
standards. The Exemption was limited to loan agreements where the capital amount loaned R10
000 or less with a repayment period not exceeding 36 months. The 1999 Exemption Notice was
repealed and substituted by Exemption Notice 1407 of 2005.
(http://www.theforumsa.co.za/forums/showthread.php?t=1441).
709
2004 Policy Framework 16.
710
2004 Policy Framework 17.
114
access to cheaper credit.711 However, it was pointed out that the value of
property is dependent upon clarity of ownership and there being a market for
such property, including availability of buyers, availability of finance for such
buyers and the possibility of transferring ownership to such buyers.712

The 2004 Policy Framework identified the Usury Act as a contributory factor to
certain of these issues, ‘both through the application of interest rate regulation
and through inappropriate provisions on security provided against loans’.713 It is
submitted, that the Usury Act did not necessarily directly contribute to these
problems but perhaps lacked, in that it did not actively regulate certain areas.
This deficiency is what the National Credit Act or at least the legislature prior the
inception of the Act, sought to address through promulgation of new legislation
by seeking to modernise and simplify legislation dealing with collateral.714

Much frustration was reported with regard to credit bureaux and with the
processes of ‘blacklisting’ and ‘redlining’ of certain areas by banking
institutions.715 Credit bureaux were identified as an area to be improved with
new legislation as the bureaus could establish sources of objective information
for client selection and thus help in reducing the scope for discrimination in

711
Ibid.
712
With regards to these issues the 2004 Policy Framework advanced the following: ‘Outside the
prime housing areas (and in township areas in particular), the housing market is ineffective and
mortgage finance is generally unavailable. Problems in housing registration and in the housing
transfer process contribute substantially to this state of affairs. The impact of an inefficient
housing market is that, of the estimated 2.3 million urban residential properties registered in the
names of black South Africans, only between 5% and 10% have mortgages registered. At an
estimated average property value of R50, 000, this implies that township residents have at least
R115 billion of property that could potentially serve as collateral, but is currently a ‘stranded
asset’. As a result, most historically disadvantaged South Africans are either (a) locked out from
the opportunity to acquire property by their inability to access finance, or (b) have acquired
property, but with the appreciation of the property value being undermined due to obstacles to
property transfer and the lack of access to finance for the potential purchasers, are unable to
realise the value of their underlying asset and leverage additional funds. In rural areas, barriers to
land ownership similarly constrain asset and wealth accumulation. A large majority of the
population can thus not gain the benefit of what should be their best security, their home, and
therefore face generally high costs of finance’ (17).
713
At 14.
714
The 2004 Policy Framework indicated that the feasibility of establishing a ‘Collateral Register’
would be investigated, as a similar mechanism made an important contribution to increasing the
collateral-based lending in countries such as Canada (14). This, however, does appear to have
been incorporated in the new Act.
715
2004 Policy Framework 14.
115
decisions about credit.716 Credible credit bureaux information was also seen as a
basis for statistical analysis for the detection of potential racial bias in client
selection by any particular credit provider.717 Credit bureaux were thus
recognized as very important role players in supporting more efficient financial
markets, and more equitable credit allocation.718

The Department of Trade and Industry was of the view that in order to address
the structural discrimination in the credit market, it was necessary to develop an
integrated solution that could address underlying structural problems.719
Government had various key issues that it intended to address in order to
promote a credit market that would prove equitable, competitive and transparent,
and that would foster sustainable and socially responsible credit provision in an
environment where consumers would have rights and access effective
redress.720

The Usury Act and the Credit Agreements Act were found to be lacking in various
areas: the Usury Act applied to leasing, credit and money lending transactions,721
it was limited to money lending transactions where the principal debt did not
exceed R500 000 and lease agreements that did not exceed R500 000 in
value.722 The Credit Agreements Act applied to specified credit agreements
relating to movable goods.723 There was a lack of uniformity in the transactions
that were protected, with the Usury Act being more comprehensive.724 The

716
Ibid.
717
Ibid.
718
2004 Policy Framework 17. The Act has made provision for the regulation of credit bureaus
and their functioning (cf section 43, 46 and Part C of the Regulations of the Act). However, it is
submitted that any form of discrimination with regard to granting of credit post the interim and final
Constitution of the Republic of South Africa, 1996 would be an anomaly that would not have
withstood constitutional muster. At least not unless the discrimination was based on law of
general application to the extent that the discrimination was reasonable and justifiable in an open
and democratic society based on human dignity, equality and freedom. Cf paragraph 3.2.2 infra
for a discussion on the influence of the Constitution on the new credit regime.
719
2004 Policy Framework 22.
720
Ibid.
721
Section 2 (1) of the Usury Act.
722
Section 15(g). The Minister of Trade and Industry was entitled to vary the amount by way of
negotiation in the Gazette. Initially, when the act was promulgated, the amount was R100 000. In
1986 it was reduced to R50 000 (R286 in RG 3924 of 1986.02.11), thereafter it was raised to R70
000 (R 2566 in RG 4026 of 1986.12.05) and in 1988 it was set at R500 000 (R943 in RG 4205 of
1988.05.05).
723
Section 2 (1) of the Credit Agreements Act.
724
Grové NJ and Jacobs L Basic Principles of Consumer Credit Law 1993 19.
116
Credit Agreements Act applied only to items that had been listed by the Minister
of Trade and Industry in a Government Notice.725 Credit agreements in respect
of items that were not listed were not covered by the Credit Agreements Act.726
This inconsistency in the statutes created various logistical issues in that some
items were regulated in terms of either the one Act or the other, some were
regulated by both statutes and yet others may not have been regulated by either
Act.

The 1999 Exemption Notice to the Usury Act727 exempted transactions below
R10 000 from interest rate limits.728 The Department of Trade and Industry was
of the view that the different application of interest rate regulation skewed the
market in favour of money-lending transactions and resulted in a limited set of
products being offered to low-income consumers, that it limited competition
between different types of products and market segments and, as a result,
limited innovation.729

725
Section 2 of the Credit Agreements Act.
726
Cf paragraphs 4.2 and 4.3.1 in the subsequent chapter for a detailed discussion of the
application of both the Usury and Credit Agreements Acts.
727
Government Gazette no 713 10 June 1999.
728
The Exemption Notice required a ‘regulatory body’ to be established, whose purpose was to
provide consumer protection to consumers that obtained credit which fell within the scope of the
exemption. The Micro Finance Regulatory Council was approved as such a regulatory body. The
2004 Policy Framework criticized this regulatory structure as creating a number of
inconsistencies, with different and inconsistent regulatory requirements applying to financial
transactions that were inherently very similar. There were marked differences in the compliance
standards, registration costs and compliance costs that applied to money-lending that fell under
the Usury Act, money-lending that fell under the Exemption Notice, credit for the purchase of
items listed in the Credit Agreements Act, and credit related to items that were not listed and
which may potentially not have been governed by either law. It was maintained that the previous
regulatory framework not only created different regulatory standards, but it also created
incentives for, what the 2004 Policy Framework referred to as ‘regulatory arbitrage’ and
‘circumvention’. As an example, the purchasing of a fridge was used. To purchase a fridge in
terms of a hire purchase agreement, a deposit was required. However, the same fridge could,
under the old regime, have been purchased with a credit card or with a money loan, under which
circumstances no deposit was required. While differences existed in the transactions in that the
asset did not belong to the consumer in terms of a hire purchase agreement until such time as
the purchase price together with interest has been settled, from the consumer’s perspective, it
was pointed out that there may have been little difference (2004 Policy Framework 22). It is
submitted that differences were in fact notable. A purchase of a consumable with a credit card
facility, for example, often attracts much high interest rates. And a fridge, for a further example,
purchased under a higher purchase agreement would most likely have been subject to
contractual terms that entitled the provider to retain ownership, whilst a credit card purchase
would transfer ownership to the consumer upon delivery.
729
2004 Policy Framework 23.
117
The Department of Trade and Industry was also of the view that enforcement of
the Usury Act and Credit Agreements Act had largely been ineffective, in part
due to unequal treatment of different products and providers.730 And through the
lack of enforcement, the practices of less scrupulous providers had become the
norm, stigmatising certain segments of the credit market.731 This, it was felt,
discouraged reputable credit providers, in particular banks, from venturing into
the low-income market and from providing more affordable finance to low-income
earners.732

It was postulated that South Africa required a single piece of legislation to

replace the current Usury Act, Credit Agreements Act and Usury Exemption
Notice, in order to ensure a consistent approach to interest rate regulation,
minimising arbitrage and circumvention.733 The new act, it was envisaged, would
have to apply to all credit transactions, and to all credit providers; however, any
regulation of the credit market needed to recognise that differences exist
between pawn transactions, mortgage and credit card or overdraft facilities and
accordingly it was foreseen that the new law would provide for differential
treatment to accommodate differences in products and in costs associated with
smaller transactions, but overall would then introduce a common regulatory
scheme.734 It is submitted that to some extent this has been achieved with the
National Credit Act, although the Act is not quite as far reaching as initially
predicted.735

The standardisation of charges for the initiation and maintenance of credit, into
three categories for all service providers, being loan origination fees, monthly
service fees and interest, with the Minister of Trade and Industry to introduce
limitations for all three categories of fees, was seen as an important factor to be
incorporated into the new Act.736 Furthermore, it was felt that to further enhance

730
Ibid.
731
Ibid.
732
2004 Policy Framework 23.
733
Ibid. The South African Law Commission’s review drew similar conclusions (Otto and Grové
1991 105).
734
2004 Policy Framework 19.
735
Cf Parts B and C of Chapter 1 of the Act as well as paragraph 4.4.3 infra with reference to the
limitation of the application of the Act.
736
2004 Policy Framework 19.
118
consistency and transparency, it was necessary that credit insurance be treated
consistently with other finance charges.737

Investors and financial service providers perceived the low-income personal

finance market and SMME market to be high risk with high levels of uncertainty;
these perceptions reinforced by a number of factors, including, costly and time-
consuming contract enforcement, with high levels of uncertainty about the
likelihood of success; high degree of uncertainty for investors that was felt to be
created by the Usury Act Exemption Notice, as it was perceived that
unfavourable regulatory changes could be effected fairly quickly with limited
consultation and oversight; weaknesses in consumer protection, in compliance
monitoring and in regulatory enforcement were seen to be exacerbating
perceptions of risk and uncertainty.738 The Department of Trade and Industry
was of the view that such weaknesses created the perception of an undesirable
market characterised by predatory practices in the lower income market and
concerns about arbitrary and ad hoc government intervention.739 It was felt that
the new Act would address these concerns and create more certainty in the
market place, thus stimulating investment and innovation, while encouraging
credit providers to take a longer-term view on their products and services, if the
new Act addressed, where possible, the concerns outlined.740

Another factor identified by the Department of Trade and Industry as requiring

attention in the new dispensation was disclosure; it was felt that the credit market
lacked transparency due to weak disclosure of the full cost of credit and the
financial complexities of some products.741 In essence, it was difficult for
consumers to understand the risks of borrowing or the implications of purchasing

737
As the Department of Trade and Industry was of the view that the previous credit legislation
allowed for considerable scope where credit insurance was concerned, and as a result credit
insurance had become a major area of growth for credit providers and insurers. The intention of
the 2004 Framework Policy and the new credit legislation was not to regulate the insurance
market, but seek to regulate the relationship between credit products and insurance products,
particularly where there is potential for over-selling or over-insuring to the detriment of the
consumer and where consumers will be limited in their choice of insurance product (2004 Policy
Framework 19).
738
2004 Policy Framework 24.
739
Ibid.
740
2004 Policy Framework 24.
741
2004 Policy Framework 26.
119
goods on credit and make informed choices.742 The 2004 Policy Framework
advocated the need for standardizing information in a simple, comparable form in
order to allow consumers to make informed choices.743 The Act sets out certain
consumer rights in this regard, including the right to receive documents required
in terms of the Act in an official language744 and that such documents must be in
plain and understandable language.745

The Department of Trade and Industry was also of the view that the regulation of
credit advertising and sales under the old regime was inadequate, allowing for
incomplete or even misleading disclosure of the cost of credit and the terms
under which credit could be obtained.746 The Act now provides for pre-
contractual disclosure in the form of a compulsory, written quote, which is binding
on the credit provider for a minimum period providing the consumer’s
circumstances do not change.747 This, prior to the inception of the Act, was
viewed as a factor that would allow consumers the time and provide them with
the information needed to enable them to shop around, helping consumers to
make better choices between cash and credit purchases and between different
credit providers.748 Furthermore, Part D of Chapter 5 of the Act makes it
compulsory for a credit provider to issue statements of account,749 determines
what the maximum periods between issuing of statements of accounts are;750
regulates the form and content of statements of account;751 procedures when a
consumer disputes all or part of any particular credit or debit entered into under a

742
Ibid.
743
Ibid.
744
Section 63 of the Act.
745
Section 64 of the Act. Unfamiliar contractual language and information that makes little sense
to consumers was viewed as being unfair with the effect that consumers’ rights were frequently
undermined by the inclusion of complex and compromising clauses in contracts. Attempts to
reduce consumers’ common law rights through contractual clauses was not an uncommon
practise; with certain contract clauses undermining the courts’ ability to protect consumers’ rights
where action had been instituted following late payments or defaults. The Department of Trade
and Industry envisioned the new Act to have outright prohibition of certain undesirable contract
clauses and contractual practices, and to define certain standard protective clauses that would be
included (or deemed to be included) in all consumer credit contracts (2004 Policy Framework 26-
7).
746
2004 Policy Framework 26.
747
Section 92 of the Act.
748
2004 Policy Framework 26.
749
Section 108 of the Act.
750
Section 108 of the Act.
751
Section 109 of the Act.
120
credit agreement;752 the dating and adjustments of debits and credits to
consumer’s accounts;753 and, inter alia, the handling of disputes with regard
statements of account.754

Increasing credit card limits, increasing limits on store cards,755 unsolicited mail
offerings for loans and credit, misleading advertising, coercive sales techniques
and aggressive agents and brokers were viewed as factors that needed
regulating.756 The new credit legislation would have to impose limitations on
certain types of marketing strategies and door-to-door sales, implement tougher
regulations regarding agents and brokers, while unsolicited solicitation and
harassment of consumers by commission-driven agents, would have to be
prohibited.757 The Act, in comparison with the previous legislative regime,
regulates credit marketing practises in relative detail.758

Improving consumer education was high on the agenda as a motivator for credit
legislative reform.759 It was felt that more discerning and knowledgeable
consumers would also increase competition in the industry and raise quality of
supply.760 The balance of power between the credit provider and the credit
seeker was seen as heavily skewed toward the credit provider which imbalance
was exacerbated by a lack of experience with consumer credit amongst the
majority of South Africans.761 Thus the estimation that higher skills levels and
greater awareness of consumer rights in respect of credit transactions would
build confidence in the consumer to demand better levels of service from

752
Section 111 of the Act.
753
Section 112 of the Act.
754
Section 115 of the Act.
755
Increasing and decreasing of credit facilities are now regulated by sections 118 and 119 of the
Act.
756
2004 Policy Framework 30.
757
Ibid.
758
Cf Part C of Chapter 4 of the Act.
759
The following taken from the 2004 Policy Framework, is indicative: ‘Ensuring that the
information is disclosed, and in a standard format, is not by itself sufficient to ensure that people
are going to be able to convert this information into effective knowledge. Basic literacy and
numeracy skills are prerequisites. South Africa faces a tremendous challenge in this regard, and
new consumer credit policy must address consumer education at both the adult education and
school learner levels. This is critical in terms of the President’s vision of an integrated economy
with equal participation of all citizens, given that commercial life (including consumer credit) is
becoming increasingly complex and a certain level of knowledge is required to understand and
participate fully’ (27).
760
2004 Policy Framework 28.
761
Ibid.
121
business.762 In this regard it was opined that the legislative and regulatory
framework should make specific provision for consumer education, and provide
institutional and financial support for implementation.763 It was thus indicated that
‘[c]onsumer education should be incorporated in the mandate of the consumer
credit regulator and in the mandates of the provincial consumer protection
agencies’.764

According to the 2004 Policy Framework, prior the promulgation of the Act, South
African law did not provide effective protection against over-indebtedness and
there were felt to be insufficient rehabilitation mechanisms to assist consumers
whom had become over-indebted.765 Furthermore, it was felt that credit
providers, were indulging in reckless behaviour and that exploitation of
consumers by micro-lenders, intermediaries, debt administrators and debt
collectors existed.766 Moreover, the requirements for the granting of court orders,
such as garnishee orders or emolument attachment orders, did not take into
account whether the credit provider might have acted in a reckless manner in
granting the credit, which it was felt, created an incentive for reckless credit
provision.767

762
2004 Policy Framework 29.
763
Ibid.
764
2004 Policy Framework 30. It is submitted that although this has been done, the Act does not
detail how the Credit Regulator should approach such a mandate. It merely concludes that it is
responsible to increase the knowledge of the nature and dynamics of the consumer credit market
and industry and to promote public awareness of consumer credit matters, by implementing
education and information measures to develop public awareness of the provisions of the Act
(section 16 (1) (a) of the Act).
765
2004 Policy Framework 30.
766
Section 43 of the Act. For a detailed discussion of reckless lending and over-indebtedness cf
Vessio ML ‘Beware the Provider of Reckless Credit’ TSAR 2009 272,Lotz DJ ‘Law of Purchase
and Sale: Declaratory Orders: Over-indebtedness and Reckless Credit’ ASSAL 2009 1024,
Boraine A and Van Heerden C ‘Some Observations Regarding Reckless Credit in terms of the
National Credit Act 34 of 2005’ THRHR 2010 650, Van Heerden C ‘The Money or the Box:
Perspectives on Reckless Credit in terms of the National Credit Act 34 of 2005’ De Jure 392 and
Koekemoer MM and Pretorius JT ‘Miscellaneous Contracts (Loans: Credit Agreements):
Reckless Credit and Over-indebtedness as Defences against Summary Judgments and
Attachment Orders’ ASSAL 2011 1114, Renke S ‘Measures in South African Consumer Credit
Legislation Aimed at the Prevention of Reckless Lending and Over-indebtedness: An Overview
against the Background of Recent Developments in the European Union’ THRHR 2011 208 and
Stoop PN and Kelly-Louw M ‘The National Credit Act Regarding Suretyships and Reckless Credit
Lending’ PELJ 2011 67.
767
2004 Policy Framework 29.
122
The Department of Trade and Industry was of the view that certain consumer
behaviour increased the uncertainty and risk in the credit market and raised the
overall cost of credit.768 Consumers, when indebted, incurred new debts at a
high cost to pay off old debts and in order to access further credit, consumers did
not always disclose the full extent of their liabilities or simply tried to escape their
debt commitments by moving to a new location.769 For these reasons it was
designated that it would be necessary to review the (old) legislation relating to
debt collection and court orders to ensure that mechanisms and sanctions were
introduced to curb reckless lending and credit provision.770

Another legislative concern was the introduction of some form of relief, other than
more extreme measures such as debt administration, for those who are unable to
repay their debts.771 The 2004 Policy Framework envisaged a national network
of regulated debt counsellors.772 Monitoring indebtedness was also a concern of
the Department of Trade and Industry, which found that it is critical for the public
sector to have accurate statistics with respect to the levels of debt and the
number of people who find themselves in an over-indebted position, as this type
of information enables government to monitor the position, and to introduce

768
Ibid.
769
Ibid.
770
2004 Policy Framework 30. It is submitted that this has been one of the more dynamic
changes that the new Act has brought with it – that is the sections regulating reckless lending and
behaviour – together with sections regulating the registration of credit bureaux. Part D of Chapter
4 of the Act which addressed Consumer Credit Policy, regulates issues of over-indebtedness
(section 79) and reckless credit (section 80). It defines what is meant by reckless lending, how it
is to be prevented, (section 81) various assessment mechanisms and procedures to enable credit
providers to meet their assessment obligations in terms of the Act, (section 82) the powers of the
courts in suspending reckless credit agreements, in declaring and relieving over-indebtedness
(section 85) and re-arranging consumer’s obligations, (section 87) the effects of suspension,
(section 84) and debt review or re-arrangement orders (section 88). In terms of section 25 of the
National Credit Amendment Act 19 of 2014 (hereinafter the ‘National Credit Amendment Act’)
published in Government Gazette 37665 of 19 May 2014, section 83 is amended to empower the
Tribunal to declare any agreement as reckless credit. Currently the Act only refers to (and
therefore only empowers) a court. The National Credit Amendment Act came into force on the 13
March 2015 (Regulation Gazette no 38557 of 13 March 2015).
771
2004 Policy Framework 31.
772
Ibid. The enabling sections to this end have been introduced by the Act (section 44); for
example, whom may consider applications by consumers for debt reviews (section 86). The Act
also authorises debt counsellors to make recommendations of debt re-arrangements if the
consumer and the respective credit providers voluntarily agree and they may issue proposals
recommending that Magistrates make orders that one or some or all of the consumer’s
agreements be declared to be reckless credit or that they be rearranged (section 86 (7)).
123
further protective measures if required.773 The National Credit Regulator has
been tasked with conducting regular surveys on the levels of indebtedness, so
that trends may be monitored.774

Securing compliance with credit legislation and providing suitable access to

redress was viewed by the legislature as a task that would require much attention
from all role players in the credit market.775 Once again the National Credit
Regulator776 was tasked with the responsibility of ensuring enforcement and
regulation of the credit industry and promoting access to redress for
consumers.777

773
2004 Policy Framework 32.
774
Part A of Chapter 2 in particular establishes and regulates the National Credit Regulator.
Section 16 of the Act specifically directs the National Credit Regulator to monitor socio-economic
patterns of consumer credit activity within the Republic and in particular identifying factors
concerning over-indebtedness and the patterns, causes and consequences of over-indebtedness.
For a broader discussion of the functions and duties of the National Credit Regulator cf fn 724
below and Vessio ML ‘What does the National Credit Regulator Regulate?’ 2008 SA Merc LJ 227.
775
‘To provide effective consumer protection and effective access to redress, without undue
interference in the relationship between the credit providers and their customers and without
excessive regulatory and compliance costs, requires cooperation between the different
stakeholders involved in the consumer credit market. National government, provincial
government, industry, Non-Governmental Organisations (NGOs), Community Based
Organisations (CBOs) and consumers each have a role to play. Increasing numbers of people,
even at relatively low income levels, use credit. It is imperative to provide effective protection and
effective access to redress. Effective enforcement and the quick resolution of complaints are also
beneficial to the industry. Reputable credit providers require assurance that their competitors play
by the same rules. Low levels of compliance, high levels of reckless behaviour and a lack of
responsiveness to consumer complaints are negative for the consumer, but also for the growth of
a stable and sustainable credit industry’ (2004 Policy Framework 28).
776
Described as ‘a suitably empowered statutory regulator’ (2004 Policy Framework 34).
777
The National Credit Regulator is required to register consumer credit providers, (sections 14
and 40) to perform inspections and to generally monitor compliance with the Act (section 15). It is
charged with the responsibility of resolving complaints against credit providers, (section 136)
referring matters to appropriate institutions, (section 139) and to pro-actively investigate systemic
market conduct problems and violations of consumer rights. The latter function was viewed by the
Department of Trade and Industry as being of particular importance due to the ‘fundamental
inequality between consumers and credit providers in the credit market and the inability of
consumers, especially low-income consumers, to negotiate’ (2004 Policy Framework 34). The
Regulator is also tasked with promoting consumer education (section 16) and establishing a
network of accredited debt counsellors. It must ensure the registration and accreditation of debt
counsellors and the accreditation of training programmes (section 44). However, the 2004 Policy
Framework provided that the responsibility for consumer education and debt counselling would
be shared, by the National Credit Regulator, with provincial government, NGOs and CBOs and
that it is important that significant resources be allocated to these functions at a national level).
Finally, the National Credit Regulator is charged with encouraging and approving industry codes
and guidelines for the resolution of complaints, and to monitor the enforcement of such codes and
guidelines (section 13). The National Credit Regulator is directed by a board, (section 19)
consisting of members nominated by the Minister of Trade and Industry, as well as individuals
with specific expertise in the area of credit extension and consumer protection. The National
Credit Regulator is accountable to Parliament through the offices of the Department of Trade and
Industry. The following, reveals the structure and finance of the National Credit Regulator: ‘In
124
Due to the volume of complaints and investigations anticipated in what would
become a very regulated market, post the promulgation of the National Credit
Act, as well as what was perceived as a need to ensure quick and effective
redress for consumers, the National Consumer Tribunal778 was established. The
Tribunal adjudicates contraventions of the Act and has the power to impose
administrative mechanisms and sanctions and issue orders.779 The powers of
the National Consumer Tribunal do not affect the role of the courts in matters of
breach of contract, unfair contracts and other contractual matters, including debt
administration.780

