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Why South Africa’s draft revised material transfer agreement is not fit for purpose

Forcing a square into a circle: why South Africa’s draft revised material transfer agreement is not fit for purpose

PAIA manual

View the PAIA manual HERE 20230626_PAIA_Manual_Esselaar Attorneys_PGE

Paul Esselaar

Paul Esselaar completed his BA, LLB at Rhodes University in Grahamstown in 1997. Thereafter he attended the School for Legal Practice at the University of Cape Town in 2000 and went on to complete his articles at Kessler De Jager Inc. During his articles he focussed...

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Financial Services Laws General Amendment Bill tabled in Parliament

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With all the pieces of legislation that are constantly being updated it is easy to miss changes to legislation that are really important – especially if that change comes in the form of a Regulation (something typically drafted by a ministry such as the Department of...

NEW

Why South Africa’s draft revised material transfer agreement is not fit for purpose

Forcing a square into a circle: why South Africa’s draft revised material transfer agreement is not fit for purpose

PAIA manual

View the PAIA manual HERE 20230626_PAIA_Manual_Esselaar Attorneys_PGE

Paul Esselaar

Paul Esselaar completed his BA, LLB at Rhodes University in Grahamstown in 1997. Thereafter he attended the School for Legal Practice at the University of Cape Town in 2000 and went on to complete his articles at Kessler De Jager Inc. During his articles he focussed...

Web Site Terms and Conditions

The Esselaar Attorneys Web Site is subject to copyright by Esselaar Attorneys or is licenced under copyright from third party owners. You may reproduce any web page - subject to the disclaimer below - for personal use only. Any comments and statements contained within...

Email Disclaimer

This message and any accompanying attachment(s) may contain confidential and copyrighted information. If you are not the addressee(s) indicated in this message or responsible for delivery of the message to the addressee(s), do not copy or deliver this message or the...

Financial Services Laws General Amendment Bill tabled in Parliament

According to the South African Government News Agency (SANews) the Financial Services Laws General Amendment Bill was tabled in Parliament last week. In short, 'the Bill, which was released for public comment in March, addresses urgent issues in eleven financial...

Is the Financial Services Industry pulling wool over consumers’ eyes?

The Financial Services industry is in a state of flux. The Financial Services Laws General Amendment Bill (FSLGAB) was tabled in parliament on 25 September 2012. The aim of the Bill is to ensure that ‘South Africa has a sounder and better regulated financial services...

Credit Law: Section 89(5)(c) of the NCA declared unconstitutional

In the May/June edition of CLR Paul Esselaar wrote about a decision by the Western Cape High Court in which s 89(5)(c) of the National Credit Act was declared unconstitutional for being inconsistent with the right to property in s 25(1). In other words it was found...

Draft NCA Regulations on Affordability Assessments published

The Department of Trade and Industry has published draft regulations on, "Affordability Assessment for the Amendment of Regulations for matters relating to the functions of the National Consumer Tribunal and Rules for the Conduct of matters before the National...

Drowning in Red Tape: The new threshold for registration as a credit provider

With all the pieces of legislation that are constantly being updated it is easy to miss changes to legislation that are really important – especially if that change comes in the form of a Regulation (something typically drafted by a ministry such as the Department of...

In 2016 I wrote an article detailing how to calculate the minimum expense norms in terms of Regulation 23A(9) of the National Credit Act Regulations. In essence, the table creates a table of minimum ‘deemed’ expenses that a debtor has in order to combat the problem of debtors lying about what their monthly expenses were (in order to get the credit provider to give them a loan). 

At a high level, the table was intended to follow three steps: 

  1. Determine the income band where the debtor fits in. There are 5 separate bands which are: 
    1. Earning R800 or less
    2. Earning between R800.01 and R6250.00
    3. Earning between R6250.01 and R25 000.00
    4. Earning between R25 000.01 and R50 000.00
    5. Earning more than R50 000.01. 
  2. Once you know which band the debtor falls in you know what the ‘minimum monthly fixed factor’ is. Like the income bands there are five of them: 
    1. R0.00
    2. R800.00
    3. R1 167.88
    4. R2 855.38
    5. R4 905.38
  3. The final step is to add a percentage amount to the sum based on the amount of income which exceeds the minimum amount. The way this was intended to work (and how I set it out in the original article) is as follows: 
    1. Income of R20 000 means the debtor falls within bank d) above which means that their minimum expense is R 2 855.38. 
    2. The amount of income above the minimum bank is R20 000 – R6250.01 = R13 749.99. 
    3. 8.2% of R13 749.99 is R1 127.50. 
    4. R1 127.50 + R2 855.38 = R3 982.88
    5. SO: The debtor either has:
      1.  a minimum monthly expenditure of R3 982.88, OR
      2. He must prove that his expenses are less than R3 982.88, OR
      3. He has expenses greater than R3 982.88. 

All of that is necessary to bring us to the problem which is a tiny little typo in Table 1’s last column. At present the column reads: 

‘Monthly Fixed Factor = % of Income Above Band Minimum’

What it should have read is: 

‘Monthly Fixed Factor + % of Income Above Band Minimum’

Obviously, this is easy to miss as the only change is replacing the ‘=’ with a ‘+’ sign. 

So what does this mean? Right now there is a good argument that credit providers can rely on the Minimum Monthly Fixed Factor alone and do not have to add the Monthly Fixed Factor percentage. In my example above what this would mean is that the creditor would be allowed to accept a debtor alleging that their minimum expenses were R2 855.38 rather than the higher bar of R3 982.88. 

While this may seem to be a trivial point, the issue really becomes emphasised in the largest income threshold. For example, a person wishes to get a loan of R20 million. He approaches a bank who asks him what his monthly income is. He says it is R100 000 per month. In terms of the way the Regulations are currently published the bank would be entitled to assume that his minimum expenses per month are R4 905.38 rather than the R8 280.38 which the legislature (presumably) intended. 

While there may be an argument that the Regulations must be interpreted to correct the obvious error, in the meantime a gap has been created for debtors to lie about their monthly expenses and for credit providers to validly grant loans by assuming a lower minimum expense norm. This also means that credit providers who granted loans when the debtor had too many expenses may just have a way to avoid the loan being declared reckless. 

Finally, if this article seems complicated that is because it actually is (and that is the fault of the Regulations!). Please contact us if you want to discuss what this means for you.