Co-operation between national and provincial government were seen as a

necessity to the successful implementation and preservation of the provisions of
the Act. Effective consumer protection and access to redress in the credit market
were perceived to only be possible if both spheres were successful in working
together to achieve these aims.781 In terms of the Constitution, consumer
protection is an area of concurrent responsibility between national and provincial
government.782 Due to the fact that the regulation of the credit market is primarily
concerned with providing protection to consumers, the regulation of the credit
market can be considered to fall within the ambit of consumer protection.783 In
terms of the old regime, provinces had some responsibility for consumer credit in

recognition of the unique experience and expertise gathered by the Micro Finance Regulatory
Council (MFRC) over the five years of its operation, it is proposed that the National Credit
Regulator will absorb the MFRC, but also the national Usury Act inspection function within the
Department of Trade and Industry. The National Credit Regulator will be jointly funded from credit
provider registration fees and levies, and an annual transfer from National Government’ (2004
Policy Framework 34). It is interesting to note that in England money lenders have been required,
by law, to register as such since 1900 with the enactment of the Moneylenders Act (Goode 1979
2).
778
Established in terms of section 26 of the Act.
779
Section 27 of the Act. As previously mentioned (fn 770 supra) the National Credit Amendment
Act will empower the Tribunal to declare an agreement reckless (section 25).
780
Interestingly enough the legislature was of the view that in order to ensure that the new credit
regulatory framework was cost-efficient and did not result in duplication of functions, that
eventually the function of the Tribunal be expanded to other areas of consumer protection; and it
was therefore envisaged that the Tribunal will also hear matters in respect of contraventions of
general consumer law as well as other areas of consumer protection (2004 Policy Framework
35). The Consumer Tribunal is indeed now empowered to adjudicate matters relating to the
Consumer Protection Act 68 of 2008 (cf sections 1 and 75 of that Act).
781
2004 Policy Framework 36.
782
Part A Schedule 4 of the Constitution.
783
2004 Policy Framework 35.
125
their respective jurisdictions. Provinces were tasked with dealing with complaints
regarding credit and in some cases also for the enforcement of the Credit
Agreements Act.784 However, the Usury Act was enforced only at a national
level. Thus and ‘in order to provide each consumer, wherever located, with
advice, assistance or protection, it is necessary that national and provincial
government perform complementary roles’.785 Accordingly, the 2004 Policy
Framework proposed that national government and the National Credit Regulator
would be responsible for the enforcement of systemic practices and the
regulation of credit providers with national reach or which operate across
provincial boundaries, as well as the conduct of credit bureaux and the
registration of debt counsellors.786 It was envisaged that, where no provincial
capacity to register or regulate credit providers exists, the National Credit
Regulator would retain responsibility.787

3.2.1.1 Statistics and Data as Motivators for Change

As seen above, the need for comprehensive reform in the credit law regulation
field was recognised since at least the South African Law Reform Commission’s
Report in 1994.788 Subsequent reports also pointed out the weaknesses in the
previous consumer credit legislation.789 South Africa has in the past absorbed a
range of political, social, economic and technological changes. These changes

784
Section 2A of the Credit Agreements Act.
785
2004 Policy Framework 35.
786
Ibid.
787
Section 37 of the Act bestows responsibility on the Minister with the responsible MEC of any
province concerned to co-ordinate and harmonise the functions relating to consumer credit to be
performed by the National Credit Regulator and one or more provincial credit regulators as well
as to facilitate the settlement of any disputes between these bodies. If no provincial credit
regulator has been established in a certain province or the Minister determines on reasonable
grounds that the particular provincial credit regulator is unable to perform that function then the
Minister in consultation with the MEC of that province must determine steps to be taken in order
to ensure the fulfilment of that particular statutory obligation. Section 38 also ensures that
information is shared between provincial credit regulators and the National Credit Regulator as
well as other provincial regulators as well as reporting by provincial regulators to the National
Credit Regulator.
788
Cf fn 693 supra for greater detail on the 1994 Law Commission’s establishment and findings.
789
These included the Strauss Report on Rural Finance; the National Small Business Regulatory
Review by Ntsika Enterprise Promotion Agency in 1999 and the Falkena Report of 2001 on
SMME Finance.
126
have substantially influenced the consumer credit market since 1968, when the
Usury Act was promulgated.790

While sophisticated risk management and information technology is available in

South Africa, as well as access to capital in what was described as a ‘relatively
developed capital market’, the cost of credit was exceedingly high in certain
market sectors and the supply of credit in certain segments appeared to fall
below the demand for credit. These were perceived as areas of dysfunctionality
or market failures.791

In 2003 the Department of Trade and Industry mandated a financial economic

analysis by Dr Penelope Hawkins.792 The Feasibility Study reported on the cost
volume and allocation of consumer credit in South Africa. The Feasibility Study
is of interest as it appears to have provided much of the statistical backbone for
the Credit Law Review. While the Credit Law Review has been analysed in
some detail above,793 below is a brief exposition of the data that became
available through the Feasibility Study. Statistical data, which the legislature
would have had to consider in contemplation of new credit legislation.

The Feasibility Study aimed to quantify different types of credit and small loans
that were being provided in the South African market and to assess the effective
cost of credit for each sub-category of loan.794 The product categories included:
mortgages, overdrafts, credit cards, unsecured personal loans, and other similar
products.795 The Study examined only the debt market.796 The importance of

790
At the time credit cards, access bonds and micro loans did not exist in South Africa (Report for
the Credit Law Review Hofmeyer Herbstein and Gihwala Inc. R Willemse and N Mxunyelwa 2),
nor had the Constitution of the Republic of South Africa, 1996 been enacted.
791
Dr P Hawkins The Cost Volume and Allocation of Consumer Credit in South Africa Feasibility
Financial Economic Analysis Strategy March 2003 Mandated by the Department of Trade and
Industry paragraph 1.4 (hereinafter the ‘Feasibility Study’).
792
Ibid.
793
Cf Paragraph 3.2.
794
Feasibility Study paragraph 2.1.
795
Ibid.
796
The difficulties that were encountered in the gathering of the data included incomplete
coverage and lack of consistency of information, especially with regard to credit extension data;
there was a lack of disclosure or partial disclosure in the cost of credit; in the allocation field there
was a drastic lack of transparency by providers. The data on volumes of consumer credit in South
Africa was found to be unreliable and incomplete due to different authorities dealing with bank
127
conducting such statistical analyses is that legislation pertaining to credit has an
impact on the costs, volume and allocation of credit.797

Statistical data showed that different groups of consumers paid different amounts
for credit and that the distinctions were distorted.798 Generally it was low-income
consumers that paid the highest rate for credit. An evaluation of the
competitiveness of various market segments based on the level of disclosure to
the consumer prior to the presentation of the contract; market structure (the
number of players and the apparent pricing competitiveness between players)
and the degree of freedom of consumers to choose between substitute suppliers
and or products revealed that competition was limited to high-end mortgages,
leases and high-end instalment sales whereas the informal money-lending area
formed the least competitive segment.799

The Usury Act cap800 together with the exemption was perceived to have created
an uneven playing field in the market for credit.801 The market was seen to be

and non-bank credit, with Reserve Bank collecting data from banks, StatsSA collecting data from
retailers (inclusive of sales on open accounts) and the Micro Finance regulatory Council obtained
data from micro-lenders. The researcher of the Feasibility Study constantly warned about the
inconsistent classification of data. The classification of published consumer credit data appeared
to be neither consistent over time nor between institutions. This, concluded the Study, implied
that historical comparisons using aggregate data may not have been accurate; suggesting further
that the share attributed to households across each category of loan could be incorrect. These
constraints appeared to affect both bank and non-bank data (paragraph 2.3). The Study also
examined the volume of credit, the following taken from the report is of interest: ‘The volume of
credit advanced in the economy provides an indication of the degree to which those with
expenditure plans in excess of current income, are able to give effect to such plans. However,
where the cost or price of this credit is far in excess of that which would prevail in a competitive
market, access to credit may unduly burden future income streams and lead to further misery for
those who use credit for short term consumption needs’ (Feasibility Study paragraph 2.1).
797
The following from the Feasibility Study is relevant: ‘The regulation of the consumer credit
market profoundly affects the profile, range and depth of credit products within a country’
(Feasibility Study paragraph 2.2).
798
While the average rate was 26%, the costs were unequally distributed with some sectors,
predominantly mortgages and pension backed by loans, paying between 15-19% and per annum
compared to the average cost of short term micro loans of around 222-360%.
799
Feasibility Study paragraph 1.3.
800
Section 2 of the Usury Act provided for maximum rates in money lending, leasing and credit
transactions. The last rates were as follows: (i) where the total amount of money lent (in the case
of a money lending transaction) or the money value of the principal debt (in the case of credit and
leasing transactions) did not exceed R10 000, the rate was 24% and (ii) where the amount
exceeded R10 000, the rate was 21%. In the event of a breach of contract or an agreement to
defer payment, additional finance charges could be claimed at the same rate as that at which
finance charges were charged on the outstanding balance of the principal debt in terms of the
contract (section 4 of the Usury Act). With a money lending transaction, the moneylender could
128
segmented into those that could be served within the ambit of the cap and those
that could not.802 It was also put forward that there was ‘credit rationing’ in the
industry for loans sought above R10 000,803 while for micro-loans of less than
R10 000 there were many providers.804 It was in cases such as mortgages
where banks claimed that they could not recoup their costs at the low-end of the
mortgage market.805 A similar problem was found with small business’ where a
gap in the market was identified in terms of loans being sought between
R150 000 and R500 000 where providers stated that the cap prevented risk
pricing for these sized loans.806 For this reason providers failed to offer such
‘small’ loans and preferred to work beyond the ambit of the Usury Act.807

It was the aforementioned factors that were localised as creating or at least

contributing to areas of dysfunction in the consumer credit market.808 From a
consumer’s perspective, factors that were identified to undermine market forces
included:809

 weak disclosure to consumers, which impaired their ability to evaluate

comparative rates;
 inability of individuals to review personal credit records;
 difficulties of redress; and
 limited choice.

claim interim interest from the date of approval of the loan until the money was paid to the
borrower against a prescribed rate (section 2A of the Usury Act).
801
Feasibility Study paragraph 2.2.
802
Ibid.
803
Ibid.
804
Feasibility Study paragraph 2.2.
805
Feasibility Study paragraph 2.2. The problem does not appear to have been resolved by the
National Credit Act, given that without passing the credit worthiness test (cf sections 80-82 of the
Act) the consumer, whether in the lower or upper end, will not receive credit at all, if the provider
does provide credit to an ‘uncreditworthy’ consumer, then it may stand to be accused of reckless
credit and suffer the consequences thereof (cf sections 80, 83-87 of the Act). A risk not many
providers would take given the repercussions (cf Vessio 2009 THRHR 274). The result of which
may be the inflation of an already existent illegal lending market – so-called loan shark lending –
which has lent in the past and will lend in the future to desperate uncreditworthy consumers at
greater cost to the consumer and the economy.
806
Feasibility Study 2.2.
807
Ibid.
808
Feasibility Study paragraph 1.4.
809
Ibid.
129
On the other hand factors that were recognized to contribute to the high cost of
credit, from the providers’ perspective, included:810

 poor access to information and poor sharing of information;811

 difficulties associated with accessing payment mechanisms;
 unreliability of the debit order collection mechanism – which made collection
difficult;
 difficulties in accessing funds and the costs thereof;812
 legal and institutional factors generated uncertainty and undermined property
rights; and
 regulatory uncertainty and the risk of government intervention encouraged high
pricing.813

It was posited that a sense of uncertainty prevailed in the consumer credit

market, which view was enhanced by uncertainty with regards the future
approach to interest rate regulation and the treatment of credit life insurance.814
Furthermore, doubt with regard the risk of government intervention and the
uneven enforcement of the (previous) legislation created an environment where
credit providers were encouraged to take a short-term view, which inevitably led
to an increase in the cost of credit.815

It was these areas of dysfunction, which resulted in constrained consumer

choice, lack of contestability of markets and shortages in certain credit
categories.816 An environment with neither a cap nor an exemption was
advocated, but the study also points out that any legislative reform of this sort is

810
Ibid.
811
This undermined credit risk assessment, increased origination costs associated with initial
loans and worsened bad debt charges.
812
This constrained activity in certain market segments.
813
These factors were identified as having their origins in the unequal playing fields caused by
disparate consumer credit legislation. Distortions created by the previous fragmented legislation
resulted in the following abuses by market players, (mostly credit providers): provision of some
categories of credit occurred only because there were opportunities to sell associated profitable
products; opportunities for arbitrage between different categories of credit were cultivated;
provision of some categories of credit were stifled as they could not be economically provided,
this lead to a limited choice of credit products for consumers (Feasibility Study paragraph 1.4).
814
Feasibility Study paragraph 1.4.
815
Ibid.
816
Feasibility Study paragraph 1.5.
130
a necessary, but not sufficient, condition to address the dysfunctionality observed
in the market.817 The Feasibility Study posited that any legislative reform of the
cap or the exemption should take place in conjunction with a number of other
changes.818

The combination of the usury cap and exemption was judged to have created
problems for the provision of consumer credit, with a split market into those that
could be profitably served and those that could not.819 The Feasibility Study
suggested that ‘[t]he Consumer Credit Law Review should itself address the
issues of regulatory uncertainty and provide a clearer indication of the rules of
the game […], [s]implified legislation, that is easier to enforce, should also
encourage compliance’.820 Further recommendations made in the Feasibility
Study were, inter alia, that any new legislation, that would replace the old credit
regime, should incorporate at least the following features: that a central register
of loan commitments be instituted, with providers being obliged to update same
as loans were made; better leveraging of certain forms of security, such as
township mortgages, payroll deduction facilities, which should allow both greater
security for providers and the capacity to ensure cheaper rates on the part of the
consumer; standardized and simplified disclosure measurements be put in place,
so that consumers have the means by which to compare the total cost of credit
from different providers and for different credit instruments and finally the
Feasibility Study placed emphasis on the need to educate consumers, with
regard to their competence in terms of household cash flow, as well as in terms
of their consumer rights and knowledge of recourse to dispute resolution.821
Hawkins was of the view that such range of measures should ‘ensure that the
most innovative and progressive of the providers succeed in what is a complex
and nuanced operating environment, and that the greatest number of consumers
have access to the most reasonably priced and best designed credit products’.822

817
Ibid.
818
Ibid.
819
Feasibility Study paragraph 1.4.
820
Ibid.
821
Feasibility Study paragraph 1.4
822
Feasibility Study paragraph 1.5.
131
While the new legislation has attempted to eliminate what would otherwise have
appeared to be unfair discrimination, that is discrimination in interest rates
between people who borrow at certain amounts,823 the Act now prevents
persons, juristic or otherwise,824 from being advanced credit if they are not
creditworthy,825 otherwise the credit provider runs the risk of being a reckless
lender, which label carries with it certain legislative repercussions.826 This
method, in any event, excludes many low-income consumers from obtaining
credit.

It is submitted that the statistical data collected did not directly impact the
structure of the remedies provided to the credit provider when initiating
procedures against the consumer upon breach by him. However, given that the
broader purpose of the National Credit Act was to provide solutions for a very
varied consumer market through the elimination of discrimination between high-
end and low-end consumers, the remedies available to the credit provider would
have had to have been formulated in such a manner as to encompass the varied
scope of the consumer market, especially in light of the repeal of the Usury Act
Exemption Notice. The ‘new’ remedies have to now be applied to the amalgam
of consumers, secured and unsecured loans and deferred credit. The legislator
would have to have been sensitive to the statistical data in order to formulate pre-
collection and collection provisions.

3.2.2 Constitutional Compliance

While an understanding of the common law and a country’s legislative

enactments on a specific area of law brings with it a required study of the
historical development, South African law with its particular constitutional
dispensation cannot be interpreted or examined outside of its constitutional

823
Although the Act does establish maximum interest rates in accordance with the type of credit
agreement applicable (cf section 103 as read with regulation 42 of the Act).
824
If the consumer is a juristic entity, however, only if it falls within the ambit of the Act; and then
one must consider what policy of lending risk financial institutions adopt.
825
Cf sections 80-82 of the Act.
826
Cf sections 83-87 of the Act and Vessio 2009 THRHR 274.
132
setting.827 In this regard, Scholtz828 stated that given the National Credit Act’s
clear socio-economic aims, it is not surprising that it would be tested and
interpreted in light of the Constitution.829 Thus a brief examination of the
Constitution will set the foundation for a clearer understanding of the Act,
especially in light of the fact that both of the Act’s predecessors were drafted
before the Constitution. The National Credit Act was born into a constitutional
legal ethos, one that was not in existence when the Credit Agreements Act and
the Usury Act were promulgated.830

As of April 27, 1994 a new legislative dispensation of constitutional supremacy

was introduced in South Africa.831 The new constitutional dispensation was a
move to eradicate the injustices and discriminations which had tainted South
Africa’s past and to establish core constitutional values based on freedom,
equality and human dignity.832 The Constitution changed the way statutes are
interpreted.833 Chapter 2 of the Constitution contains a Bill of Rights, the
cornerstone of democracy in South Africa; the spirit, purport and objects of
which, are to enshrine the rights of all people in South Africa and affirm the
democratic values of human dignity, equality and freedom.834 The Constitution is
the supreme law835 and all law or conduct that is inconsistent with it is invalid.836

827
This is so because of Constitutional supremacy, cf section 2 of the Constitution, which section
reads: ‘[t]his Constitution is the supreme law of the Republic; law or conduct inconsistent with it is
invalid, and the obligations imposed by it must be fulfilled’. Furthermore, section 39 (2) places a
general duty on every court tribunal or forum to promote the spirit, purport and objects of the Bill
of Rights when interpreting any legislation. Thus statutory interpretation must positively promote
the Bill of Rights and other provisions in the Constitution (Currie I and De Waal J The Bill of
Rights Handbook 2013 57). In Harksen v President of the Republic of South Africa 2000 2 SA
828 CC 18, the court stated: ‘[t]he Constitution is the supreme law of the land. It is unnecessary
for legislation expressly to incorporate terms of the Constitution. All legislation must be read
subject thereto’.
828
Scholtz 2014 paragraph 2.5.
829
The Constitution of the Republic of South Africa, 1996 (hereinafter ‘the Constitution’).
830
As these Acts came into force in 1980 and 1968 respectively.
831
Thus replacing the principle of parliamentary sovereignty (Botha C Statutory Interpretation
2012 13). This was preceded by the Interim Constitution (Constitution of the Republic of South
Africa 2000 of 1995 (hereinafter ‘the Interim Constitution’)) which made provision for the first
democratic election in South Africa and for an interim parliament which, in its capacity as a
constitutional assembly, was to be responsible for drafting the final Constitution within two years
(Chaskalson et al Constitutional Law of South Africa 1999 2, Freedman DW LAWSA vol 5 part 3
2nd ed 2012 12 and Currie and De Waal 2013 57).
832
Barnard A Critical Legal Argument for Contractual Justice in the South African Law of Contract
Thesis: University of Pretoria 2005 136.
833
Botha 2012 13.
834
Section 7 (1) of the Constitution.
835
Lex Fundamentalis (Botha 2012 12).
133
Through the Bill of Rights, the Constitution ensures the protection and
enforcement of human rights through the principle rule of law. The Bill of Rights
further has the function of protecting the individual against the arbitrary exercise
of public power and places positive obligations on the State and other individuals
to respect and contribute to the realisation of these rights.837

The concept of a right to legislative protection for consumer issues has been
explored before.838 Consumer protection ideology has also been advocated as a
design to protect the individual’s right to be treated with dignity and in a way that
will not damage his self-respect.839 Consumer rights are part of the new range of
social rights found in modern society.840

Deutch841 has argued that consumer rights should be treated as human rights842
and that consumer protection should be enforced, notwithstanding that on a

836
Section 2 of the Constitution. The approach in the European Union to consumer rights is an
interesting one in this regard. The impact of the European Convention rights in private law since
the Human Rights Act 1998 came into force is visible in the case law. In Wilson v First County
Trust Ltd 2001 3 W.L.R 42 the Court of Appeal had to consider whether a particular section of the
English Consumer Credit Act, 1974 could be read and given effect by using section 3 (1) of the
Human Rights Act, so as to be compatible with article 6 of the Convention (the right to a fair and
public hearing in the determination of civil rights) and article 1 of the First Protocol (the right to
peaceful enjoyment of possessions) and if it could not, whether a declaration of incompatibility
should, instead, be issued under the Human Rights Act. The Court concluded that a declaration
of incompatibility should be issued. The following paragraph is of interest: ‘where a court is faced
with a provision in primary legislation which appears to require it to make an order which would
be incompatible with a Convention right, the court must consider whether it is possible to read
and give effect to that provision in a way which does not lead to that result. If it is possible to do
so, then the court must take that course. The court will make an order which is not incompatible
with the Convention right’ (per Morrit V.-C paragraph 10). Cf also Bamforth N ‘Human Rights and
Consumer Credit’ L.Q.R 2002 118 (Apr) 203.
837
Bekink B Principles of the South African Constitutional Law 2012 115.
838
Ibid. Deutch S ‘Are Consumer Rights, Human Rights?’ 1994 32 Osgoode Hall CJ 537. For an
interesting perspective on the integration of the National Credit Act and the Constitution cf Renke
S, Roestoff M and Bekink B ‘New Legislative measures in South Africa aimed at combating Over-
indebtedness – are the new proposals sufficient under the Constitution and law in general?’ 2006
IIR 91. Although the article was referenced to the National Credit Bill, the views therein posited
are relevant.
839
Ramsay 2013 77-78.
840
The United Nations Guidelines on Consumer Protection adopt a rights approach. A ‘rights
approach’ is the concept of the right of the consumer to regulatory protection, ultimately drawn
from the Kantian idea of personal autonomy – that is that an individual may not be used as a
means to social ends (Ramsay 2013 78).
841
Deutch Osgoode Hall CJ 537.
842
Socio-economic rights have also been recognized as human rights in a number of
international human rights documents, such as the 1948 Universal Declaration of Human Rights
and the 1966 International Covenant on Economic, Social and Cultural Rights (Khoza S Socio-
Economic Rights in South Africa 2007 19).
134
broader scale and taking cost benefit analysis into consideration, the economy
might benefit if the individual consumer receives a lesser product or protection.
She compares consumer rights to human rights, which place emphasis on the
individual as opposed to the collective and advocates that the acknowledgement
that human rights protect the individual’s prosperity, honour, and development
make consumer rights suitable to be declared as human rights.843 Deutch844
argues that without a right to fair trade, right to a fair contract and the right of
access to court, a person’s dignity can be disregarded:

Consumer rights are similar to other accepted human rights [...] Human rights are
intended to protect the individual from arbitrary infringements by government. In
the same way, the individual consumer is entitled to protection against big
business organisations, monopolies, cartels and multinational corporations. The
big business organization should be considered less like an individual, who
bargains on equal terms, and more like a government, which controls private
consumers.

Deutch845 posits that one school of thought views the issue of standard contracts
as ‘private law making’ by large economic corporations and that the inequality of
bargaining power between consumer and corporation results in contracts of
adhesion and erodes the basic right to negotiate. Where one party is a large
juristic corporation and the other party is an individual consumer, then the
corporation often imposes its terms on the consumer on a ‘take it or leave it
basis’,846 which she argues disregards the consumer’s honour and dignity.847 In
order to introduce equality and justice into the consumer market – the issue of
inequality must be addressed and alleviated by consumer protection
legislation.848

The arguments put forward to promote a consumer rights ideology are

convincing and emphasize some important areas of concern as far as the
consumer market is concerned. However, the discrepancy that lies between

843
Deutch 1994 Osgoode Hall LJ 577.
844
Deutch 1994 Osgoode Hall LJ 551. Acknowledging corporations as having an equal footing to
governments is rather a daunting concept and the debate thereon extends beyond the scope of
this thesis, however, it is submitted that such an acknowledgment is not only daunting but may
also encompass a list of unexpected ramifications if seriously entertained.
845
Deutch 1994 Osgoode Hall LJ 552.
846
Usually in the form or standard-form contracts.
847
Ibid.
848
Ibid.
135
theory and practise must be kept in mind. In countries where there is a first-
world/third-world dynamic such as South Africa, it may be difficult to justify the
enforcement of some of the more sophisticated consumer rights and elevate or
associate them to human rights, when so many more basic rights need urgent
tending to, such as rights to water and medical care. What is essentially being
propagated by Deutch is the fundamentality of the interconnection between
second generation or socio-economic rights and civil rights or first generation
rights. Second generation rights, are also known as positive rights in that they
impose obligations on the state to take such actions in order to secure for all
members of society a basic set of social goods.849 On a practicable level the
question is really, whether basic, well considered legislative consumer protection
devices may be recognized as being sufficient. It is submitted that the legislation
already enacted by the State850 as read with the Constitution, adequately
protects the consumer and there is little need to elevate these consumer rights to
the same status as human rights, although deprivation of one may result in the
infringement of the other. In Absa Bank Ltd v Myburgh,851 Bertelsman J, stated:

The Act is indubitably aimed at protecting the consumer’s fundamental rights to

dignity, equality, non-discrimination and fair administrative and trial procedures
and must be purposively interpreted for that reason alone […] The Constitution
requires legislation to be interpreted, where possible, in ways which give effect to
its founding values.

The following pages contain an evaluation of how some of the rights contained in
the Bill of Rights relate and have fared, in relation to consumer rights or even as
consumer related rights. It is submitted that the Constitution does not obligate

849
See also De Waal and Currie 2013 564 for a discussion on first and second generation rights.
It is submitted that consumer rights, if they were to be constitutionally promulgated, would
obligate the state to take some action in order to ensure that they are upheld. As there is a
Constitutional obligation on the State to respect, protect, promote and fulfil the rights in the Bill of
Rights (section 7 (3)). However, such rights are not absolute; in terms of section 7 (1) of the
Constitution, an internal limitation qualifier, the rights in the Bill of Rights are subject to limitations
contained or referred to in section 36 or elsewhere in the Bill. In terms of section 36 (1) the rights
in the Bill of Rights may be limited only in terms of law of general application to the extent that the
limitation is reasonable and justifiable in an open and democratic society based on human dignity,
equality and freedom, taking into account all relevant factors, including the nature of the right; the
importance of the purpose of the limitation; the nature and extent of the limitation; the relation
between the limitation and its purpose; and less restrictive means to achieve the purpose. Section
36 (2) provides that except as provided in subsection (1) or in any other provision of the
Constitution, no law may limit any right in the Bill of Rights.
850
The National Credit Act and the Consumer Protection Act.
851
2009 3 SA 340 T.
136
the State to enact specific credit legislation, nonetheless, the National Credit Act
as well as the Consumer Protection Act as read with the Constitution go far in
protecting some important consumer rights.

The integration of the Constitution into the common law, brought with it much
debate over the most appropriate method of interpretation.852 Many disputes
followed in this regard, for example, classical liberal interpretation vis-à-vis a
transformative approach and so on. No uncertainty, however, lies in the
importance of the role of the courts. The judiciary is tasked with the responsibility
to interpret and protect the values of the Constitution,853 strike down any law
which is inconsistent with it, develop the common law in accordance with the
spirit, purport and objects of the Bill of Rights and declare conduct which is
inconsistent with the Constitution invalid.854

The Constitution provides that all fundamental rights apply to all types of law,
bind the legislature, the executive, the judiciary and all organs of state.855
Section 8 (2) provides some limit, however:

A provision of the Bill of rights binds a natural or a juristic person if, and to the
extent that, it is applicable, taking into account the nature of the right and the
nature of any duty imposed by the right.

Cockrell856 refers to section 8 (2) as creating a ‘restricted direct application’ of

certain fundamental rights in respect of natural and juristic persons.857 Section 8
(3) enjoins the courts to apply or if necessary develop the common law to the

852
In Pharmaceutical Manufacturers Association of SA; In Re: Ex parte Application of the
President of the Republic of South Africa 200 2 SA 674 CC Chaskalson P placed the common
law in a constitutional framework. He stated that the common law was not a separate and distinct
body of law from the Constitution: ‘There are not two systems of law, each dealing with the same
subject matter, each having similar requirements, each operating in its own field with its own
highest court. There is only one system of law. It is shaped by the Constitution which is the
supreme law, and all law, including the common law, derives its force from the Constitution and is
subject to constitutional control’ (paragraph 44).
853
Section 39 (1) and (2) of the Constitution.
854
Section 39 and section 172 of the Constitution.
855
Section 8 (1) of the Constitution.
856
Cockrell ‘Private Law and the Bill of Rights for the Law of Contract and Delict’ 1995 SAJHR
55.
857
See Currie and De Waal The Bill of Rights Handbook 2013 for a discussion on direct
application of the Bill of Rights to natural and juristic persons (page 34 and 35).
137
extent that legislation does not give effect to that right.858 It is the horizontal
application of the Constitution that allows the courts to infuse (and obligates them
to infuse) the relationships between private individuals and more specifically the
common law of contract with constitutional principles.

Elaborate discussions by constitutional lawyers continue regarding the direct and

indirect application of the Constitution.859 Direct application of the Constitution is
found in its various sections; these shall be mentioned and discussed briefly
below. Indirect application of the Constitution, and more specifically of the values
and principles of the Bill of Rights, have been viewed as having a radiating effect
on the common law which is reflected in open-ended principles of the law such
as boni mores.860 This view is maintained by section 39 (2) of the Bill of Rights
which places the responsibility of developing the common law as contained by
the constitutional milieu, on every court, tribunal or forum by directing that they
promote the spirit, purport and objects of the Bill of Rights.861 This clause has
been referred to as the ‘seepage clause’.862

In terms of the direct horizontal application of the Bill of Rights there are various
sections in the Constitution which provide instruction. As already mentioned
above, section 39 directs that when interpreting any legislation and when
developing the common law or customary law, the courts must infuse these with
constitutional principles.863 Furthermore, the Constitution provides that a

858
There exists a presumption that the legislature does not intend to alter the common law unless
it is clear from the language of the statute that the very object is to alter or modify it
(Johannesburg Municipality v Cohens Trustees 1909 TS 811, Stadsraad van Pretoria v Van Wyk
1973 2 SA 779 (A) and ABSA Bank v De Villiers). Botha states that this presumption reflects on
interest respect and esteem for our common law heritage (Botha 2012 78). The common law also
needs to be critically evaluated in light of the values of the Bill of Rights, before it is allowed to
influence the interpretation of legislation (ABSA Bank v De Villiers supra paragraph 28 and Du
Plessis and Others v De Klerk and Another 1996 3 SA 850 (CC)).
859
Currie and De Waal 2013, Freedman LAWSA vol 5 Part 4 2012 and Bekink 2012, are a few
examples.
860
Van der Walt J ‘Progressive Indirect Horizontal Application of the Bill of Rights: Towards a
Cooperative Relationship between Common Law and Constitutional Jurisprudence’ 2001 SAJHR
352.
861
Barnard 2005 142.
862
Jordaan DW ‘The Constitution’s Impact on the Law of Contract in Perspective’ 2004 De Jure
58 62.
863
Cf also section 8 (3) of the Constitution.
138
provision in the Bill of Rights binds both natural and juristic persons.864 Section
36, the so-called ‘limitations clause’, provides the conditions under which a right
in the Bill of Rights may be limited. It provides that the rights in the Bill of Rights
may be limited only in terms of general application and only to the extent that the
limitation is reasonable and justifiable in an open and democratic society based
on human dignity, equality and freedom, taking into account all relevant factors,
including – (a) the nature of the right; (b) the importance of the purpose of the
limitation; (c) the nature and extent of the limitation; (d) the relation between the
limitation and its purpose and (e) less restrictive means to achieve the purpose.
Except as provided in section 36 (1) or in any other provision of the Constitution,
no law may limit any right in the Bill of Rights.865 Section 36 not only provides a
balancing exercise but also implements principles of proportionality.866

In the area of private law, more specifically with regards contractual disputes the
courts bear a constitutional responsibility to weigh competing rights and interests
and thereafter decide which of the parties’ rights and interests outweigh the
other; minding that the preliminary basis of contractual relationships is
contractual autonomy.867 When confronted with a constitutional dispute the
courts must critically analyse and test such disputes against the norms and
values of our society as they have been extended by the Constitution.868 The
Constitution is the supreme law and no norms or values that are inconsistent with
it can have legal validity.869 This has the effect of making the Constitution a
system of objective, normative values for legal purposes.870

It is obvious how these constitutional directives influence the courts in the

interpretation of new legislation and more specifically with the integration of the
Act. The Constitutional Court has provided some guidance with regards
interpretation of the Act when pitted against rights enshrined in the Constitution.

864
Section 8 (2) of the Constitution. Cf also Tladi ‘Breathing Constitutional Values into the Law of
Contract: Freedom of Contract and the Constitution’ 2002 De Jure 306 309.
865
Section 7 (3) of the Constitution.
866
Van der Walt 2001 SAJHR 351.
867
Barnard 2005 144.
868
Ibid.
869
Ibid.
870
Minister of Safety and Security v Van Duivenboden 2002 6 SA 431 (SCA), K v Minister of
Safety and Security 2005 6 SA 419 (CC) and Renke, Roestoff and Bekink 2006 IIR 92.
139
In Sebola and Another v Standard Bank of South Africa Ltd and Another871 the
Constitutional Court confirmed that a purposive approach must be adopted for
purposes of interpretation of the Act, with specific reference to the preamble and
objects of the Act and also the right to equality as enshrined in section 9 of the
Constitution.872 In Kubayana v Standard Bank of South Africa Ltd873 the
Constitutional Court held that it is well established that statutes must be
interpreted with due regard to their purpose and within their context.874 The
Court went further to state that this general principle is buttressed by section 2
(1) of the National Credit Act, which expressly requires a purposive approach to
the Act’s construction.875 The Court in the Sebola matter also agreed with the
‘balancing of competing interests’ approach adopted by the Supreme Court of
Appeal in Nedbank Ltd and Others v National Credit Regulator and Another.876
Whilst Mhlantla AJ in the Kubayana matter877 went on to state that legislation
must be understood holistically and interpreted within the relevant framework of
constitutional rights and norms. The Constitutional Court found that this did not
mean that ordinary meaning and clear language may be disregarded, and it held:
‘interpretation is not divination and courts must respect the separation of powers
when construing Acts of Parliament’.878

As indicated above, the Constitution does not directly oblige the State to enact
particular credit legislation in order to codify specific basic consumer rights;879 but

871
2012 5 SA 142 CC.
872
In Standard Bank of South Africa v Dlamini 2013 1 SA 219 KZD the court also made reference
to the right to equality in interpreting the Act, more specifically sections 63 and 64 thereof. Pillay J
stated that when the National Credit Act applies, ‘the constitutional right to equality comes to mind
immediately […] The Preamble of the Constitution and to the NCA connects them’.
873
2014 ZACC 1 at paragraph 18. Cf also Wary Holdings (Pty) Ltd v Stalwo (Pty) Ltd and Another
2008 ZACC 12 at paragraph 61 and Mistry v Interim Medical and Dental Council of South Africa
and Others 1998 ZACC 10 at paragraphs 17 – 18.
874
At paragraph 18.
875
Section 2 (1) of the Act states: ‘[t]his Act must be interpreted in a manner that gives effect to
the purposes set out in section 3’.
876
2011 3 SA 581.
877
Supra at paragraph 18. Cf also Bato Star Fishing (Pty) Ltd v Minister of Environmental Affairs
and Others 2004 ZACC 15.
878
Supra at paragraph 18.
879
However, indirectly, the State has been continuously mandated to inter alia, provide effective,
transparent, accountable and coherent government (section 41 (1) (c)). The Constitution also
protects and entrenches the principles of openness, responsiveness and accountability (section 1
(d), for a discussion cf Ndima DD ‘An Assessment of the Role of Accountability in Delivering
Quality Democracy in SA’ 2001 Codicillius 20). Such principles imply that government institutions
must be accessible and officials should respond to the needs and requests of the people they
140
the Act has nonetheless codified a number of fundamental rights of credit
consumers.880 According to the 2004 Policy Framework the credit market that
had developed over the forty years prior to the promulgation of the Act, was
viewed as inappropriate for the contemporary and future political, economic and
social context of South Africa.881 The study showed that low-income groups,
which represent the majority of the population, had access to only 6% of total
credit extension with little access to conventional credit products such as
mortgages, credit cards or overdraft facilities.882 This part of the population
group was thus forced to relegate to non-bank credit, informal sector loans and
other marginal providers.883 These alternate methods of obtaining credit cost the
individuals in the poorest income category up to ten times the price paid by the
wealthiest income groups.884 Accordingly, the inequity in the cost of credit
between the low-income and high-income earners in the previous dispensation
discriminated against the low-income consumers, thus affecting their right to
equality guaranteed by section 9 (1) of the Constitution. Section 9 (1) of the
Constitution states that everyone is equal before the law and everyone has the
right to equal protection and benefit of the law. Equality includes the full and
equal enjoyment of all rights and freedoms.885 In an interesting minority view and
with specific reference to the consumer’s right to equality, the importance of
considering the living conditions of poor, black people when interpreting the
provisions of the National Credit Act was emphasised by Zondo AJ in Nedbank
Ltd and Others v National Credit Regulator and Another.886

govern (Bekink 2012 38). It is submitted that implementing legislation that protects its citizens
forms part of such duties.
880
Renke, Roestoff and Bekink 2006 IIR 92.
881
2004 Policy Framework 12.
882
Ibid.
883
Ibid.
884
2004 Policy Framework 12.
885
Section 9 (2), the rest of which reads: ‘To promote the achievement of equality, legislative and
other measures designed to protect or advance persons, or categories of persons, disadvantaged
by unfair discrimination may be taken’. It is submitted that while having a much higher charge in
interest and fees to lower end credit consumers may appear and in some instances, however,
even be a form of discrimination, the other aspect that need be considered in such instances is
the credit providers risk profile vis-á-vis a low-income consumer of credit who may have little or
no security.
886
Supra paragraphs 160-162.
141
Section 9 (1) also formed the basis of the matter in Standard Bank of South
Africa Ltd v Hunkydory Investments 194 (Pty) Ltd and Rupert Henry Ingram.887
Here the defendants (a juristic person and an individual whom stood surety for
the obligations of the juristic person) argued that their exclusion from the
protection of the Act because of sections 4 (1)(a), (b) and 4 (2)(c) of the National
Credit Act was unconstitutional in so far as it states that the Act is not applicable
to a juristic person and that the Act only applies to the person that has signed as
surety if the Act applies to the contract in respect of which the suretyship was
granted.888 The second defendant submitted that section 4 (2)(c) should be
interpreted so as to afford him the same protection as any other natural person
who signed as surety for the debt of another natural person.889 Defendants
quoted section 9 (1) of the Constitution and submitted further that section 36 of
the Constitution, dealing with limitation of rights did not save the violation of the
Defendants’ rights to equality.890 The court looked at the purpose of the Act in
terms of section 3 thereof and found that in essence the Act attempts to prevent
the reckless provision of credit by institutions to people who cannot afford
credit.891 The court stated that attacks on the legislation founded on the
provisions relating to equality in the Constitution raise difficult questions of
constitutional interpretation and require careful analysis of the facts of each case
and an equally careful application of those facts to the law.892 The Court found

887
2008 ZAWCHC 92.
888
At paragraph 15.
889
At paragraph 16.
890
At paragraph 18.
891
Standard Bank v Hunkydory supra paragraph 20.
892
In this regard the court quoted from the case of Prinsloo v Van Der Linde and Another 1997 3
SA 1012 CC where it was stated that the courts ‘should be astute not to lay down sweeping
interpretations at this stage but should allow equality doctrine to develop slowly and hopefully
surely. This is clearly an area where issues should be dealt with incrementally and on a case by
case basis with special emphasis on the actual context which each problem arises'. The court
sought guidance from the judgment in Harksen v Lane NO and Others 1998 1 SA 300 CC 320
regarding arguments relating to lack of equality, where the Court there stated that an enquiry
should be directed by the Court to question whether the impugned provisions do differentiate
between people or categories of people. If such provision does so differentiate, then in order not
to fall foul of equality provisions in the Constitution, there must be a rational connection between
the differentiation in question and the legitimate governmental purpose such provision is designed
to further or achieve. If it is justified in that way, then it does not amount to a breach of the
relevant section. The Court quoted Goldstone J in this regard: ‘If the differentiation complained of
bears no rational connection to a legitimate governmental purpose which is proffered to validate
it, then the provision in question violates the provisions of s 8 (1) of the Interim Constitution, if
there is such a rational connection, then it becomes necessary to proceed to the provisions of s 8
(2) to determine whether, despite such rationality, the differentiation none the less amounts to
unfair discrimination’ (paragraph 24).
142
that there may be instances of discrimination which do not amount to unfair
discrimination and that in the final analysis it has been held that it is the impact of
discrimination on a complainant that is the determining factor regarding the
unfairness of the discrimination.893 To establish unfairness in this context various
factors must be considered, including the position of the complainants in society
and whether they have suffered in the past from patterns of disadvantage, the
nature of the provision and the purpose sought to be achieved by it.894 If the
purpose is aimed at achieving a worthy societal goal, this purpose may have a
significant bearing on the question whether complainants have in fact suffered
the impairment in question.895 Finally, the Court held that there was no doubt
that a rational connection existed between the differentiation created by the
relevant provisions of section 4 of the Act and the legitimate governmental
purpose behind its enactment.896 The Supreme Court of Appeal and the
Constitutional Court both refused leave to appeal on the grounds that there were
no reasonable prospects of success.

The Constitution also protects the right to privacy which includes the right not to
have a person’s, home or property searched, their possessions searched and the
privacy of their communications infringed.897 The unreasonable attachment of
debtors’ property could be an infringement of this right898 and while the Act does
regulate the surrender of goods899 and debt enforcement by repossession or
judgment900 it is submitted that in instances where the procedures in the Act are
infringed – the consumer may very well have a constitutional claim under section
14. Section 14 of the Constitution should be read with section 25 which prohibits
arbitrary deprivation of property except in terms of law of general application.901

893
At paragraph 24.
894
Ibid.
895
Ibid.
896
Standard Bank v Hundydory supra paragraphs 13-27. The issue was once again raised in
Standard Bank of South Africa Ltd v Hunkydory Investments 188 (Pty) Ltd and Others 2009
ZAWCHC 81 but again dismissed by the court.
897
Section 14 of the Constitution.
898
Renke, Roestoff and Bekink 2006 IIR 94.
899
Cf Part B of Chapter 6 of the Act.
900
Cf Part C of Chapter 6 of the Act.
901
Renke, Roestoff and Bekink opine that because ‘property’ is not limited to land only, section
25 could have significant impact on debtor-creditor relations (2006 IIR 94). Yet the authors fail to
mention what impact significant or otherwise this section may have on the [very general] ‘debtor-
creditor relations’. It is submitted that the rights in the Bill of Rights are limited by a limitations
143
In the matter of Opperman v Boonzaaier902 the Western Cape High Court was
requested to consider section 89 (5)(c) of the National Credit Act903 and it
declared the section inconsistent with section 25 (1) of the Constitution and thus
invalid. This order was referred to the Constitutional Court for confirmation and
was so confirmed.904

Some consumer rights as encapsulated in the National Credit Act have not come
before the courts but can be examined in light of certain sections of the
Constitution. That are certain rights enshrined in the Constitution that have been
specifically encapsulated as consumer rights in the National Credit Act. For
example, section 12 (1)(e) of the Constitution states that people may not be
treated or punished in a cruel, inhuman or degrading way. It has been suggested
that under this constitutional right issues such as the protection of debtors
against unreasonable interest rates on debt905 and unfair treatment by debt
collectors should be included.906 The National Credit Act caps interest rate
charges907 and regulates the collection, repayment, surrender and enforcement
areas of the credit relationship.908

clause, see the discussion above, and that any deprivation of property in terms of the Act would
not be arbitrary deprivation and would be deprivation by law of general application, and that any
such deprivation would be reasonable and justifiable in an open and democratic society based on
human dignity, equality and freedom (section 36). Any deprivation of property which may have
occurred in a credit relationship in the previous credit dispensation would have been subject to
the same constitutional limitations.
902
2012 JDR 0619 WCC.
903
Section 89 (5)(1) read: ‘If a credit agreement is unlawful in terms of this section, despite any
provision of the common law, any other legislation or any provision of an agreement to the
contrary, a court must order that all the purported rights of the credit provider under that credit
agreement to recover any money paid or goods delivered to, or on behalf of, the consumer in
terms of that agreement are either cancelled, unless the court concludes that doing so in the
circumstances would unjustly enrich the consumer; or forfeit to the State, if the court concludes
that cancelling those rights in the circumstances would unjustly enrich the consumer’. Section 27
of the National Credit Amendment Act deletes sub-sections 89 (5)(b) and (c) of the Act. Cf also,
Otto JM ‘Die Par Delictum – Reel en die National Credit Act’ TSAR 2009 3 417.
904
National Credit Regulator v Opperman 2013 2 SA 1 CC.
905
The Usury Act did regulate the maximum amount of interest that could be charged for a credit
transaction cf the last Government Gazette published with regards the finance rates before the
promulgation of the National Credit Act: GG 26809 17.09.2004. The Usury Act, however, only
regulated transactions where the capital or principal amount was R500 000 or less.
906
Renke, Roestoff and Bekink 2006 IIR 94.
907
Cf Part C of Chapter 5 of the Act. There are credit agreements which do not fall within the
ambit of the Act which would then not be subject to these limitations. However, the Act regulates
all credit agreements where natural persons are consumers in credit agreements.
908
In particular cf Chapter 6 of the Act.
144
The Constitution further provides that everyone has the right to administrative
action that is lawful, reasonable and procedurally fair and in order to give effect
thereto the State must enact national legislation.909 In compliance with this
section the State has enacted the Promotion of Administrative Justice Act.910
There may be instances where parties to a credit agreement may rely on this Act.
Chapter 7 of the National Credit Act, for example, deals with dispute settlement
other than debt enforcement and refers to the National Credit Regulator911 and
National Consumer Tribunal912 – in such instances there may be scope for a
consumer or even a credit provider or any person whose rights or legitimate
expectations are materially and adversely affected by any administrative action
taken in terms of the Act, to have such administrative action be procedurally fair
and, in such instances, may rely on the Promotion of Administrative Justice Act in
order to enforce such rights.

Section 34 of the Constitution guarantees that everyone has the right to have any
dispute that can be resolved by the application of law decided by a fair public
hearing before a court or where appropriate another independent and impartial
tribunal or forum. The Act has, as mentioned in the previous paragraph,
established two public bodies to deal with various issues related to credit and
credit relationships. Although the function of the National Credit Regulator in this
instance is not to resolve a dispute but merely to accept a complaint concerning
an alleged contravention of the Act or even initiate a complaint in its own
name,913 the National Consumer Regulator may apply to the Tribunal for an order
resolving a dispute related to various issues.914 Access to an independent court
or forum in credit provider and consumer disputes is thus constitutionally
guaranteed.915 The issue of whether only the Magistrates’ Courts would have
jurisdiction over disputes in terms of the National Credit Act was canvassed by
the Courts and after conflicting interpretations – the matter was settled in

909
Section 33 of the Constitution.
910
Act 3 of 2000.
911
Section 12 of the Act.
912
Section 26 of the Act.
913
Section 136 of the Act.
914
The precise features of which are not pertinent to this discussion, for further detail cf section
137 of the Act.
915
Renke, Roestoff and Bekink 2006 IIR 95.
145
Nedbank v Stringer and another.916 The High Court as well as the Magistrates’
Court have jurisdiction.

In broad terms there was a move by the legislature to eradicate discrimination in

credit granting by enacting the National Credit Act.917 According to the
explanatory memorandum to the National Credit Bill this right is conceptually
linked to both the Bill of Rights and the Promotion of Equality and Protection of
Unfair Discrimination Act.918 This concept is operatively realised in various
sections of the Act. The Act protects consumers against unfair discrimination by
credit providers vis-à-vis other consumers when such consumers are exercising,
asserting or seeking to uphold any right as set out in the Act.919 Section 61 of the
Act specifically protects consumers and prospective consumers against
discrimination in respect of credit, directing that credit providers, credit bureaus,
ombuds with jurisdiction, alternative dispute resolution agents, debt counsellors
and employers or trade unions must not unfairly discriminate directly or indirectly
against consumers or prospective consumers on one or more grounds as set out
in section 9 (3) of the Constitution or in Chapter 2 of the Promotion of Equality
and Prevention of Unfair Discrimination Act.920 Furthermore, the right to
information relating to the credit agreement as well as disclosure of information,
the contract and account statements in plain and understandable language, and
the right to choose whether to receive specific documents electronically or in
hard (paper) copy are incorporated in the Act.921

The above synopsis, albeit broad, allows at least a bird’s eye view of how the
Constitution has a radial influence both relative to private contracts as well as in
the formation and interpretation of legislation. A discussion of credit law

916
2008 4 SA 266 TPD 279.
917
Cf section 3 (a) and (d) of the Act. It was argued by Renke, Roestoff and Bekink, prior the
enactment of the Act, notwithstanding that the Constitution does not directly obligate the State to
enact laws to regulate consumer credit that the old consumer credit legislation indeed
discriminated against low-income consumers thereby limiting their fundamental rights (2006 IIR
96).
918
Act 4 of 2000.
919
Cf section 66 of the Act.
920
The section sets out particular circumstances in this regard.
921
Cf section 3 (f) of the Act. The right of access to information is enshrined in section 32 of the
Constitution, which rights was further consolidated through the Promotion of Access to
Information Act 2 of 2000.
146
encompasses both aspects. This is because on the one hand credit is extended
and received through the formation of a contractual relationship and
simultaneously the legislature has, through the promulgation of the National
Credit Act, ‘stepped in’ and regulated some aspects of this relationship.

It is trite that South African contract law is founded on the principle of freedom of
contract.922 Simply put, this gives any person with contractual capacity, the
power to determine whether, with whom and on which terms to contract and
create legally enforceable relationships in terms of which performance becomes
executable.923 The Supreme Court of Appeal has confirmed this as against at
least two fundamental constitutional values, namely freedom and human
dignity:924

[C]ontractual autonomy is part of freedom. Shorn of its obscene excesses,

contractual autonomy informs also the constitutional value of dignity[.]

In Kant’s classical construction of dignity he posits that because human beings

possess capacity to reason, every adult person of sound mind, has the capacity
to differentiate between right and wrong and make moral judgments.925 In this
regard Jordaan states:926

Every person is therefore perceived as a moral agent with moral autonomy.

Having the status of being a moral agent endows every human with unconditional
incomparable worth, also known as dignity. Moral autonomy relates to every
action by a moral agent, and therefore includes actions that relate to contracting.
Infringing contractual autonomy thus infringes moral autonomy, which in return
infringes dignity. To disregard contractual autonomy is to disregard dignity.

The court in Barkhuizen v Napier927 followed much the same line of thinking by
indicating that while on the one hand, public policy, as informed by the
Constitution, requires, in general, that parties should comply with contractual
obligations that have been freely and voluntarily undertaken, expressed in the
maxim pacta sunt servanda which, as the Supreme Court of Appeal has

922
Wynn’s Car Hire Products (Pty) Ltd v First National Industrial Bank 1991 2 SA 754 (A).
923
Jordaan 2004 De Jure 59.
924
Per Cameron JA in Brisley v Drotsky ZASCA 35 paragraph 94.
925
Jordaan 2004 De Jure 59.
926
Jordaan 2004 De Jure 59-60.
927
2007 5 SA 323 (CC) per Ngcobo J paragraph 57.
147
repeatedly noted, gives effect to the central constitutional values of freedom and
dignity.928 The court was of the view that self-autonomy, or the ability to regulate
one’s own affairs, even to one’s own detriment, is the very essence of freedom
and a vital part of dignity.929 The court posited further that the extent to which the
contract was freely and voluntarily concluded is clearly a pivotal factor as it will
determine the weight that should be afforded to the values of freedom and
dignity.930

Contractual autonomy has been protected by the courts as it was found to be in

the public interest:931

[D]ie elementêre en grondliggende beginsel dat kontrakte wat vryelik en in alle

erns deur bevoegde partye aangegaan is, in die openbare belang afgedwing
word.

However, this autonomy may be curtailed by public policy. In Brisley v Drotsky932

the court supported Aquilius’ definition of a contract against public policy by
indicating that a contract against public policy is one stipulating a performance
which is not per se illegal or immoral, but which the Courts, on grounds of
expedience, will not enforce, because performance will detrimentally affect the
interests of the community. With South Africa’s constitutional dispensation,
public policy is now rooted in the Constitution and the fundamental values which
it enshrines.

Jordaan,933 from whom the precise of Kant’s views on dignity was drawn, was
discussing contractual autonomy; however, extending the debate with regards
contractual autonomy is not fundamental for the purposes of this discussion. It is
submitted, however, that a very similar reasoning for the curtailment of
contractual autonomy by the courts can be used for limitation on contractual
freedom through legislative enactments. As indicated above, Kant’s analysis of

928
Ibid.
929
Ibid.
930
The court also mentioned the importance of the right of persons to seek judicial redress
(Barkhuizen v Napier 2007 5 SA 323 (CC) per Ngcobo J paragraph 57).
931
SA Sentrale Ko-op Graanmaatskappy Bpk v Shifren 1964 4 SA 760 (A) 767A.
932
Supra per Harms, Streicher and Brand JJA paragraph 29.
933
2004 De Jure 59-60.
148
contractual autonomy vis-á-vis dignity is based upon the premise that every adult
person possesses the inherent capacity to reason and is therefore capable of
differentiating between right and wrong and making moral judgments. This is a
fair argument when referring to morality (albeit even then not completely
infallible) but the same does not and, it is submitted, cannot hold true when
referring to a person’s ‘commercial rationality’. Commercial skill and know-how
are not by any means equal in all human beings. Consumers in society have
different levels of education and training or lack thereof, are of varied wealth and
have varied business acumen. This disparity is further highlighted in the South
African context where a first-world/third-world divide is cogent. Thus, it is
submitted, that some interference with contractual autonomy is necessary to
preserve basic consumer rights in the credit relationship. These invasive devices
should always be clearly defined and limited.934 Thus, the same prudence that
the courts have heralded with regard to public policy should be similarly imposed
on legislation, lest it create uncertainty as to the validity of contracts. The
following forceful comment on the possibly unmanageable nature of public policy
if not properly curtailed, it is submitted, may be applicable to legislation if the
legislator does not, when legislating, take cognisance of certain basic principles
already present in the South African common law:935

Public policy in the interpretation of contracts has, for some reason, inspired a
shower of equine analogies. It has been variously described as a very unruly
horse, a high horse to mount and difficult to ride, one which stampedes in
opposite directions at the same time and one whose reigns must be tightly held.

3.3. Purpose of the National Credit Act

It has been posited that every jurist that concerns himself with consumer
legislation has at one time or another expressed a view on the purpose of this
type of legislation.936 A list of the purposes of credit regulation generally would
be inexhaustive; however, a useful condensed and relevant list of the objectives

934
To some extent the Act has pierced the veil of pacta sunt servanda for example Part D of the
Act gives a court varied powers to suspend or terminate a credit agreement, leaving the credit
provider somewhat unsheltered in terms of certainty in contracting.
935
Interland Durban (Pty) Ltd v Walters NO 1993 1 SA 223 (A) 224-5.
936
Otto and Grové 1991 62.
149
of consumer credit legislation was adopted by the Crowther Commission.937
Albeit the Crowther Report was conducted in relation to a different jurisdiction,938
is over forty years old and despite that the trade of credit has evolved since its
publication and that the types of credit agreements have become more complex
and sophisticated, its findings are still relevant in that the nature of lending, the
vulnerability of the consumer as well as the rights of the credit provider
precipitate off the same elemental base that was established after the world wars
when consumerism became endemic. Furthermore, while a discussion of this
style can become very convoluted, a simplistic outlook is to be valued.
According to the Crowther Commission,939 protective credit legislation has three
main functions, these include:

 addressing the consumer’s unequal bargaining position;

 curbing malpractices in the commercial environment; and
 managing the exercise of remedies.

The consumer’s lack of bargaining power is addressed by prohibiting particular

clauses in contracts, while making others compulsory, by providing for certain
compulsory contractual rights, requiring disclosure of the debtor’s obligations and
by prohibiting deceptive practises.940 Exploitation or malpractice in the
commercial, especially credit environment is a notorious malady.941 Therefore
curbing these malpractices is carried out by identifying them and proscribing
them with suitable sanctions.942 Sanctions for this purpose may be civil or
criminal in nature and may include the power to prohibit a person from supplying
credit.943 The prohibition or limitation of certain remedies and the rules that
govern the methods of controlling the exercise thereof are important in any credit
economy. The certainty established by reliable and consistent private law
regulation of the consequences of breach by the credit consumer is of major

937
Crowther Royal Commission on Consumer Credit Cmnd 4596/1971 234-235 (hereinafter
‘Crowther Report’).
938
England.
939
Ibid.
940
Crowther Report 235.
941
Ibid.
942
Ibid
943
Crowther Report 235.
150
significance and not to be undermined. While regulating the credit relationship
from inception is also essential, it is the confidence that the law will ensure that
the consumer will be bound by his contractual obligations which creates comfort
for the credit providing industry. Predictable collection methods and the ability to
have the obligation enforced by judicial agents (courts, sheriffs etc.) also create
public awareness and can be of dissuasive value.

The National Credit Act944 changed the old credit regulatory regime rather
dramatically and the following comments from Scholtz encapsulate the dynamic
effects of the changes brought about by the Act quite appropriately:945

The National Credit Act is a far-reaching piece of legislation which forms part of a
raft of contemporaneous legislation or proposed legislation aimed at protecting
consumers and making credit and banking services more accessible.
Cumulatively these measures constitute perhaps the most comprehensive
change of the legal landscape (and the common law) since the adoption of the
Constitution since 1996. Credit providers and consumers should not, therefore,
see the Act as merely an amendment of the Usury Act and the Credit

944
The main drafter of the Act was Professor Philip Knight, a Canadian legislative drafter.
Professor Michelle Kelly-Louw from the University of South Africa provided legal advice during
the drafting process of the Act and she drafted the amendments contained in Schedule 2 of the
Act. During the drafting process key players, interest groups and associations were consulted.
The State Law Advisors also played a vital role in approving and signing off, on the Act.
Parliament also held various public hearings with regard the National Credit Bill before it was
finalised into an Act (Niemi et al 2009 181). It is submitted that this decision was not wise, as in
order to draft legislation for a common law jurisdiction such as South Africa, the drafter would
have to have had a keen understanding of the common law to avoid contradictions and deviations
from the already existing body of common law. Otto points out that the Act imports definitions that
deviate drastically from the basic principles of South African law and concepts foreign to the
South African legal system and traditional legal terminology. He points out that it is indeed
unfortunate that the legislation did not pay great attention to harmonizing the provisions of the Act
with the common law, as the lack of harmonization detracts from the laudable objectives, general
utter-friendliness and clarity of the Act and that the uncertainties, deviations from the common law
and numerous problems of interpretation likely to arise which may well give rise to a spate of
litigation – at the instance of those wishing to avoid the application of the Act and at the expense
of the consumers (Scholtz 2014 paragraph 2.1, cf also Westbank v Papier 2011 JDR 0045 WCC
paragraph 14, Nedbank Ltd v the National Credit Regulator 2011 3 SA 581 SLA and Absa Bank
Ltd v Petersen 2012 A11 SA 642 WCC). The added problem is that the Act, with its lack of clarity
and deviation from the common law, impacts not only those attempting to interpret it from a
judicial point of view, but those attempting to advise clients on how to implement it from a
procedural standpoint. In Renier Nel Incorporated v Cash on Demand (KZN) (Pty) Ltd 2011 JOL
26935 JSJ Willis J said that it had ‘become a notorious fact that cases requiring the interpretation
of the National Credit Act result in a scarcely muffled cry of exasperation resounding from the
leathered benches of the judiciary’ and made reference to the ‘wide spread lack of clarity and
certainty which various traditional colleagues around the country have experienced when trying to
interpret the NA. If Judges have such difficulty, how much more so must this be the case among
the men and women of business?’ (paragraph 15 and 27).
945
Scholtz 2014 paragraph 2.1.
151
 Agreements Act. It is a wholesale replacement of legislation that has regulated
consumer credit for more than a quarter of a century.

According to Goodwin-Groen,946 the fundamental purpose behind the Act is to

achieve ‘integrity in the credit market and remove the multitude of unfair
practices, inappropriate disclosure and anti-competitive practices from the
market’. The Act has introduced many innovative concepts into the law in
relation to those credit agreements to which it applies. It has been described as
an ‘ambitious (perhaps even an idealistic) piece of legislation with pronounced
socio-economic aims’.947

The Act’s self-proclaimed purpose948 is to promote and advance the social and
economic welfare of South Africans, promote a fair, transparent, competitive,
sustainable, responsible, efficient, effective and accessible credit market and
industry, and to protect consumers.949 These purposes are to be attained by:950

(a) promoting the development of a credit market that is accessible to all South
Africans, and in particular to those who have historically been unable to
access credit under sustainable market conditions;
(b) ensuring consistent treatment of different credit products and different credit
providers;
(c) promoting responsibility in the credit market by:-
(i) encouraging responsible borrowing, avoidance of over-indebtedness and
fulfilment of financial obligations by consumers; and
(ii) discouraging reckless credit granting by credit providers and contractual
default by consumers;

946
Finmark Trust Report: The National Credit Act and its Regulations in the Context of Access to
Finance in South Africa 2006 16.
947
Scholtz 2014 paragraph 2.3. Absa Bank Ltd v Myburgh supra 7: ‘Even a cursory reading of the
Act underlines the objects pursued by the Legislature by its promulgation; namely to protect the
credit receiving consumer from being exploited by credit providers, to prevent predatory lending
practices; to level the playing field between a relatively indigent and unsophisticated consumer
and a moneyed and well-advised credit provider and to limit the financial harm that the consumer
may suffer if he is unable to perform in terms of a credit agreement he entered into’.
948
Cf section 3.
949
Section 3 elaborates extensively on how the Act will protect consumers. Some of these
protection methods include the promotion and development of an accessible credit market to all
South Africans but in particular to those who have been historically disadvantaged, in that they
have been precluded from accessing credit under sustainable market conditions and by ensuring
consistent treatment of credit products and providers. The Act further proposes to promote
responsibility in the credit market by encouraging responsible borrowing, avoidance of over-
indebtedness, fulfilment of financial obligations by consumers and by discouraging reckless credit
granting by credit providers. The list in section 3 is extensive, all of which shall not be discussed
here.
950
Section 3(a)-(i) of the Act.
152
 (d) promoting equity in the credit market by balancing the respective rights and
responsibilities of credit providers and consumers;
(e) addressing and correcting imbalances in negotiating power between
consumers and credit providers by
(i) providing consumers with education about credit and consumer rights;
(ii) providing consumers with adequate disclosure of standardised
information in order to make informed choices; and
(iii) providing consumers with protection from deception, and from unfair or
fraudulent conduct by credit providers and credit bureaux;
(f) improving consumer credit information and reporting and regulation of credit
bureaux;
(g) addressing and preventing over-indebtedness of consumers, and providing
mechanisms for resolving over-indebtedness based on the principle of
satisfaction by the consumer of all responsible financial obligations;
(h) providing for a consistent and accessible system of consensual resolution of
disputes arising from credit agreements; and
(i) providing for a consistent and harmonised system of debt restructuring,
enforcement and judgment, which places priority on the eventual satisfaction
of all responsible consumer obligations under credit agreements.

Three particular methods for achieving the purposes of the Act are of relevance,
that is, the fulfilment of financial obligations by the consumer,951 discouragement
of contractual default by the consumer,952 and providing a consistent and
harmonised system of debt enforcement and judgment.953 Unfortunately, one is
not directed to other sections in the Act which would specifically achieve these
goals. However, it is interesting to note that the emphasis lies not only in
discouraging the consumer from defaulting but also on consistent enforcement.
The importance of legislation which imposes honouring of obligations and the
fulfilment thereof as a stabiliser for the credit market cannot be overemphasised.
Providing effective protection and enforcement as well as assurance to credit
providers that their competitors will be forced to abide by the same rules, creates
a sustainable credit industry and entrenches confidence in the investor.954
Accordingly, a single Act, which provides for consistent procedures and remedies
with respect to debt enforcement, has to be welcomed.

951
3(c)(i) of the Act.
952
3(c)(ii) of the Act.
953
3(i) of the Act.
954
As Mhlantla AJ put it in Kubyana v Standard Bank of South Africa Ltd 2014 ZACC 1, while
there can be no doubt that the Act is directed at consumer protection, this should not be taken to
mean that the Act is relentlessly one-sided and concerned with nothing more than devolving
rights and benefits on consumers without any regard for interests of credit providers (paragraph
20).
153
The suggestions by the Crowther Committee appear, in principle, to be
addressed in the content of the Act; however, the only true method of gauging
the effectiveness of such an important piece of legislation is observance of its
implementation by commercialists, attorneys, jurists and most importantly the
courts.955 This thesis focuses especially on the last function postulated by the
Crowther Report in relation to credit legislation, that is, whether the remedies
available for breach of the credit agreement are properly and effectively
managed.

3.4. European Union

As already mentioned at the beginning of this chapter, the growth of affluence

after the world wars in Europe and America was initiated by the harnessing of
technological developments in order to procure large scale production methods,
which in turn made available a broad range of relatively sophisticated products
and assisted the growth in credit use by consumers. These new dynamics in
society resulted in the need for a regulatory reaction from governments. Europe
has worked as an integrated whole, and its Directives have an umbrella effect on
the national legislation that is implemented in each European country in order
that those jurisdictions do not fall foul of the policies that emanate from the
European Parliament. The following discussion examines the progress of the
European block as a whole and then looks at England and Italy, and how these
two countries have recently undergone regulatory change in order to harmonise
their local legislation with the regional policies.

As the process of legal harmonisation in Europe continues, so the sophistication

of consumer law and policy through that continent develops and thus makes for

955
The following cautionary words by the Honourable Mr Justice A V D S Centlivers CJ, should
be heeded: ‘For it must always be remembered that, however carefully an Act may be drafted, ‘it
is’, as Austin reminds us, ‘far easier to conceive justly what would be a useful law, than so to
construct that same law that it may accomplish the design of the lawgiver’’.
154
an interesting study.956 The harmonisation arose from a need both within and
outside of Europe to eliminate the differences in national laws which were found
inimical to the efficient conduct of cross-border business in Europe.957
Harmonisation confers particular benefits on contracting parties carrying on
business in different countries, enabling them to contract with reference to a set
of rules that apply uniformly over the territories of the various countries and which
are detached from any particular legal system.958 The appeal of this to anyone
studying the facilitation of cross-border trade, not only within Europe but also with
Europe, is patent. To have contractual principles that apply outside of a
country’s own contractual principles and beyond them, to agreements between
parties conducting cross-border business and entering cross-border contracts to
concretise such dealings is of obvious convenience value to the contracting
parties and, if the matter so escalates, to the relevant forum dealing with the
dispute, not to mention the monetary benefits to the independent economies.959
The harmonisation of the principles of contract law in Europe was carried out with
a view to achieve a proper functioning of a single European market.960 The goal
was to achieve a unitary approach to law and regulation in order to surmount
obstacles to trade and distortions of the market which resulted from the
differences in the national laws of Member States affecting trade with Europe.961
It is submitted, that the now, over fifty year old history of the European Union,
can be utilised by Africa by drawing from the continental experience for purposes
of Africa’s own harmonisation processes.962 While South Africa is far from

956
The unification of Europe, the unfastening of its trade markets, the unlocking of borders and
the harmonisation of its laws will be the greatest contemporary example for Africa in its pursuit for
similar confederacy ambitions.
957
Olando O and Beale H The Principles of European Contract Law Part 1: Performance, Non
Performance and Remedies 1995 XV.
958
Ibid.
959
The following comment is taken from a ‘Study of the Effects on the English Economy of the
Revised Consumer Credit Directive’: ‘If the Directive creates an efficient single market for
consumer credit, the potential benefits to the United Kingdom economy could be in the range of
£370-500 million’. This was according to estimates by the Department for Business Enterprise
and Regulatory Reform, Copenhagen (14 May 2009 5).
960
Olando and Beale 1995 XV.
961
Ibid.
962
Thomas posits a very sophisticated view on this issue: ‘However, harmonisation in order to
create a common market should be limited to the primary fields of the law dealing with economic
transactions. Harmonisation is not unification, but should recognise diversity within a framework
set out by communal principles. The history of South African private law shows that such
objective is achievable. The British method introduced in the Cape colony and subsequently in
the Union consisted in the introduction of institutions, structure and process; by placing the focus
155
having contract principles (for cross-border dealings) synchronized with
European Union laws – there is nothing to prevent the courts from being guided
by our own common law and interpreting legislation so that it does, indirectly,
come into some form of harmonisation with European Union contractual
principles.963 This can be achieved, especially by utilizing judgments that have
interpreted and applied similar legislation to develop South African law and apply
new legislation.964

While a comprehensive examination of the European Union is beyond the scope

of this work, a brief exposition of the nature of the historical development of the
European Union from a consumer perspective has been outlined in Chapter 2
above. Below is a focused discussion on the more recent development of
consumer credit regulation.

Regional market integration in Europe required various controls which extended

beyond the broad basic treaty framework965 to incorporate policy and legislation.
A Community consumer protection policy was begun as early as 1975 by Council
Resolution.966 The first of its kind, the policy maintained that in the modern

on legal procedure instead of values, law has become the language of debate between conflicting
legal cultures and succeeded in keeping the balance in society. Thus, cross economical
transactions may pave the way for cross-cultural harmonisation as abstract choices between
value systems and the consequent conflict are avoided. The role of law in this shift from values to
practices should be minimalist, restricted to the case at hand and striving for agreement on the
commonalities which will construct the normative skeleton of the African Union’ (2008 Fundamina
‘Harmonising the Law in a Multilingual Environment with Different Legal Systems’ 133 153-4).
963
Otto gave his own views on this in relation to the Council Directive 87/102/EEC of 22
December 1986 for the Approximation of the Laws, Regulations and Administrative Provisions of
the Member States Concerning Consumer Credit, as amended by Council Directive 90/88/EEC of
22 February 1990 and by Directive 98/7/EC of 16 February 1998 in an article entitled: ‘The EEC
Directive on Consumer Credit: A Model for Southern Africa?’ SALJ 1996 297.
964
Section 2 (2) of the National Credit Act specifically directs that any person, court of tribunal
interpreting or applying the Act may consider appropriate foreign and international law. However,
it must be noted that in terms of section 4 of the Act it (the Act) applies to credit agreements that
have an effect within the Republic (section 4 (1)) and it applies to a credit agreement or proposed
credit agreement, irrespective of whether the credit provider resides or has its principle office
within outside of the Republic (section 4 (3)). If the Act applies to a credit agreement it continues
to apply to that agreement even if a party to that agreement ceases to reside or have its principle
office within the Republic and it applies in relation to every transaction, act or omission under that
agreement whether that transaction act or omission occurs within or outside the Republic (section
4 (4)). What is interesting is that in terms of section 4 of the Act, a foreign court may have to apply
the Act if finds that it otherwise has the jurisdiction to hear the dispute.
965
Cf paragraph 2.4 supra for a discussion on the development of the European Community.
966
Council Resolution of 14 April 1975 on a Preliminary Programme of the European Economic
Community for a Consumer Protection and Information Policy OJ 1975 C92/1.
156
market economy the balance had moved away from the consumer and shifted in
favour of the supplier.967 An annex to the 1975 Resolution, entitled ‘Preliminary
Programme of the European Economic Community for a Consumer Protection
and Information Policy’ offered a statement of five basic rights of the
consumer:968

 the right to protection of health and safety;

 the right to protection of economic interests;
 the right to redress;
 the right to information and education; and
 the right to representation.

There followed a number of other Resolutions in 1981,969 1986,970 1989,971

1992972 and two consecutive three year action plans were published by the
European Commission for Consumer Policy in the European Economic
Community.973

The approach to consumer protection in Europe has been one of integration

rather than regulation.974 Where laws differ from state to state, the classic
European Community response is an attempt to harmonise such laws in order to
eventually establish a common community rule.975 Over the years, where these
divergences in state laws have demonstrated themselves, the Community has

967
Howells GG and Weatherhill S Consumer Protection Law 2005 121.
968
Ibid.
969
Council Resolution 19 May 1981 on a Second Programme of the European Economic
Community for a Consumer Protection and Information Policy OJ 1981 C133/1.
970
Council Resolution of 23 June 1986 Concerning the Future Orientation of the Policy of the
European Economic Community for the Protection and Promotion of Consumer Interests OJ 1986
C167/1.
971
Council Resolution of 9 November 1989 on Future Priorities for Relaunching Consumer
Protection Policy OJ 1989 C294/1.
972
Council Resolution of 13 July 1992 on Future Priorities for the Development of the Consumer
Protection Policy OJ 1992 C186/1.
973
Three Year Action Plan of Consumer Policy in the EEC (1990-1992) COM (90) 98 final of 3
May 1990 and COM (93) 378 published in June 1992 (Howells and Weatherhill 2005 121).
974
De Cristofaro G La Nuova Diciplinaria Europea del Credito al Consumo 2009 X1.
975
De Cristofaro states that the common feature in all the Directives is the objective to reach
complete harmonization of legislation of member States, removing from national legislators any
margin of discretion, negating them even the possibility to maintain or introduce internal
regulations which would allow an elevated and more incisive form of protection for the consumer
with respect to the form guaranteed by the Directive (2009 XI).
157
acted to put in place some directives regarding consumer protection.976 These
are not formal laws, but they do filter through and become implemented at state
level – especially given that in the event of trial the European Court of Justice (as
well as national courts) will align their judgments along the lines of the
Directives.977 In any event the Member States are under an obligation in terms of
Articles 5 and 189 of the European Council Treaty to implement these Directives
in their domestic legal orders.978 As discussed above, there have been a number
of Directives by the European Council. Pertaining particularly to credit law,
however, Council Directive of 22 December 1986,979 Council Directive of 22
February 1990980 and Council Directive amending the 1986 Directive for the
approximation of laws, regulations and administrative provisions of Member
States concerning consumer credit, were subsequently repealed by the
European Consumer Credit Directive 2008/48/EC.981

The wide differences in the laws of the Member States in the field of consumer
credit were seen to lead to distortions of competition between grantors of credit in
the common market, to limit the opportunities the consumer had to obtain credit
in other Member States; to affect the volume and the nature of the credit sought
and also the purchase of goods and services.982 As a result, these differences
were seen to have an influence on the free movement of goods and services
obtainable by consumers on credit and thus to directly affect the functioning of
the common market.983 Given the increasing volume of credit granted in the
European Community to consumers, the establishment of a common market in

976
Ibid.
977
Ibid.
978
It is a violation of the Treaty for a Member State to fail to implement a Directive, such default
may lead to proceedings brought by the Commission in terms of Article 169 of the EC Treaty
against the State before the European Court in Luxemborg (Howells and Weatherhill 2005 138
and Cuthbert M E.U Law in a Nutshell 2006 24).
979
Directive 87/102 OJL 42/48
980
Council Directive of 22 February 1990 Amending Directive 87/102/EEC for the Approximation
of the Laws, Regulations and Administrative Provisions of the Member States Concerning
Consumer credit 90/88/EEC.
Directive 90/88 OJ 1990 61/14.
981
Council Directive 2008/48/EC of 23 April 2008 on Credit Agreements for Consumers and
Repealing Council Directive 87/102/EEC. The 2008 Directive for Consumer Credit became
effective on June 2010
(http://www.csa-England.com/media/editor/file/Consumer%20Credit%20Directive(1).pdf
(16.06.10)).
982
Preamble 1987 Directive.
983
Ibid.
158
consumer credit was viewed to benefit consumers, grantors of credit,
manufacturers, wholesalers and retailers of goods and providers of services.984
The Directives aim to bring about a certain degree of approximation of the laws,
regulations and administrative provisions of the Member States of the European
Union concerning consumer credit.985 The Directives emphasised information
provisions, required rules to be put in place that regulated the creditors, by inter
alia, restricting creditors’ remedies, allowing for rebates if credit is repaid early
and introduced a limited form of creditor liability for the quality of goods
supplied.986 The Directives also introduced a common method for calculating the

984
Ibid.
985
All the Directives related to credit make this proclamation. The following from Weatherhill,
albeit relating to the 1987 Directive as amended, is relevant: ‘the measure is not only designed to
create an integrated market for credit but also to achieve protection of consumers of credit. It
possess a dual aim (Berliner Kindl Brauerei AG v Andreas Siepert Case C-208/98 2000 ECR I-
1741)’ (EU Consumer Law and Policy 86).
986
Directive 87/102/EEC as amended did not regulate the following: credit agreements for the
purpose of acquiring or retaining property rights in land or a building; credit agreements for the
purpose of renovating or improving a building; hiring agreements which do not provide for the title
passing to the hirer; credit free of interest or any other charge; interest-free credit agreements
where the consumer repays the credit in a single payment; credit in the form of advances on a
current account granted by a credit institution or financial institution, with the exception of credit
card accounts; credit agreements involving amounts less than € 200 or more than € 20 000;
credit agreements whereby the consumer undertakes to repay the credit either within three
months or by a maximum of four payments within a twelve month period (article 2 (1)). Credit
agreements had to be in writing (article 4 (1)). Besides the essential terms of the contract, an
agreement had to state the annual interest rate charge and the conditions under which it could be
amended (article 4 (2)). Where credit was granted in the form of an advance on a current
account, the consumer had to be informed in writing, at or before the time the agreement was
concluded: of the credit limit, if any; of the annual rate of interest and the charges applicable and
of the procedure for terminating the agreement (article 6 (1)). The consumer had to be notified of
any change in the annual rate of interest or in the relevant charges, during the period of the
agreement. In the case of credit granted for the acquisition of goods, Member States were
obliged to lay down the conditions under which the goods could be repossessed and ensure that
neither of the parties was unjustly enriched. The consumer could discharge his obligations under
a credit agreement before the time fixed by the agreement and was entitled to an equitable
reduction in the cost of the credit (article 8). Where the creditor's rights were assigned to a third
person, the consumer's rights remained unaffected and action to enforce any claim could be
taken against that third person (article 9). The Member States had to ensure that consumers
using bills of exchange were suitably protected. In such events Member States were obliged to
ensure that the existence of a credit agreement did not affect the rights of the consumer vis-à-vis
the supplier of goods or services purchased by means of such agreements in cases where the
goods or services were not supplied or were not in conformity with the contract (article 11). The
consumer could seek redress against the grantor of credit when the following conditions were
fulfilled: (1) the consumer has entered into a credit agreement with a person other than the
supplier of the goods or services purchased; (2) the credit provider and the supplier of the goods
or services have a pre-existing agreement under which credit is made available exclusively by the
former; (3) the consumer obtains his or her credit pursuant to that pre-existing agreement; (4) the
goods or services covered by the credit agreement are not supplied or are not in conformity with
the contract; (5) the consumer has sought redress against the supplier but has failed to obtain
satisfaction. Member States had to ensure that credit providers obtained official authorization to
provide credit; ensure that the providers were subject to inspection by an official body; promote
159
annual percentage interest rate.987 Member States which already had a method
for calculating the interest rate were entitled to retain their respective methods
during the period of transition.988

The European Parliament and the Council of 23 April 2008 on credit agreements
for consumers repealed Directive 87/102/EEC, as amended.989 In 1995, the
European Commission presented a report on the operation of Directive
87/102/EEC and undertook a broad consultation with the interested parties.990 A
second report was produced in 1996 on the operation of Directive
87/102/EEC.991 In 1997, the Commission presented a summary report of
reactions to the 1995 report.992 Those reports and consultations revealed some
of the reasons for the repeal of the 1987 Directive; such as the existence of
substantial differences between the laws of the various Member States in the
field of credit.993 An analysis of the national laws transposing Directive
87/102/EEC showed that Member States used a variety of consumer protection
mechanisms, in addition to Directive 87/102/EEC, on account of differences in
the legal or economic situation at national level.994 The de facto and de jure
situation resulting from those national differences in some cases was found to
lead to distortions of competition among creditors in the Community and to create
obstacles to the internal market where Member States had adopted different
mandatory provisions that were more stringent than those provided for in

the establishment of appropriate bodies for providing information and advice to consumers in
respect of credit agreements and for receiving associated complaints (article 12). The Member
States may introduce more stringent rules than those laid down in the Directive.
(http://europa.eu/legislation_summaries/consumers/protection_of_consumers/l32021_en.htm
(15.06.2010)). Directive 90/88/EEC set out a single mathematical formula for calculating the
annual percentage rate cost throughout the Community and for determining credit cost items
used in the calculation, while Directive 98/7/EC focused on the calculation of the annual
percentage rate cost of credit charge.
(http://eur-lex.europa.eu/smartapi/cgi/sga_doc?smartapi!celexapi!prod!CELEXnumdocandlg
=ENandnumdoc=31987L0102andmodel=guichett (15.06.2010)).
987
Ibid.
988
However, subsequently and in terms of article 2 of Directive 98/7/EC Member States were
obliged to bring into force the laws, regulations and administrative provisions necessary for them
to comply with that Directive no later than two years after the entry into force of the Directive and
were further obliged to inform the European Commission of such compliance.
989
http://vlex.com/vid/credit-agreements-consumers-repealing-38424844 (16.06.10).
990
Ibid
991
http://vlex.com/vid/credit-agreements-consumers-repealing-38424844 (16.06.10).
992
Ibid.
993
Ibid.
994
Ibid.
160
Directive 87/102/EEC.995 These actions by individual Member States were felt to
restrict consumers' ability to make direct use of cross-border credit, which in turn
could affect demand for goods and services.996

Furthermore, the years leading up to the 2008 Directive saw a considerable

evolution in the types of credit offered to and used by consumers in Europe.
New credit instruments had appeared, and their use continued to develop.997 It
was thus felt necessary to amend existing provisions and to extend their scope,
where appropriate. The development of a more transparent and efficient credit
market within the European Union without internal frontiers was viewed as vital in
order to promote the development of cross-border activities.998

The strides that Europe has and is taking in developing, inter alia, its consumer
credit laws and the reasons for so doing form part of a philosophy that it has
been following since 1957 which is that of harmonisation of national laws in order
to facilitate open border trading. In consequence, each individual state in Europe
is aligning their national credit laws, regulations and policies so as not to
derogate from the European Directives, Italy and England, discussed below, are
primary examples.

995
http://vlex.com/vid/credit-agreements-consumers-repealing-38424844 (16.06.10).
996
Ibid.
997
The following is taken from a Report issued by the Minister of the Department of Trade and
Industry England: ‘The European Commission has recognised that the 1987 Consumer Credit
Directive is out of date, has failed to open up the internal market in consumer credit and is in
need of reform’ (Consumer Credit Law A Consultation on a Proposed European Consumer Credit
Directive 25 February 2005 URN 05/834 (http://www.dti.gov.England/files/file14388.pdf)
(16.06.10)).
998
http://vlex.com/vid/credit-agreements-consumers-repealing-38424844 (15.06.10). Thus, the
following relevant paragraph taken from the preamble of Directive 2008/48/EC: ‘In order to
facilitate the emergence of a well-functioning internal market in consumer credit, it is necessary to
make provision for a harmonised Community framework in a number of core areas. In view of the
continuously developing market in consumer credit and the increasing mobility of European
citizens, forward-looking Community legislation which is able to adapt to future forms of credit and
which allows Member States the appropriate degree of flexibility in their implementation should
help to establish a modern body of law on consumer credit’ (The European Parliament of the
Council of 23 April 2008 on Credit Agreements for Consumers and Repealing Council Directive
87/102/EEC).
161
3.5. England

Prior to the revision of its credit legislation in 2006,999 the English credit regime,
similarly to its South African counterpart, was faced with comparable
complications.1000 It can thus be observed that as the world globalizes, the
problems which legislatures face are indeed analogous. Credit consumers
worldwide face similar difficulties (standard form contracts, unfair terms,
insufficient information and the like) and when they breach the contract, credit
providers rely on the remedies available to them by their country’s private laws.
These problems are universal, the subtlety lies in the application of the remedies
and, it is submitted, South Africa has the consistency of the common law to
reassure credit providers of a more stable absorption of any new legislation.
That is not to say that one cannot benefit by observing progress in comparable
jurisdictions, especially ones that regulate cosmopolitan and progressive markets
such as England. Below is a brief outline of the credit reform progress over the
past century in Britain. As will be seen, the legislation was reactionary to various
trends in the market. The war, increase in production followed by increase in
consumerism were some of the factors that prompted various changes in
legislation and policy in England. Finally, we see how over-indebtedness and the
rise of the European Union propelled England to re-evaluate its consumer credit
legislative regime.

After the 1890’s there seemed to be a move towards hire-purchase as the

preferred method of instalment credit in England for purchasing products, as
alternative forms of selling on instalment became less popular due to certain
restrictive legislation such as the Bills of Sale Act1001 and the Factors Act
1889.1002 Hire-purchase secured the seller’s rights against third parties, as the
consumer under a hire-purchase agreement was merely hiring the goods and not
committed to purchasing them. This principle, developed by the House of

999
With the advent of the Consumer Credit Act, 2006.
1000
Detailed in this paragraph.
1001
In terms of which a consumer purchased an item and gave security over it for the credit
granted.
1002
The legislation was drafted in such a manner that consumers purchasing products on credit
could, in certain circumstances, pass title to an innocent third party and thus defeat the rights of
the seller (Lee v Butler 1893 2 QB 318).
162
Lords,1003 allowed the seller to then seize the goods.1004 Gradually, due to
abuses by businesses, hire purchase was subject to greater controls, initially by
the courts and by 1938 the Hire-Purchase Act came into force. By the 1960’s
hire-purchase was no longer perceived as a favourable form of contracting, as a
security interest in items that were sold on credit were not so sought after, given
that their resale value when repossessed was often quite low. Furthermore,
consumers began to require credit for other purposes such as for acquiring
services.1005

In any event, after the Second World War, there was a move in England, to
eradicate war time controls and trade-protection legislation which were seen as
factors that hampered competitiveness and jeopardized the post-war goal of
having no unemployment figures for British society.1006 It was these ideologies
and visions which spurred further ideas for a transformation of the market in
order to meet consumer demands and needs; the culmination of these principles
formed the background to the establishment of the Molony Committee.1007 Thus
the Molony Report is a historically appropriate point of entry to understanding
consumer regulation in England. The report intended to provide a foundation for
policy making for the next twenty years, but really stood at the beginning of many
policy measures that were taken subsequent to it in an attempt to protect
consumers.1008 It was criticised as ‘not quite sufficiently radically pro-
consumer’1009 and its legal recommendations as ‘good hearted [...] unimaginative
and insular’.1010 The broad mandate of the committee was to consider and report
what changes, if any, in the law and what other measures, if any, were desirable

1003
Helby v Matthews 1895 AC 471.
1004
Criticized as being an artificial conceptualisation of the transaction, given that almost all
consumers that entered hire-purchase transactions did so with the intention of acquiring
ownership (Scott C and Black J Cranston’s Consumer and the Law 2000 233).
1005
Scott and Black 2000 234.
1006
Ramsay 2012 3.
1007
Board of Trade (Final Report of the Committee on Consumer Protection (Molony Committee)
Cmnd 1781/1962 (hereinafter ‘the Molony Report’). Of course Britain had its very own history of
consumer credit laws and controls. The earliest forms of credit in London began with tradesman’s
credit (during the seventeenth and eighteenth centuries), pawn broking (late sixteenth century)
and money lending. Pawn broking was first regulated in 1603 and a comprehensive consolidating
statute was passed in 1872 which remained in force, albeit with amendments, until it was
replaced by the Consumer Credit Act 1974.
1008
Ibid.
1009
The Economist 1962 326.
1010
Diamond 1963 66 from Ramsay 2012 3.
163
for the further protection of the consuming public.1011 The Committee, however,
restricted its focus to the situation of persons who purchased or hire-purchased
goods for private consumption.1012 The underlying philosophy of the Molony
Report was that competition and market forces were the best protection for
consumer interests.1013 The Committee was, however, aware of the potential
dangers of the new changes that had occurred in the market-place, and
consequently outlined the concerns regarding the potentially detrimental impact
of these changes.1014 These included the alleged development of inequality of
bargaining power;1015 the consumer’s so called “shopping problems”,1016 the
complexity of goods in the market; vulnerability of consumers;1017 reluctance to
pursue claims;1018 unorganised consumers; calls and arguments for fundamental
alteration of the system1019 and inadequate enforcement.1020

Not quite a decade later and in the 1970’s of major concern in England was the
necessity to redress the patent imbalance of power between consumers and
providers through the introduction of public regulation and subsidisation of
consumer organisations.1021 These innovations sparked and then subsequently
drew from documents such as the Crowther Committee’s report on Consumer

1011
Ibid.
1012
Ramsay 2012 3.
1013
Ibid.
1014
Ramsay 2012 3; cf Stephenson G Consumer Credit 1987 3.
1015
The Committee found that the old established balance between the parties had been
seriously disturbed by markedly different methods of manufacture, distribution and
merchandising, as a result of which the system protecting consumer rights had become
inadequate (Ramsay 2012 3).
1016
Development of complicated production techniques, wide range of alternative choices and
increased sale of branded and internationally advertised products reduced the retailer’s function
to that of simply handing over what the customer had already been persuaded to buy, disenabling
the retailer to provide any form of expert advice (Ramsay 2012 3).
1017
It was felt that consumers found it beyond their power to make informed and wise decisions
and that this opened them up to exploitation and deception (Ramsay 2012 4).
1018
The ordinary consumer – devoid of technical knowledge or at the very least lacking ready
access to independent technical advice and uncertain of the strength of his case – would be
reluctant to incur the considerable trouble and cost of pursuing what he regarded as his legitimate
complaint. This reluctance is deepened if the cost of expert investigation and legal proceedings
would be disproportionate to the price paid for the goods, together with the fact that relief would
only (and maybe) be relieved by trial (Ramsay 2012 4).
1019
The main thrust here was that on the side of the providers there existed effective
organisation, providing mutual assistance and potent representation of various sectors – the
approach of such organisations to consumers and consumer woes was found to be one of
indifference (Ramsay 2012 4).
1020
Ramsay 2012 4.
1021
Ramsay 2012 5.
164
Credit1022 and the political support for consumer protection which infused the
1970s.1023 The justification for public regulation to protect consumers against
economic losses lay in the fact that such losses, which although very large in
total, were so diffuse in nature that any individual found it uneconomical to seek
redress in the courts.1024 The findings in the Crowther Report, together with the
political views of the time culminated in the Consumer Credit Act 1974. New
agencies were created in order to assist, such as the Office of Fair Trading,
established in 1973 and the National Consumer Council, established in 1975.1025

The transformation that occurred in consumer policy regulation in England since

the 1970’s was mainly due to global influences such as the development of
global capital markets that restricted the abilities of states to pursue redistributive
policies, and neoliberalism.1026 Large scale privatization and deregulation of
markets occurred during this period.1027 Furthermore, during the prime
ministership of Margaret Thatcher competition was posited as the best consumer
policy, and this ideology was favoured over extensive consumer regulation.1028
Between the periods 1979 to 1997 consumer law developments were generally
stimulated by the need to give effect to European Directives.1029 During this
period there was little support for regulating the consumer market and criticisms
were levelled at attempts to regulate, such as high compliance costs burdening
businesses and creation of barriers to market entry.1030 The British government
was also criticised for failing to rationalise the reasons for intervention and the
view was that any attempt by the government to bring about substantive social
objectives through legal regulation would only result in over legalisation and was
thus opposed.1031 The ideology at the time was to manage the issue of
consumption through education and expert advice by providing more choice to

1022
Crowther Royal Commission on Consumer Credit Cmnd 4596/1971.
1023
Ibid.
1024
Ibid.
1025
Ramsay 2012 5.
1026
Ramsay 2012 8.
1027
Ibid.
1028
Ramsay 2012 9.
1029
Ibid.
1030
Ibid.
1031
Ramsay 2012 9.
165
the consumer through deregulation and privatisation.1032 The theory was that by
being forced to make more choices, individuals were invited to regulate
themselves.1033 This was specifically applied to the credit market where it was
believed that the consumer, through self-discipline would curb his reliance on
credit and save more.1034 As part of a deregulation initiative a review of the
Consumer Credit Act 1974 was commissioned by the Office of Fair Trading and
conducted by the then Director General of Fair Trading.1035 The 1974 Act was
supported and in particular its non-interventionist policies endorsed.1036 The
desired effect of a balanced credit market through non-intervention was,
however, not realized and, consequently, over-indebtedness1037 of consumers
became a priority for the new government which came into power in 1997 in
England.1038

On a broader scale, the Blair government took the view that through efficient
consumer markets England would be able to achieve global competitiveness,
and that the state had a definitive role to play as regulator. In 1999 a White
Paper1039 was released discussing the aim of policy in England, which in short
was to reinforce the idea of strong consumers, strong business’ and consumer
and competition policy as methods of increasing competitiveness in the global
economy.1040 The White Paper posited that albeit a number of measures had
been previously introduced, these were uncoordinated, often failed to address
the real needs of people and overlooked the contribution that consumers could
make to competitiveness.1041 Essentially, the strategic approach expounded in

1032
Ramsay 2012 10.
1033
Ibid.
1034
Ibid.
1035
Sir Bryan Carsberg Consumer Credit Deregulation Office of Fair Trading 1994 (hereinafter
the ‘Carsberg Review’).
1036
‘Perhaps the greatest strength of the Act is that it does not seek to meet its objectives through
interventionist action such as interest rate-capping or direct control of the substance of contracts.
Rather, it explicitly endorses freedom of contract within a framework or rules designed to ensure
openness: consumer protection is attained in large through measures to ensure that full and
truthful information about credit contracts is available to consumers’ (Carsberg Review 6).
1037
Some theorists add ‘obesity’. Cf Offer The Challenge of Affluence: Self-Control and Well-
Being in the United States and Britain Since 1950 2006 365.
1038
Ramsay 2012 10.
1039
DTI Modern Markets, Confident Consumers Cm 4410/1999.
1040
Ramsay 2012 10.
1041
Ramsay 2012 11.
166
the White Paper was the establishment of a policy framework.1042 The Paper
stated that the government would first look at opportunities to make markets
work, inter alia, through better information and self-regulation but that it would not
hesitate to regulate if these methods failed.1043 After the White Paper certain
changes were affected; the National Consumer Council and Office of Fair
Trading were rejuvenated and significant changes adopted to the enforcement of
consumer law through the Enterprise Act 2002.1044 In 2003 the Department of
Trade and Industry commissioned an international benchmarking study of
English consumer law and policy: Comparative Consumer, The United
Kingdom.1045 The study outlined contemporary institutional frameworks of
English consumer policy and assessed its strengths and weakness.1046 The
2003 Comparative Study brought to the fore the concern with risks and
management of risk in society; even though many societies were found to be
much richer than in the past.1047 The study found that these risks were no longer
localised but had crossed national borders; so for example, volatility in the
international financial system may result in unsustainable growth in consumer
credit which ultimately results in a financial crash that leaves many consumers
over-indebted, as happened in many European countries in the 1980s.1048 Thus,
many English jurists are of the view that management of risk and the concept of
risk as an organising framework for regulation should be a central contemporary
theme.1049

However, in terms of credit law regulation, since the inception of the 1974
Consumer Credit Act, the credit market in England changed fundamentally. In
2001 the Department of Trade and Industry issued a Consultation Document.1050
The purpose of the discussion paper was to initiate a review of the Consumer

1042
Ibid.
1043
Ibid.
1044
Ramsay 2007 9.
1045
Ibid.
1046
Ibid.
1047
Ramsay 2007 10.
1048
Ibid.
1049
Ramsay 2007 15.
1050
Tackling Loan Sharks - and more:- Consultation Document on Modernising The Consumer
Credit Act 1974
(http://webarchive.nationalarchives.gov.England/+/http://www.dti.gov.England/CACP/ca/consultati
on/loanshark.htm) (22.06.10).
167
Credit Act.1051 There were five main motivating factors that led to a review of the
Consumer Credit Act: implementing the government’s manifesto commitment to
tackle loan sharks; the need for improvements in the then consumer credit
licensing regime; Financial Services Authority regulation of mortgages which was
to become effective, with knock-on effects for the Consumer Credit Act; the
European Commission consultation on a revised Consumer Credit Directive and
building on a previous report from a Task Force on tackling over-indebtedness,
published in July 2001.1052 Furthermore, it was felt that because the Consumer
Credit Act was nearly thirty years old, besides some piecemeal amendments that
had previously been undertaken, a major review was required to ensure the Act
remained relevant to the modern consumer credit market and maintained
appropriate consumer protection measures.1053

In 2003 the Department of Trade and Industry conducted a study of the credit
market, Fair Clear and Competitive: The Consumer Credit Market in the 21st
Century.1054 The White Paper outlined problems in the consumer credit market
and which reforms it aimed to address. The issues that the White Paper found
with the British consumer credit market can be summarised as follows: (a)
informational problems before purchase of goods on credit;1055 (b) undue
surprises after purchase of goods on credit;1056 (c) unfair practices;1057 (d) illegal

1051
Ibid.
1052
Ibid.
1053
The priority issues where changes were viewed to be necessary were also set out in the
consultation paper; these included: (a) changes to the licensing regime to target enforcement on
keeping loan sharks out of the market; (b) making extortionate credit provisions more effective;
(c) changing the financial limit and categories of exempt agreements to increase consumer
protection by bringing more credit agreements within the regulatory regime; (d) enabling
consumers to conclude credit agreements on-line; (e) simplifying the advertising regulations; (f)
amending the early settlement regulations to give consumers a fairer deal and (g) addressing
issues of over-indebtedness
(http://webarchive.nationalarchives.gov.uk/+/http://www.dti.gov.uk/CACP/ca/consultation/loanshar
k.htm (25.06.2010)).
1054
Cm 6040/2003 (hereinafter the ‘White Paper’).
1055
Consumers need clear, consistent information to be able to make informed comparisons
between the plethora of products available to them. While innovation and evolution in the credit
market benefited consumers through increased choice and flexibility, it was found that
contemporary products had become difficult for consumers to understand because they are so
complex, and because there is a lack of transparency of standardised information (White Paper
5).
1056
Often, problems arising from misinformation occurred after a credit agreement had been
signed and the consumer committed. In this way, the widespread use of large early settlement
fees and other hidden costs caused undue surprises for the consumer after purchase (White
Paper 5).
168
money lenders1058 and (e) over-indebtedness.1059 The White Paper aimed to
establish a more transparent regime so consumers could make better-informed
decisions and get fairer deals, to this end they recommended changes in the
advertising regulations to make credit advertisements clearer and simpler for
consumers to understand, and the regulations easier for authorities to
enforce.1060

Alongside the White Paper, a consultation document was published,1061 in what

was seen as a significant first step towards the implementation of the
reformation.1062 Further reforms contemplated in the White Paper were
suggested in order to encourage and reward vigorous competition, innovation,
choice and enterprise, while stamping out irresponsible and unfair lending
practices.1063 Another priority indicated in the White Paper was to adapt English
law so that it would align itself into a properly functioning single European
marketplace for credit with the potential to boost competition, generate better
deals and ensure consumers have enough protection to shop across borders.1064

1057
Some practices by traders were found to be unfair to the consumer, with consumers finding it
difficult in such instances to obtain redress and for the regulatory authorities to take effective
action to stop a trader continuing such practices (White Paper 5).
1058
Money lenders, who are unlicensed and operate outside the law, commonly referred to as
loan sharks take advantage of vulnerable lenders and bring legitimate lenders into disrepute.
Britain’s Department of Trade and Industry commissioned another research paper in 2006 on
illegal lending, entitled ‘Illegal lending in the United Kingdom: Research Report’ November 2006
URN 06/1883.
1059
The White Paper disclosed that 20% of households in England that made use of credit,
experience financial difficulties, while 7% had levels of credit use associated with over-
indebtedness. The view was that tackling over-indebtedness would contribute to social justice
and prosperity for all would be achieved by improving financial inclusion. The vision was to
educate consumers and provide easier access to help and advice for those in financial difficulty
and to assist low-income consumers to have access to affordable credit (White Paper 5 and 7).
1060
This included providing consumers with clearer information, before and after agreements are
signed; enable consumers to enter and conclude credit agreements online, speeding up
application procedures and reducing burdensome paperwork; raise awareness of early settlement
charges and change the law to prevent those who repay early from being penalised (White Paper
5).
1061
Entitled: ‘Establishing a Transparent Market: A consultation on proposals for regulations on
Early Settlement; Form and Content of Credit Agreements: APRs on Credit Cards; and On-line
Agreements’.
1062
Philpott F et al The Law of Consumer Credit and Hire 2009 12.
1063
These included strengthening the credit licensing regime to target rogue and unfair practices
and provide enforcers with the powers required to supervise a fair and effective credit market;
change the law to end unfair selling practices, replacing a limited ‘extortionate’ test with a wider
‘unfairness’ test, providing an effective dispute resolution mechanism; and removing the £25,000
financial limit that (then) created a two-tier lending framework and curtailed consumer protection
and further examined some of the existing provisions governing the enforceability of agreements.
1064
White Paper 6
169
To this end the White Paper canvassed cross-border data access on an equal
and fair basis, a common approach to advertising and information regulation,
unfair practices, rules on the calculation of the annual rate of interest, and debt-
recovery and collection practices, high level consumer rights and redress
mechanisms and an effective ‘passporting’ regime for lenders wanting to market
and sell credit products cross-border.1065

Consequently, the Consumer Credit Act 1974 was fully implemented on 1

October 2008.1066 The Act was implemented in 3 phases: firstly, on the 6 April
2007, the duties of the Financial Ombudsman Service were extended to cover
consumer credit and the Unfair Relationships Test was introduced for new
agreements.1067 Secondly, on 6 April 2008, the Office of Fair Trading’s new
strengthened licensing regime was introduced, the Consumer Credit Appeals
Tribunal, for appeals against the Office of Fair Trading’s licensing decisions, was
established, the financial limit of £25,000 was removed so all new credit
agreements in Britain (unless specifically exempt) are regulated, and the Unfair
Relationships Test was extended to all existing credit agreements.1068 Thirdly,
on 1 October 2008: a requirement for lenders to provide borrowers with much
more information about their accounts on a regular basis, such as an annual
statements and notices when consumers fall into arrears or incur a default sum
was introduced.1069 Furthermore, the Office of Fair Trading’s regulatory powers
were extended to credit information and debt administration services which
means debt administration and credit information service providers require a
consumer credit licence, and consumers can go to the courts asking for an
extension of time in order to pay back their loan when they receive a notice
advising them of arrears.1070

However change did not stop here. The European Directive 2008/48/EC on
Credit Agreements for Consumers and Repealing Council Directive 87/102/EEC

1065
White Paper 6-7.
1066
Philpott 2009 12.
1067
Ibid.
1068
Philpott 2009 12
1069
Ibid.
1070
Prior October 2008, consumers in Britain could only seek a time order when they received a
default notice.
170
has influenced the English credit regime. Changes implemented in response to
this Directive include changes to advertising, the giving of explanations to
consumers, rights of cancellation, termination and early settlement, agreement
documentation, overdrafts and assignments.1071

In light of the above discussion it can be seen that the rationale for effecting
legislative changes in England were motivated largely due to internal market
shortcomings. Similarly to South Africa, the English credit market was faced with
lack of sufficient information being provided to consumers prior to the purchase
of goods on credit, hidden costs of credit found in standard form contracts, unfair
practices by credit providers towards consumers, the widespread rise of illegal
money lenders and general consumer over-indebtedness. This prompted the
need for the amendment to the Consumer Credit Act and, it is submitted, that
most of the amendments would probably and in any event have been effected,
despite the European Directive imperative.

3.6. Italy

Similarly to the European community discipline and until the second half of the
1990’s, Italian laws regarding consumer protection were fragmented.1072 Thus
during this period, the legislative arrangement was the result of varied efforts by
specific sectors in an attempt to protect consumers.1073 The sources of these
enactments were community rules, state laws, regional legislation and
progresses through legal action taken by various administrative authorities,1074
and self-disciplinary directives issued by various associations.1075 These sources

1071
Philpott 2004 12. The Consumer Credit Act, as amended, is discussed in greater detail in
paragraph 4.6 infra.
1072
The Consumer Code (D.Lgs 206/2005) has tempered but not completely eliminated, the
fragmentation of legislation in the area (Bertuzzi S and Cottarelli G Il Codice del Consumo 2009
22 and fn 19).
1073
Ibid.
1074
Such as Antitrust Institution, Isvap, Consob, Institution for Electric Energy and Gas, Agcom
etc. (Bertuzzi and Cottarelli 2009 22).
1075
Ibid.
171
formed a complex mosaic of norms required to assist in protecting the
consumer.1076 Most of these legislative enactments have now been repealed.1077

A significant step towards policy making in the realm of consumer protection was
brought about by a legislative enactment in 1996.1078 The enactment of Law
number 52 of 6 February 1996 emanated from the implementation of the
ratification of Directive 93/13/CEE relating to unfair clauses in standard form
contracts.1079 Law 52 added to Chapter 2, Book IV of the Civil Code, section
XIV-bis entitled ‘Contracts of the Consumer’.1080 This section introduced the
concepts of ‘professionals’1081 and ‘consumers’ into Italian law making,
establishing an azione inibitoria1082 by which consumer representative
associations or bodies and professional associations or organisations and the
relative chambers of commerce1083 could take action against the professional or
the relevant professional association which made use of general contractual
terms contrary to national and community legislation.1084

Law number 281 enacted on the 30 July 1998 strengthened the beginnings of
consumer rights protection, both in terms of individual rights and collective
rights.1085 Section 1 of this law guarantees, as fundamental rights of the
consumer a myriad of aspects, such as: the right to health; security and quality of
products and services; accurate information in advertising; education on
consumption; accuracy, transparency and equity in contracts concerning goods
and services; promotion and development of free and democratic association

1076
Ibid.
1077
Bertuzzi and Cottarelli 2009 22.
1078
Ibid.
1079
Ibid.
1080
Own translation from dei contratti dei consumatori. These sections have now been formally
repealed and replaced by sections 33ff of the Consumer Code.
1081
The term professionali in Italian, translated as ‘professionals’ by the author, implies to what in
South Africa we refer to as the ‘credit provider’ in discourse relating to the extension of credit (a
term introduced by the Act) and when referring to a ‘consumer’ generally (of goods and services)
we refer to the supplier of goods or services, though the Consumer Protection Act 68 of 2008
(hereinafter ‘Consumer Protection Act’) does not use a single noun but refers to ‘suppliers’,
‘service providers’ and the ‘supply chain’ which incorporates ‘producers, distributors, importers,
retailers, service providers and intermediaries’ (section 1 of the Consumer Protection Act).
1082
Probably akin to the South African interdict remedy.
1083
Of industry, craftsmanship and agriculture.
1084
Bertuzzi and Cottarelli 2009 23.
1085
Bertuzzi and Cottarelli 2009 22.
172
between consumers and users and the supply of public services according to set
quality and efficiency standards.1086 This law also saw the formation, through the
Italian Minister of Industry of the National Council for Consumers and Users1087
assigned, inter alia, to provide opinions, formulate proposals, promote study and
research, elaborate programmes to distribute information, enhance consumer
access to justice and coordinate national policy with regional policy with regards
to consumer protection.1088 While some regions, since the late 1980’s,
intervened in what were sporadic attempts to protect the consumer,1089 it was
Law number 281 which sparked a real initiative from the regions of Italy in this
field of law.1090 In 2002 a further law was enacted; Law number 24 of 2 February
2002, which amended the Civil Code further by inserting sections 1519-bisff
which dealt with aspects of contracts of sale and guarantees concerning movable
goods.1091

However, the consummate implementation of legislative intervention, as a

mechanism for the protection of consumer rights, was reached through the
assent to the Consumer Code.1092 This was preceded by a delegation conferred
to the Italian Government by section 7 of Law 229 of the 29 July 2003.1093 The
culmination of the codified consumer protection laws in Italy was initiated in
December 2002 when the Minister of Production Activities nominated a research
committee to draft the Bill.1094 This committee was coordinated by the Direzione
Generale Armonizzazione del Mercato e Tutela dei Consumatori.1095 In
November 2003 the research committee presented the draft Bill to the various
associations of the professionals and the consumer associations in order to
obtain comments prior to initiating the procedure to formally pass the Bill.1096 In

1086
Bertuzzi and Cottarelli 2009 23-4.
1087
Own translation from Consiglio Nazionale dei Consumatori e Degli Utenti.
1088
Bertuzzi and Cottarelli 2009 24.
1089
All the Regions in Italy except Trento and Bolzano relied on ad hoc legislation to protect the
consumer. In Sardegna, however, there were various attempts to pass various regional legislative
enactments to protect the consumer but none came to fruition (Bertuzzi and Cottarelli 2009 25).
1090
Bertuzzi and Cottarelli 2009 24.
1091
Ibid.
1092
Decreto Legislativo del 6 September 2005 numero 206.
1093
Bertuzzi and Cottarelli 2009 27 fn 2.
1094
Ibid.
1095
General Directive on the Harmonisation of the Market and Protection of Consumers (own
translation).
1096
Bertuzzi and Cotteralli 2009 27.
173
the beginning of 2004 the Bill was placed before the Council of Ministers and in
October 2004 the Bill was approved.1097 Thereafter, the opinion of the
Conferenza Unificata Stato-Regioni1098 and the State Council, and of the various
competent Parliamentary commissions was obtained.1099 The State Council and
the Regional Parliament put forward their suggestions, in December 2004 the
enactment of the Bill was postponed for six months and eventually the Consumer
Code came into force in July 2005.1100

For the first time in Italy, consumer legislation was gathered under one
enactment.1101 The Consumer Code is not described as innovative but rather as
an Act which reinforces consumer protection though the augmentation of
legislation which is simplified and coordinated in such a way that it provides
consumers the possibility to know the rights and protection which the law affords
them.1102 The code only dedicates four sections to the issue of consumer credit,
delegating the bulk of the regulation to the Inter-ministerial Committee on Matters
of Consumer Credit and Savings,1103 and to adjust the relevant sections in the
Consumer Code so as to align them with the reference to the banking T.U.1104
Galletto1105 submits that while the choice to regulate consumer credit under the
banking T.U. as opposed to completely under the Consumer Code may at first
glance appear surprising, it finds justification, he argues, in the fact that the
majority of consumer credit agreements are to be found in the banking and credit
sectors and consequently the banking T.U. is reasoned to be the best place for
the regulation thereof.

In light of the above, it can be seen that the rationale for enacting consumer
legislation in Italy emanated principally from external factors; those being the
unification of the European Community, the harmonisation of laws in Europe and
the Directives issued by the European Union. In South Africa the need for credit

1097
Ibid.
1098
Regional Parliament.
1099
Ibid.
1100
Bertuzzi and Cottarelli 2009 28.
1101
Ibid.
1102
Ibid.
1103
Hereinafter ‘CICR’.
1104
Vistinini 2009 681.
1105
Ibid.
174
reform was, comparatively, more of an internal organic process; with the
constitutional milieu and the market forces encouraging transformation. England
as seen above, had its own internal forces motivating the 2006 amendment. On
the contrary Italy appears to have been propelled into revisiting, or rather visiting,
its credit consumer legislation, which prior to 1992 and except for the sale of
goods on credit, appears to have been suppositional. This is a completely
interesting dynamic and one wonders whether such delays in activating
consumer protection legislation were not due to a broader underlying socialist
mindset. In such a milieu, conceptually, production of goods and services is
primarily for use, that is in order to satisfy economic demand and human needs
and goods and services are valued on their use-value or utility as opposed to
being structured upon the accumulation of capital and production for profit.1106
This ideology does not marry to the contemporary consumer and capitalist
mentality pervasive in the modern world - Italy not excluded. Thus, and albeit,
the influence of the European Directives on the Italian legislative credit regime
can by no means be discounted, it is submitted that despite this external
influence, Italy would eventually have been forced, by its own internal dynamic
changes, to reconsider a stronger consumer credit regulatory scheme. It is
submitted that the timing was coincidental and that the European Directives did
not force ‘its hand’ but simply quickened and facilitated the process.

1106
The ideas have largely been adopted from http://en.wikipedia.org/wiki/socialism (9.01.2014)
175
CHAPTER 4: THE PREVIOUS LEGISLATIVE DISPENSATION AND
GENERAL INTRODUCTION TO THE NATIONAL CREDIT ACT

4.1 Introduction

Legislation protecting consumers, more especially credit consumers is a common

feature of almost all jurisdictions. The nature and scope of the legislation will
differ from country to country; although, as seen in the previous chapters, there is
much movement, especially in Europe, to harmonise regulation in order to
facilitate cross-border trade. On a practical level, in today’s contemporary
environment and even historically, consumer credit legislation is and has been an
effort by governments to protect credit consumers who purchase or lease goods
or services on credit or who loan money. As seen in Chapter 2, this justification
for legislating in the credit field is not a modern phenomenon but age old, and yet
as time moves on, providers become more powerful, availability of goods
becomes more widespread, the problems relating to credit relationships between
consumers and providers evolve and old legislation tends to require ‘upgrading’
in order to align itself with more sophisticated transactions. Legislation that is
being replaced should not, however, be discounted and discarded, in fact, it must
and should be used as a springboard for the development of new legislation, and
previous ‘interpretative work’ carried out by the courts should be relied upon to
assist with the new task. When looking at breach of contract by the consumer
and the available remedies to the credit provider in terms of the National Credit
Act, one has to be familiar with the background of the previous legislation in
order to handle the new legislation with any degree of aptitude. Furthermore,
familiarity with the background and milieu of the current Act contextualise breach
and remedies, creating an interpretational nexus between the Act and how it
should be interpreted vis-à-vis the common law. Accordingly, this Chapter is an
examination of what the previous credit legislative dispensation entailed followed
by a synopsis of how the current Act compares.1107

1107
The following comment in relation to the National Credit Act is therefore apropos: ‘The
National Credit Act must be interpreted anew, but, when other legislation is comparable with the
176
A distinction between ‘vendor credit’ and ‘lender credit’ existed, historically, in the
South African context.1108 Interest on money loans, as far as lender credit was
concerned, was regulated partly by the common law1109 and partly by the 1926
Usury Act. The first comprehensive statutory provision which regulated vendor
credit came in the form of the 1942 Hire-Purchase Act. Developments in the
market necessitated change and upon the recommendation of the First and
Second Franzsen Reports,1110 the 1926 Usury Act was repealed and replaced in
1968, by the Limitation and Disclosure of Finance Charges Act.1111 The latter
Act was, again renamed the Usury Act in 1986.1112 In 1980 the Hire-Purchase
Act, also through the influence of the Franzsen Reports, was repealed and
replaced by the Credit Agreements Act 75 of 1980.1113

It was suggested that two statutory enactments to regulate the credit market1114
were necessary, due to what was considered a feasible differentiation between
the contractual and financial aspects of credit transactions.1115 Accordingly, the

Act, court decisions of the past dealing with those acts may at least play a persuasive, perhaps
even decisive, role’ (Otto JM ‘Notices in Terms of the National Credit Act’ 2010 SA Merc LJ 595
598).
1108
Grové NJ and Otto JM Basic Principles of Consumer Credit Law 2002 4.
1109
Dyason v Ruthven 3 Searle 282, Taylor v Hollard 1885-1888 2 SAR 78, Zimmerman R The
Law of Obligations – Roman Foundations of Civilian Tradition 1990 166 and Grové ‘Die
Gemeenregtelike Beheer van Woeker in die Suid-Afrikaanse Reg’ 1990 De Jure 118.
1110
First Franzsen Report of the Committee of Inquiry into the Usury Act (Chairperson D G
Franzsen) (1967) GP 11/1968) and Second Franzsen Report of the Committee of Inquiry into the
Usury Act (Chairperson D G Franzsen) (1977)).
1111
Act 73 of 1968.
1112
Considerable amendments were made to this Act in 1980, specifically through section 9 of
the Limitations and Disclosure of Finance Charges Amendment Act 90 of 1980.
1113
Hereinafter the ‘Credit Agreements Act’. Cf paragraph 4.2 infra for more detail. And for an
historical overview cf Otto Die Regte van ‘n Huurkoper tov Beёindiging van die Kontrak LLd
Thesis 1980 UP.
1114
Similarly two acts governed the sale of land on instalments, namely, the Usury Act and the
Alienation of Land Act (Grové and Otto Basic 2002 5). The regulation of sale of land on
instalments is c urrently still covered by two Acts, namely, the Alienation of Land Act which has
remained in force and National Credit Act and its Regulations. Schedule 2 of the National Credit
Act provides that the provisions of the National Credit Act take preference over the provisions in
Chapter II of the Alienation of Land Act. Chapter II deals with the sale of land on instalments.
Examples where there is a conflict between the two Acts, therefore the National Credit Act
prevailing, are the provisions dealing with prohibited terms in agreements (section 15 (1) of the
Alienation of Land Act and section 90 (2) of the National Credit Act) and the provisions dealing
with the termination and enforcement of contracts (section 19 of the Alienation of Land Act and
sections 129 and 130 of the National Credit Act). For a discussion on the overlap of the sections
of these two Acts cf paragraph 5.6.1.8 infra.
1115
A similar system was in place in England. Goode described credit transactions as capable of
division ‘into two separate, self-contained compartments, [so] that two parallel and distinct
branches of law have developed, one to regulate lending, and the other to regulate sales on
credit, each branch having its own separate rules and transactions being slotted neatly into one
177
contractual aspects were regulated by the Credit Agreements Act and the
financial aspects by the Usury Act 73 of 1968.1116 This distinction made it
necessary for practitioners and the courts to understand and use these Acts in
tandem.1117 The practicability of this system of two separate Acts governing one
area of law was criticized as artificial and unnecessary.1118

The Credit Agreements Act controlled credit agreements in terms of which

certain goods where purchased or leased on credit or services rendered on credit
and the Usury Act controlled the salient aspects of loan agreements. The Credit
Agreements Act had a life span of some twenty-four years, and the Usury Act of
some thirty-seven years, both collecting, over time, much case law on the
application of their sections. Due to the Credit Agreements and Usury Acts’
common law ‘experience’ and because the National Credit Act is so relatively
‘young’, drawing on the case law from the previous dispensation will be of value
both to practitioners and courts, when advising their clients or deciding on what
import the sections of the Act may have, respectively. What follows is a brief
orientation of the three Acts; that is the repealed Credit Agreements Act, the
repealed Usury Act and the current National Credit Act.

4.2 The Credit Agreements Act 75 of 1980

4.2.1 Application of the Credit Agreements Act

The preamble of the Credit Agreements Act outlined its objectives as follows: ‘to
provide for the regulation of certain transactions in terms of which movable goods
are purchased or leased on credit or certain services are rendered on credit’.1119

set or the other’ (Goode in Diamond Instalment Credit taken from Duggan and Lanyon Consumer
Credit Law 1999 56).
1116
Hereinafter the ‘Usury Act’.
1117
Grové and Otto 2002 12.
1118
‘The two acts were originally meant to function complimentarily, however, they were
administered by different government departments for a certain period of time, and this created
problems for credit consumers and the credit industry. It followed, that in some transactions, both
the Usury Act and the Credit Agreements Act would apply; in other transactions only the Usury
Act, and not the Credit Agreements Act; and vice versa (Grové and Otto 2002 5).
1119
The Credit Agreements Act also repealed the Hire-Purchase Act 1942.
178
Credit agreements regulated by the Credit Agreements Act and as defined by
this Act were ‘credit transactions’ and ‘leasing transactions’.1120 Consequently,
the sale of movable goods on credit, rendering of services on credit and a lease
of moveable goods were viewed as credit agreements.1121 Cash transactions
were excluded as the Credit Agreements Act was applicable to credit or leasing
transactions with the price to be paid in instalments at a fixed or determinable
future date.1122

The Credit Agreements Act was limited to transactions which the Minister of
Trade and Industry determined from time to time by notice in the Gazette. The
Minister had declared the transactions to be applicable to the leasing or selling of
goods mentioned in the regulations to the Act,1123 provided the cash price1124 of
the goods did not exceed R500 0001125 and provided that the duration of the
credit agreement was not to be less than six months.1126 The Credit Agreements
Act was, furthermore, not made applicable to goods which were sold or leased
with the sole purpose of onward selling or leasing the goods to others.1127
Dealers, lessors or manufacturers were thus not protected by the Credit
Agreements Act if they purchased or leased movable property with the intention
to sell or lease same to their customers.1128 It was said that it was only the ‘end

1120
These transactions are discussed in paragraph Error! Reference source not found. infra.
1121
Section 1 of the Credit Agreements Act.
1122
Otto Credit Law Service 1991 paragraph 6 and Fouché Legal Principles of Contracts and
Commercial Law 2005 147.
1123
GN R402 in RG 3147 1981.02.27, as amended by GN R2233 in RG 3496 1982.10.15, GN
R2827 in RG3524 1982.12.31, GN R946 in RG 4206 1988.05.05 and GN R989 in RG 4850
1992.03.27.
1124
‘Cash price’ was defined in the Act in relation to credit transactions in terms of which a service
is rendered, as ‘the cash price at which the credit receiver may obtain that service from the credit
grantor’ and in relation to a leasing transaction as ‘the cash price at which the goods leased in
terms of that leasing transaction are normally sold by the credit grantor on the date on which that
leasing transaction is entered into or, if the credit grantor is not a trader normally selling any such
goods, the reasonable money value of those goods as agreed upon between the credit grantor
and the credit receiver’ (section 1 of the Credit Agreements Act). ‘Cash price’ was also defined in
the regulations cf GN R402 in RG 3147 1981.02.27.
1125
GN R2233 in RG 3496 1982.10.15 and GN R946 in RG 4206 1988.05.05.
1126
GN R2233 in RG 3496 1982.10.15.
1127
Standard Credit Corporation Ltd v Strydom 1991 3 SA 644 (W). The same restriction has not
been incorporated in the National Credit Act cf paragraph 4.4.3 infra for a discussion on the
application of the Act.
1128
Section 2 (1)(a) of the Credit Agreements Act. Cf also Standard Credit Corporation Ltd v
Strydom supra and Parker v Dorbyl Finance (Pty) Ltd 1997 1 SA 862 (A). The credit receiver’s
179
consumer’ which enjoyed the protection of the Credit Agreements Act.1129 This
Act was, in addition, not applicable to the sale or lease of goods on credit if such
goods were to be used in connection with manufacturing, mining, engineering
and building including building of roads.1130 Finally, the Credit Agreements Act
was not applicable were the State was the credit grantor.1131 As seen from the
above discussion and with respect to the application of the National Credit
Act,1132 the Credit Agreements Act was relatively narrow in scope.

4.2.2 Definition

The Credit Agreements Act differentiated between credit transactions,1133 credit

agreements,1134 leasing transactions,1135 albeit the latter two fell within the
definition of the former, and instalment sale transactions.1136

intention or purpose with the goods had to be present at the time the contract was concluded
(Otto Credit Law Service 1991 paragraph 7, Grové and Otto 2002 15 fn 38).
1129
Van Jaarsveld et al Suid-Afrikaanse Handelsreg 1988 390.
1130
Section 2 (1)(a) of the Credit Agreements Act.
1131
Section 2 (1)(b) of the Credit Agreements Act.
1132
Cf paragraph 4.4.3 infra.
1133
Some debate existed over whether the words ‘or in whole or in part’ qualified instalments and
whether the Act applied to transactions where the price was to be paid in future by way of a lump-
sum payment. A credit transaction was defined as a form of credit agreement and applied to both
sales and services, it was defined as: (a) a transaction, including an instalment sale transaction,
in terms of which goods are sold by the seller to the purchaser against payment by the purchaser
to the seller of a stated or determinable sum of money at a stated or determinable future date or
in whole or in part in instalments over a period in the future; (b) a transaction in terms of which a
person renders a service against payment to him by the person to whom the service is rendered
of a stated or determinable sum of money at a stated or determinable future date or in whole or in
part in instalments over a period in the future (section 1 of the Credit Agreements Act). A credit
transaction was defined as a form of credit agreement and applied to both sales and services, it
was defined as some debate existed over whether the words ‘or in whole or in part’ qualified
instalments and whether the Act applied to transactions where the price was to be paid in future
by way of a lump-sum payment (Otto LAWSA first reissue vol 5 (1) 1994 paragraph 7, Otto Credit
Law Service 1991 paragraph 7, Diemont and Aronstam 1982 46-47, Sandoz Products (Pty) Ltd v
Van Zyl NO 1996 3 SA 726 (C) and Otto JM ‘Credit Card Transactions and a Spouse’s Consent
in terms of the Matrimonial Properties Act’ 1997 TSAR 163).
1134
A ‘credit agreement’ was defined as: ‘(a) a credit transaction or a leasing transaction; (b) a
transaction which or transactions which together have the same import as a transaction referred
to in paragraph (a), irrespective of the form of the first-mentioned transaction or transactions and
irrespective of whether any such transaction or transactions are subject to a resolutive or
suspensive condition’ (section 1 of the Credit Agreements Act).
1135
This was a transaction in terms of which a lessor leased goods to a lessee against payment
by the lessee to the lessor of a stated or determinable sum of money at a stated or determinable
future date or in whole or in part in instalments over a period in the future, but did not include a
transaction by which it was agreed at the time of the conclusion thereof that the debtor or any
person on his behalf, would at any stage during or after the expiry of the lease or after the
180
The definition of a ‘credit agreement’ encompassed a credit transaction in terms
of which movable goods were sold or services were rendered on credit, as well
as leasing transactions in terms of which movable goods were leased and the
price paid in instalments.1137 The inclusion of a lease of movable goods in the
Credit Agreements Act was a departure from the Hire-Purchase Act, which it
repealed.1138 The purpose of the latter part of the definition was to prevent
simulated contracts from being entered into for the purpose of evading the reach
of the Act.1139 In Palm Fifteen (Pty) Ltd v Cotton Tail Homes (Pty) Ltd1140 it was
held that the court would not consider itself bound by the designation given by
the parties to their contract, but would have regard to the contract as a whole and
give effect to what it regarded as the true import thereof’.

The first part of the definition of a ‘credit transaction’ did not address the issue of
transfer of ownership with regards the sale of movable goods on instalments. It
was submitted that in such events the common-law principles would be
applicable and therefore the rule that ownership is transferred upon delivery and
delivery takes place before the full price has been paid, would apply.1141 It was,

termination of that transaction become the owner of those goods or after such expiry or
termination retain the possession or use or enjoyment of those goods (section 1 of the Credit
Agreements Act).
1136
These were defined as: ‘(a) goods are sold by the seller to the purchaser against payment by
the purchaser to the seller of a stated or determinable sum of money at a stated or determinable
future date or in whole or in part in instalments over a period in the future; and (b) the purchaser
does not become the owner of those goods merely by virtue of the delivery to or the use,
possession or enjoyment by him thereof; or (c) the seller is entitled to the return of those goods if
the purchaser fails to comply with any term of that transaction’ (section 1 of the Credit
Agreements Act).
1137
Section 1 of the Credit Agreements Act.
1138
Otto Credit Law Service 1991 paragraph 8 (3) and Fouché 2005 147.
1139
De Jaager Kredietooreenkomste en Finansieringskoste 1982 10. Interestingly a similar non-
evasionary concept was incorporated in the 1987 European Directive (Directive 87/102/EEC for
the Approximation of the Laws, Regulations and Administrative Provisions of the Member States
Concerning Consumer credit OJ 1987 L 42/48 from the Counsel of 22 December 1986) (now
repealed) where Member States were obliged to ensure that the rules set out in the Directive
were complied with and were not circumvented as a result of the way in which agreements were
formulated, for example by distributing the amount of credit over several agreements (article 14).
The 2008 European Directive on credit does not incorporate a similar limitation (Council Directive
2008/48/EC L 133/66 of 23 April 2008 on Credit Agreements for Consumers and Repealing
Council Directive 87/102/EEC). Cf paragraph 4.5 infra for a discussion on these Directives.
1140
1978 2 SA 872 (A) and cf Margo v Seegers 1980 3 SA 708 (W).
1141
Grové and Otto 2002 14.
181
thus, not at all uncommon for reservation of ownership clauses1142 to be
incorporated in credit agreements.

The latter part of the definition of the ‘instalment sale transaction’, that is (b) and
(c) distinguished it from the normal credit transaction. It was suggested that by
the phrase ‘the purchaser […] does not become owner of the goods […] by […]
use, possession or enjoyment’, the legislature had ‘something like acquisitive
prescription in mind’1143 or that in a certain sense the section was merely ‘stating
the obvious’.1144 It was also suggested that when defining the ‘leasing
transaction’ ‘the legislature had the normal, everyday contract of lease of
movable goods in mind’.1145 The Credit Agreements Act was applicable only to
movable goods. In fact ‘goods’ were defined in the Act as such.1146 The same
definition has not been provided in the National Credit Act.1147 The problem with
this lack of definition in the contemporary Act is that various types of credit
agreements, as defined in the Act refer to ‘goods’ or ‘things’. The reasoning for
this differentiation has not been explained in the Act. Furthermore, unlike the
Credit Agreements Act, the National Credit Act is applicable to credit agreements
which involve immovable property.1148

1142
Otherwise known as a pactum reservati dominii, which clause was described as the ‘very
essence of a hire-purchase agreement (Grové and Otto 2002 14 fn 30, Otto JM ‘The Background
to and Scope of the Credit Agreements Act’ 1980 BML 21 22 and Otto Credit Law Service 1991
paragraph 7).
1143
Otto 1980 BML 22, Otto LAWSA 1994 paragraph 7, Otto Credit Law Service 1991 paragraph
7 and De Jager Credit Agreements and Finance Charges 1981 20.
1144
Grové and Otto 2002 14 fn 31.
1145
Fouché 2005 149.
1146
Section 1 of the Credit Agreements Act.
1147
Cf paragraphs 4.4.3 and 4.4.4 infra for a discussion on the application of the Act and
classification of credit agreements, respectively.
1148
See paragraph 4.4.3 infra. Interestingly enough, the word ‘service’, as used in the Credit
Agreements Act did not include a service that was rendered or provided by a person practising a
profession in respect of which his name had in terms of any Act of Parliament been entered into a
roll or register (section 1 of the Credit Agreements Act).
182
4.2.3 Requirements for a Credit Agreement

The Credit Agreements Act required that the credit agreement, as a formality, be
in writing.1149 Unlike its predecessor, the Hire-Purchase Act, the Credit
Agreements Act did not render credit agreements that were not reduced to
writing, invalid.1150 It did, however, render the failure to reduce the agreement to
writing a criminal offence in terms of section 23. The Credit Agreements Act
listed the following minimum statutory requirements, accordingly a credit
agreements needed to:1151

 be reduced to writing and signed by or on behalf of every party thereto;

 state the names of the credit grantor and the credit receiver and their business or
residential addresses or, if they did not have such addresses, any other address
in the Republic;
 state the amount paid or to be paid as an initial payment or as initial rental;
 contain a description whereby the goods or service to which that credit
agreement related, and any goods delivered to the credit grantor as payment,
could be readily identified;
 if it was an instalment sale transaction, it had to state the conditions, if any, as to
the reservation and passing of the ownership of the goods to which that credit
agreement related;
 if it was an instalment sale transaction or a leasing transaction, it had to state the
conditions, if any, as to the right of the credit grantor to the return of the goods to
which that credit agreement related;
 contain a reference to the provisions of section 13;1152
 be in the official language which the credit receiver could request in writing;
 have printed on the face thereof in bold type capital letters the wording of section
13 (1), with a clear space of not less than one centimetre immediately between
that wording and any other wording on the same page.

1149
Section 5 (1)(a) of the Credit Agreements Act.
1150
Fouché 2005 149.
1151
Section 5 of the Credit Agreements Act.
1152
Section 13 referred to the right of the credit receiver to terminate the credit agreement (the
so-called ‘cooling-off’ right). Cf paragraph 4.2.6.1.2 infra for a discussion on this right in terms of
the Credit Agreements Act.
183
4.2.4 Prohibition of Certain Agreements

Sections 6, 7 and 10 of the Credit Agreements Act prohibited the inclusion of

certain undertakings by the parties to a credit agreement, certain actions by the
parties or certain agreements in general.1153 The Act contained a general
provision which provided that any person who contravened or failed to comply
with the Act would be guilty of an offence.1154 Furthermore, the Act introduced
criminal vicarious liability.1155 Such provisions in credit legislation counter the
often harsh terms of standard-form contracts and prohibit provisions which in the
past were regularly included in contracts of the debtor.1156

Furthermore, the Credit Agreements Act prohibited certain acts, contracts and
also certain terms in credit agreements. A credit grantor could not require or
induce a credit receiver to acknowledge the receipt of goods or services unless
the goods had been delivered or services rendered;1157 the result was that such
acknowledgement would be valid but the credit grantor was guilty of an
offence.1158 No person was entitled to be a party to any agreement or document

1153
Acts prohibited included: where a person agreed to enter into a credit agreement in the future,
whether as grantor or receiver; where a person acting on behalf of the credit grantor was
appointed or deemed to be the credit receiver’s agent; where the credit grantor was exempted
from liability for any act, omission or representation by any person acting on his behalf; the
liability of the credit grantor in terms of an implied warranty or implied guarantee; the agreement
could not provide for the credit grantor or a person acting on his behalf to enter premises to
repossess goods or exempt them from liability for such entry; the credit receiver was not entitled
to choose any address other than his residential or business address as domicilium citandi et
executandi; the credit receiver could not agree to forfeit payments of claims in respect of goods or
services if he failed to comply with a term of the agreement before the goods are delivered or the
services rendered; the agreement could not prohibit the credit receiver from resiling from the
agreement, if without reluctance on his part to receive performance, the credit grantor had not
performed within thirty days after the date of the agreement; the parties could not fail to determine
the period of the agreement; the credit receiver could not guarantee or warrant that the
agreement was signed on the business premises of the credit grantor; the credit receiver could
not acknowledge that the credit grantor or his representative did not make any representations or
give warranties before the conclusion of the contract or in connection with the credit agreement; a
provision where the credit consumer acknowledged that he had inspected the goods was also
void.
1154
Section 23. This meant that acts which would normally only have private law consequences
were now criminalized (Otto Credit Law Service 1991 paragraph 10.1).
1155
Thus if a manager, agent or employee of a credit grantor did or omitted to do any act which
would be an offence for the credit grantor, it was presumed that the credit grantor had done or
omitted to it himself, and he was therefore guilty of an offence (section 24). For a discussion cf
Otto Credit Law Service 1991 paragraph 10.1.
1156
Otto Credit Law Service 1991 paragraph 20.
1157
Section 6 (3) of the Credit Agreements Act.
1158
Section 23 of the Credit Agreements Act.
184
that had the effect of cancelling and substituting an earlier agreement in terms of
which the goods or part of the goods to which the earlier agreement related and
any payment or consideration made in terms of it were used as a deposit in
terms of the second agreement.1159 Contravention of the section constituted an
offence but left the contract intact.1160 A prospective credit grantor or his
manager or employee could not, as an inducement to enter into a credit
agreement, offer, give or promise any benefit to a prospective credit receiver
unless such benefit in the ordinary course of events, constituted a condition of
the credit agreement. Offering such a benefit did not affect the contract, in fact
the credit receiver could enforce the benefits but the credit grantor was guilty of
an offence.1161

A person was prohibited from ceding more than 25% of his income as security for
payments under a credit agreement.1162 A credit grantor was not entitled to
accept post-dated negotiable instruments as payment of the deposit.1163 A credit
grantor was not permitted to require or induce a receiver to sign a document to
terminate a credit agreement and return the goods before the thirty days’ notice
prescribed by section 11 of the Credit Agreements Act had expired.1164
Furthermore, a credit grantor or his manager or employee could not enter into a
credit agreement with a person who was under an administration order if the
price payable exceeded R200 and the persons’ gross monthly income was less
than R500 unless the administrator consented in writing.1165 The contract was
nevertheless treated as valid; the credit grantor would, however, have been guilty
of an offence.1166 The waiver by the credit receiver of any right conferred by the
Act was invalid and the waiver therefore void1167 and an offence was

1159
Section 6 (4) of the Credit Agreements Act.
1160
Diemont MA and Aronstam PJ The Law of Credit Agreements and Hire-Purchase in South
Africa 1982 117.
1161
Section 23 of the Credit Agreements Act, Flemming HCJ Krediettransaksies 1982 122 and
Otto Credit Law Service 1991 paragraph 21.
1162
Section 9 (1) of the Credit Agreements Act.
1163
Section 10 of the Credit Agreements Act.
1164
Section 12 (3) of the Credit Agreements Act.
1165
Section 20 of the Credit Agreements Act.
1166
Section 23 of the Credit Agreements Act. No countervailing section protected the credit
grantor in this manner.
1167
Section 22 of the Credit Agreements Act.
185
committed.1168 Regulation 5 prohibited a credit agreement from being concluded
if the terms included that payments, other than the deposit, were to be made
before the goods had been delivered1169 or that any instalment payable after the
deposit differed by more than 10% from another, with the exception of the final
instalment which could be smaller.1170 No advertisement prohibited by the
Minister of Trade and Industry as being in conflict with the Credit Agreements Act
was allowed.1171 No person was entitled to use personal information, such as pin
codes and bank cards as security for any money lending transactions or as
collection arrangement.1172 The Minister regulated that any contravention of this
kind constituted an offence.1173

The sanctions for the failure to adhere to these prohibitions were criticised as not
being sufficiently crystallised in the Credit Agreements Act and depended on the
interpretation of the statutory provision, whether the contract as a whole or only a
part thereof was void or whether the parties were guilty of an offence.1174 The
following comment expresses some of the difficulties encountered:1175

Various writers have experienced problems with the interpretation of the Act and
the sanctions. They usually suggest a solution on an ad hoc basis. While it is
conceded that certain general rules regarding the effect of acts in conflict with
statutory provisions have been developed by the courts, it remains a matter of
contract in each case.

4.2.5 Initial Payment and Manner of Payment

The Credit Agreements Act stipulated that a credit agreement would not be
binding until the credit receiver had paid the initial deposit or rental as prescribed

1168
Section 23 of the Credit Agreements Act.
1169
Except where the goods had been imported as per order of the credit receiver or
manufactured according to his requirements.
1170
This was to prevent the so-called balloon payments, with a series of small instalments and a
large one at the end. There were certain exceptions to this rule, cf regulation 5 (b) (Otto Credit
Law Service 1991 paragraph 21).
1171
Section 3 (1)(A) of the Credit Agreements Act.
1172
R6959 Government Gazette 20145 of 13 December 2000.
1173
Section 17 of the Usury Act was referenced.
1174
Fouché 2005 152.
1175
Otto LAWSA paragraph 19 vol 5, cf also De Jaager 1981 52 and Flemming 1982 108.
186
by regulation.1176 This deposit was calculated on the cash price and
consequently varied for different transactions.1177 The initial payment could in
whole or in part have consisted of goods.1178 Thus goods could be traded in
when other goods were purchased on credit.1179 The credit receiver had to
obtain the money for the deposit himself and could not have the money
advanced by the credit grantor to enable him to pay the deposit.1180
Furthermore, the regulations of the Credit Agreements Act stipulated the
maximum periods of payments for various credit agreements.1181

Section 9 (1) of the Credit Agreements Act prevented a credit receiver from
ceding or hypothecating more than 25% of the amount that was periodically paid
to him by way of salary or maintenance, as security for payments in terms of a
credit agreement. When determining what constituted the 25% all credit
agreements entered into by that credit receiver were taken into account and any
cession or hypothecation was invalid to the extent that it exceeded the 25% of
the salary or maintenance.1182 A credit receiver was, at any time, entitled to
revoke any authority that had been given by him to collect his salary or
maintenance or part of it even if it was for less that 25%.1183 Revocation of such
authority was not considered breach of contract on the part of the credit
receiver.1184

1176
Section 6 (5) of the Credit Agreements Act.
1177
Section 7 of the Credit Agreements Act.
1178
Ibid.
1179
Section 5 (1)(d) and 6 (7)(b) of the Credit Agreements Act. Cf Corwal House v Colsock
Agencies 1963 3 SA 179 (W), Massyn’s Motors v Van Rooyen 1965 3 SA 717, Bloemfontein
Market Garage (Edms) Bpk v Pieterse 1991 2 SA 208 (O), cf Otto LAWSA 1994 paragraph 23 for
a more developed discussion.
1180
Section 6 (7)(c) of the Credit Agreements Act. Requiring a minimum deposit, from a
consumer’s point of view, was a method of ensuring that only a person capable of raising the
necessary money would be allowed to bind their credit (Hamman ‘Die Wet op Huurkoop
No.36/1942’ 1942 THRHR 68). Requiring an initial deposit with the effect that the balance owing
in terms of the contract was reduced had the effect of rendering the instalments smaller and the
requirement of a maximum period for the duration of the agreement, were viewed as forms of
‘insurance’ that consumers did not bind themselves for prolonged periods (Otto LAWSA 1994
paragraph 22). This view was developed from the tendency of the consumer to be misled by the
fact that instalments are smaller when paid over a longer period, however, these are only
relatively smaller and the total amount paid is far greater due to the finance charges that are
levied (Otto JM ‘Die Gemeeregtelike Verbod teen die Oploop van Rente’ 1992 THRHR 559).
1181
Otto LAWSA paragraph 22.
1182
Section 9 (1) of the Credit Agreements Act.
1183
Section 9 (2) of the Credit Agreements Act.
1184
Grové NJ and Jacobs L Basic Principles of Consumer Credit Law 1993 34.
187
4.2.6 Rights and Duties of the Parties

Like the majority of credit legislation generally, the Credit Agreements Act was
primarily concerned with safe-guarding the common-law rights of debtors and
creating statutory rights for them.1185 Accordingly, almost all the provisions in the
Credit Agreements Act created or protected or enhanced some form of right for
the consumer.1186

4.2.6.1. Rights and Duties of the Credit Receiver

4.2.6.1.1. The Section 11 Notice

In terms of section 11 of the Credit Agreements Act the credit receiver was
entitled to specific notice prior to a claim for return of the goods by the provider.
Accordingly, a credit provider could not claim the return of goods to which the
contract related for breach of contract by the credit receiver, unless he had
notified the credit receiver of his breach and made demand for performance. The
section 11 notice could thus be viewed as an entitlement by the receiver but a
duty of the provider. The notification had to be in writing,1187 and it had to notify
the credit receiver of his failure and had to require him to comply with his
obligations within thirty days from the date of handing over of the notice or from
date of posting. The credit grantor could only then claim return of the goods if
the credit receiver’s breach continued beyond the thirty days.1188 If the credit
grantor had failed to give the required notice and simply repossessed the goods,
this would have made him guilty of breach of contract in the form of repudiation
and entitled the credit receiver to cancel the contract.1189 In the event that the
credit receiver had failed on two or more occasions to perform, the credit grantor
was entitled to shorten the notice period to fourteen days, as opposed to

1185
Otto Credit Law Service 1991 paragraph 27.
1186
Ibid.
1187
The notice had to be delivered by hand, in which event an acknowledgment of receipt was
required, or sent by prepaid registered post at his address as indicated in the credit agreement or
the address as changed in accordance with section 5 (4) of the Credit Agreements Act.
1188
Otto Credit Law Service 1991 paragraph 29.
1189
Nagel CJ et al Business Law 2000 270.
188
thirty.1190 The section 11 notice was required in the event that the credit receiver
failed to comply with any obligation imposed upon him in terms of the credit
agreement and in the event that the credit provider wished to claim the return of
the goods. Accordingly, the section 11 notice was not required where the credit
grantor sought specific performance1191 from the receiver, or where he sought to
enforce an acceleration or penalty clause. And in the event that the grantor
sought to cancel the contract on a ground other than breach of contract such as
for misrepresentation, section 11 would also not apply.1192 This entitlement was
described as a protective measure of ‘the utmost importance, the purpose of
which [was] to grant a purchaser or lessee a second opportunity if he [had]
committed a breach of contract’.1193 Section 11 did not prescribe the content of
the notice in detail.1194 The notice, however, had to be clear enough for the
credit receiver to understand that he had committed a breach, that he was
obliged to rectify it and the period within which he had to do so.1195 The credit
grantor could not in the same demand, notify the credit receiver of his breach and
also advise him that the grantor would cancel if the credit receiver were to breach
again.1196

Section 11 prescribed the date of posting of the notice as the relevant date;
Otto,1197 however, submitted that it would seem that a notice allowing the credit
receiver thirty days from receipt thereof would have been in order. He submitted
that this would give the receiver a longer period to rectify the breach and such an
interpretation aligned itself with the spirit of the Act.1198

The issue of whether the notice would only become effective if it had reached the
credit receiver was distinguished from the question of the commencement of the
period of demand.1199 The issue was not finally decided prior to the repeal of the

1190
Section 11 of the Credit Agreements Act.
1191
Santam Bpk v Dempers 1987 4 SA 639 (0) 642F.
1192
Otto Credit Law Service 1991 paragraph 29.
1193
Nagel et al 2000 270.
1194
Otto Credit Law Service 1991 paragraph 29(c).
1195
Ibid.
1196
Ex Parte Thorrold 1954 2SA 83 (0) 86.
1197
1991 paragraph 29(d).
1198
Ibid. Cf also Otto 1982 DR 254 and 1984 DR 315.
1199
Otto Credit Law Service 1991 paragraph 29(e).
189
Act.1200 However, the case law is discussed in greater detail in Chapter 51201 as
the interpretation relating to the section 11 notice is of importance in relation to
interpretation of section 129 of the National Credit Act.1202

4.2.6.1.2. The Cooling-off Right

 
Section 13 created a statutory right of termination for the credit receiver,
otherwise known as a right of cooling-off.1203 This section applied to credit
transactions and leasing transactions. In terms of this section a credit receiver
could, within five days1204 after the conclusion of the credit agreement, terminate
the agreement in writing by sending a notice of termination to the credit grantor
by pre-paid registered post or hand delivering it and by tendering the return of the
goods already delivered to the credit receiver.1205 In order to have exercised the
section 13 right, the credit receiver must have entered the credit agreement at a
place other than the business premises of the credit grantor1206 and the initiative
in respect of the agreement had to have emanated from the credit grantor or his
manager or employee.1207 There was an onus on the credit grantor to draw the
attention of the prospective credit receiver, in writing, to the provisions of section
13.1208 Upon termination of a credit agreement in terms of this section, the credit
grantor was obliged, within ten days from the delivery of the notice of termination,

1200
Ibid.
1201
More particularly paragraph 5.5 infra.
1202
Cf paragraph 5.6 infra.
1203
Cf Van Eeden ‘Rescission of Consumer Contracts’ 1976 THRHR 315, Otto ‘Die Beginsel van
‘Cooling-off’ by Kredietooreenkomste’ De Jure 1981 101 259 and Otto Credit Law Service 1991
paragraph 32 for fuller discussions on the topic.
1204
These were business days and excluded Saturdays, Sundays and public holidays. If the
credit receiver chose to send the notice of cancellation by post it was submitted by Grové and
Otto that it was sufficient that the notice was posted within the five day period and did not have to
reach the credit grantor within that period (2002 25, Otto Credit Law Service 1991 paragraph 32,
Burger ‘Die Wet op Kredietooreenkomste No 75 van 1980’ 1981 The Magistrate 2 5, Diemont and
Aronstam 1982 168. De Jaager was of the view that the notice had to reach the grantor with five
days (Credit Agreements and Finance Charges 1981 77)).
1205
The duty of the credit receiver was merely to tender the goods, the onus to collect the goods
was on the credit grantor (section 13 (1)(b) inserted by the Credit Agreements Amendment Act 9
of 1985).
1206
Cf Otto Credit Law Service 1991 paragraph 32 fn 6 for a discussion on the wording of the
legislation being, entering an agreement as opposed to signing an agreement.
1207
Section 13 (1) of the Credit Agreements Act.
1208
Section 4 of the Credit Agreements Act. The credit agreement was also required to contain a
reference to the provisions of section 13 and to contain the wording as stipulated in section 13
(section 5 (1)(g)(i) of the Credit Agreements Act).
190
to refund the credit receiver any amounts paid by him and to collect any goods
delivered by him in terms of the credit agreement.1209 The cooling off right has
been a phenomenon of many jurisdictions; the first country to implement such a
right was Austria in 1961.1210 The cooling-off right is a long-standing consumer
protection tool which allows the consumer to exit a contract, subject to procedural
adherences, without committing breach.

4.2.6.1.3. The Right of Re-instatement

A further right of the credit receiver under the Credit Agreements Act was a right
of reinstatement after he had returned the goods to the credit grantor.1211 In
terms of section 12 the credit receiver could, within thirty days after the credit
grantor had repossessed the goods, claim the return of the goods. This section
was applicable to both credit and leasing transactions. Thus, where a credit
grantor cancelled a contract due to the receiver’s breach and recovered
possession of the goods after having given thirty days’ notice the receiver was,
by virtue of this section, given a second chance to rectify his breach and to
continue with the contract.1212 This right of redemption, was subject to the
following conditions: the credit grantor should not have obtained the goods by
means of a court order1213; the credit receiver should not have terminated the
contract himself; the credit receiver had to, within thirty days of recovery of the
goods, pay the amounts due and owing to the credit grantor together with any
reasonable costs that the credit grantor may have incurred.1214 The credit
grantor was not entitled to refuse return of the goods1215 and was prevented from
inducing or requiring the credit receiver to sign a document in terms of which the
1209
Section 13 (3) of the Credit Agreements Act. The Cooling-off right did not apply if the
transaction had been initiated and concluded entirely by means of the official state postal service
(regulation 3 of GN R401 in RG 3147 of 1981.02.27 as amended).
1210
Otto Credit Law Service 1991 paragraph 30.
1211
Section 12 of the Credit Agreements Act. If the credit grantor failed or refused he was in
breach of a statutory duty in terms of section 12 (2) and therefore liable for damages (Da Silvo v
Coutin 1971 3 SA 123 A, Otto JM ‘Right of the Credit Receiver to Re-instatement after Return of
the Goods to the Credit Grantor’ 1981 SALJ 516 and Grové and Otto 2002 47). Furthermore, this
constituted an offence in terms of section 23.
1212
Nagel et al 2000 272.
1213
Trust Bank van Afrika Bpk v Eales 1989 2 SA 586 (T).
1214
Mdakane v Standard Bank of South Africa 1999 1 SA 127 (W) and Grové and Otto 2002 47.
1215
Section 12 (1) of the Credit Agreements Act. Cf Otto 1981 SALJ 516, Otto Credit Law Service
1991 paragraph 33 Grové and Otto 2002 46.
191
credit receiver terminated the credit agreement and agreed to return the goods to
the credit grantor before the expiry of the thirty days contemplated in section
11.1216 The credit receiver was obliged to go to the credit grantor’s place of
business to obtain possession of the goods.1217 If the credit receiver requested
it, or if the credit grantor had no place of business, the goods had to be returned
to the credit receiver at the premises where they were kept.1218 The credit
receiver, within thirty days after the return of the goods to the credit grantor, was
obliged to pay all amounts which were then claimable and unpaid in terms of the
agreement1219 and all reasonable costs incurred by the credit grantor in
connection with the return of the goods.1220

4.2.6.1.4. Waiver of Rights

Section 22 of the Credit Agreements Act prevented a credit receiver from waiving
any rights granted to him in terms of that Act. A provision in a credit agreement
purporting to waive such rights was void.1221 This provision was seen to
safeguard the rights conferred on credit receivers.1222 An offence was committed
if such rights were waived.1223

4.2.6.1.5. Notification of Location of Goods

In terms of duties, the credit receiver was obliged to advise a credit grantor in
writing by registered post, within fourteen days of his change of address or if the
goods were removed from the place where they were ordinarily kept, or if he lost
possession of the goods.1224 Upon request by the credit grantor or the sheriff,
the credit receiver was obliged to furnish his residential or business address, the

1216
Section 12 (3) of the Credit Agreements Act.
1217
Grové and Otto 2002 47.
1218
Ibid.
1219
If the credit receiver did not pay the amounts within thirty days, he lost his right of
reinstatement, however, not his common law rights (Maswangonyi v First National Western Bank
Ltd 2002 3 SA 365 (W)).
1220
Grové and Otto 2002 47.
1221
Section 22 of the Credit Agreements Act.
1222
Nagel et al 2000 273.
1223
Section 23 of the Credit Agreements Act and Otto Credit Law Service 1991 paragraph 21.
1224
Section 8 of the Credit Agreements Act.
192
premises at which the goods were ordinarily kept and if he had lost possession of
the goods, in whose possession they were and the address and location of the
goods.1225 The receiver’s failure to carry out any of his duties would have
rendered him guilty of an offence.1226

4.2.6.2. Rights and Duties of the Credit Grantor

Some of the duties of credit grantors were directly correlated to the rights of the
credit receivers, such as the duty to notify the credit receiver before return of the
goods was claimed,1227 to notify of the cooling-off right and the duty to keep the
goods after repossession for purposes of the right of redemption.1228

While consumer legislation is aimed primarily at protecting the consumer, it is

purported in this work that the balancing of the rights and duties of the role
players in the credit relationship is of utmost importance. Credit providers have,
in order to protect themselves against recalcitrant credit consumers, incorporated
in standard credit agreements certain clauses that give them certain rights to
counter malperformances of consumers.1229 The credit grantors under the old
regime did not operate any differently.

4.2.6.2.1. The Right to Receive Payment

The first, and most obvious, right of a credit grantor is his right to receive
payment in terms of the credit agreement. Section 10 of the Credit Agreements
Act prevented the credit grantor from accepting a post-dated instrument as
payment for the deposit; but other than that he was entitled to accept negotiable
instruments as payment, even if post-dated.

1225
Ibid.
1226
Section 23 of the Credit Agreements Act.
1227
For a further discussion on the delivery of the section 11 cf paragraph 5.5.1.3 infra.
1228
Nagel et al 2000 276.
1229
Ibid.
193
4.2.6.2.2. Interdict Against Removal or Use

The Credit Agreements Act gave the credit provider the statutory right to interdict
against the removal or use of the goods.1230 The notice was issuable at the
same time as the summons in any proceedings relating to any credit
agreement.1231 The notice could prohibit any person from using the goods or
removing them from the place where they were kept when the summons was
served, or from allowing the use or removal of them by anyone other than the
plaintiff or sheriff.1232 The notice had the effect of an interdict against any person
that had knowledge of it. While no person could ignore or fail to comply with the
notice, they could apply to court to have it set aside.1233 This remedy did not
constitute a means of repossessing the goods but served only as an interdict
against the removal of the goods.1234

4.2.6.2.3. Orders Restricting or Prohibiting Use

In terms of section 17 of the Credit Agreements Act, the credit grantor could
apply to court, while proceedings were pending, to have the goods in question
valued or protected from damage or depreciation including orders restricting or
prohibiting the use of the goods or as to the custody thereof.

4.2.6.2.4. Additional Finance Charges

Upon breach of contract by the credit receiver, the credit grantor was entitled to
claim additional finance charges at the same rate that had been charged on the
outstanding balance of the principal debt.1235

1230
This notice could be issued simultaneously with the summons (section 18 (1) of the Credit
Agreements Act).
1231
Section 18 (1) of the Credit Agreements Act.
1232
Section 18 (3) of the Credit Agreements Act.
1233
Section 18 (4) of the Credit Agreements Act.
1234
Otto Credit Law Service 1991 paragraph 38.
1235
Section 4 of the Credit Agreements Act.
194
4.2.6.2.5. Lex Commissoriae, Acceleration, Penalty and Forfeiture Clauses1236

The credit grantor was entitled to incorporate a lex commissoria1237 in the credit
agreement. However, its enforcement was subject to section 11 of the Credit
Agreements Act.1238 Acceleration clauses1239 were not prohibited by the Credit
Agreements Act, unlike its predecessor the Hire-Purchase Act which limited the
enforcement of acceleration clauses.1240 In the event of penalty and forfeiture
clauses, the Credit Agreements Act applied. It provided that a credit receiver that
had committed a breach of contract was not bound to make any payment or to
perform any act which would place the credit grantor in a better financial position
than he would have been in had there not been a breach of the contract.1241 This
meant that the credit grantor could recover his actual damages and no more.1242
This section only applied where the credit agreement had not been terminated or
rescinded. The duties of the credit grantor in a credit agreement, were also
largely defined by section 3 of the Usury Act, these are discussed in the following
section.1243

4.3. The Usury Act 73 of 1968

4.3.1. Application and Definitions of the Usury Act

The preamble of the Usury Act posited that the purpose of the Usury Act was to
‘provide for the limitation and disclosure of finance charges levied in respect of
money lending transactions, credit transactions and leasing transactions and for
matters incidental thereto’.1244

1236
These clauses are discussed at length in Chapter 6.
1237
For a fuller discussion of lex commissoriae cf paragraph 6.4.1.3 infra.
1238
Otto Credit Law Service 1991 paragraph 39.
1239
For a fuller discussion of acceleration clauses cf paragraph 6.2.2 infra.
1240
They could only be enforced if a certain number and percentage of instalments were due and
the consumer had received a ten day notice.
1241
Section 14 of the Credit Agreements Act.
1242
Nagel et al 2000 278. These clauses are more fully discussed at paragraphs 6.2.2, 6.4.1.3
and 6.5.2 infra.
1243
Cf paragraph 4.3.4.1.
1244
The Usury Act repealed the 1926 Usury Act.
195
The Usury Act provided for, inter alia, the financing side of the sale and lease of
movable goods and the rendering of services on credit and the lending of money.
Many definitions and other aspects found in the Usury Act were also contained in
the Credit Agreements Act. The purpose of the Usury Act was to ensure that all
finance charges were disclosed and to prevent ‘hidden costs’ in credit
agreements. Consequently, a credit grantor could not demand or receive finance
charges that had not been disclosed in an instrument of debt.1245 Even though
there was overlap between the Credit Agreements and Usury Acts - the
definitions of credit and leasing transactions did not correspond, one with the
other.1246

The Usury Act applied to three main classes of transaction: moneylending,1247

credit1248 and leasing transactions.1249

1245
Otto JM and Grové N ‘Verbruikerskrediet: te Veel Wette, te Min Eenvormigheid’ 1986 De
Rebus 599
1246
Section 2 (9) of the Usury Act. Cf also Otto and Grové 1986 De Rebus 599.
1247
A ‘moneylending transaction’ was defined in the Act as: any transaction which, whatever its
form may be, and whether or not it forms part of another transaction, is substantially one of
money lending, and inclu