TABLE OF CONTENTS

Content
/
Page
Section 2 / Usury Act, 73 of 1968 / 36
Overview / 38
2.1 / Purpose, nature and application of the Act / 39
2.2 / Provisions of the Act / 48
2.3 / Finance charges on Credit Agreements / 51
2.4 / Summary / 57
2.5 / Conclusion / 59


Overview

Learning Outcome
/ The following is the Learning Outcome of this Section:
2.  Have an Overview of the Usury Act, 73 of 1968.
Learning Objectives / The Learning Objectives are as follows:
On completion of this Section, you will be able to:
2. / Have an Overview of the Usury Act, 73 of 1968 by:
·  Comprehending the purpose, nature and application of the Act
·  Comprehending the provisions of the Act
·  Interpreting the finance charges on Credit Agreements
Assessment Criteria / To demonstrate the achievement of the Learning Objectives, you are required to meet the criteria and/or provide the following evidence:
Comprehending the purpose, nature and application of the Act
·  Describe the purpose and nature of the Act
·  Define the application of the Act

Comprehending the provisions of the Act

·  List the provisions of the Act

Interpreting the finance charges on Credit Agreements

·  List the finance charges of the Act
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Version: 02/2004 / IB CP4 LG
2. / Overview of the Usury Act, 73 of 1968

2.1 Purpose, nature and application of the Act

Introduction / As discussed in the first Section, the two principle pieces of legislation which govern the retail activities of banks is:
·  The Credit Agreements Act, 75 of 1980
·  Usury Act, 73 of 1968
While the Credit Agreements Act addresses the contractual aspects of a Credit Agreement the Usury Act focuses on the financial aspects of credit.
Purpose of the Act / The purpose of the Usury Act is:
/ 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.
The Usury Act aims to protect consumers entering into a Credit Agreement by limiting the interest and other finance charges that can be charged by the creditor. It also provides for the disclosure of finance charges to the consumer.
The Act controls the maximum rate of interest, which is charged to Credit Receivers, and lays down the maximum rates of interest, which may not be exceeded. Any Credit Grantor can charge a lesser rate, but may not exceed the maximum figures.
/ Can you remember the kind of transactions that are governed by the Credit Agreements Act?
Application of the Act / The Usury Act applies to the same types of contracts as the Credit Agreements Act, namely:
·  Credit Transactions
·  Leasing Transactions
In addition, the Act also regulates money-lending transactions.
The Usury Act and Credit Agreements Act differ in their application and a particular contract with the bank as a contracting party may be subject to both, to one or to neither of these Acts.
Both the Acts apply to sales, leases and the rendering of services, irrespective of whether the Lessee, purchaser or receiver of the services (the Credit Receiver), is a natural person or not.
As a rule, all the typical retail activities of banks, namely:
·  Financial leases
·  Hire-purchase contracts
·  Operational leases
·  Activities with respect to credit cards
·  Money Lending Transactions
will be regulated by the Usury and the Credit Agreements Acts.
The scope of the Usury Act is broader than the Credit Agreements Act. Besides that the Usury Act also applies to Money Lending Transactions, the definitions of credit and Leasing Transactions are not identical to the definitions in the Credit Agreements Act.
The Credit Agreements Act applies only to the sale/lease of certain movable items, namely motor vehicles, etc. while the Usury Act is not limited in this way.
Section 1 of the Usury Act defines credit, leasing and money-lending transactions as follows:
/ ‘credit transaction’ means any transaction, whatever its form may be, and whether or not it forms part of another transaction, by which —
(a)  a Credit Grantor sells or supplies to a Credit Receiver movable property or services against payment by the Credit Receiver to the Credit Grantor of a sum of money; or
(b)  a Credit Grantor transfers or grants to a Credit Receiver the use or enjoyment of movable property or services against payment by the Credit Receiver to the Credit Grantor of a sum of money;
Application of the Act, continued

‘leasing transaction’ means any transaction whatever its form may be and whether or not it forms part of another transaction, by which –
(a)  a Lessor leases movable property to a Lessee; and
(b)  the amount which is owing or will be owed by a Lessee to a Lessor in connection with a transaction referred to in paragraph (a), is payable or will be payable after the date of the conclusion of the said transaction;
‘Money Lending Transaction’ means any transaction, whatever its form, and whether or not it forms part of another trans-action, which is substantially one of lending money, and includes —
(a)  any agreement in the terms of which goods are sold under a condition of repurchase of them at a higher price (in which case the lower price at which the goods are sold will, for purposes of the Act, be regarded as the sum of money lent);
(b)  any transaction under which goods are purchased by or services are rendered to or any amount of cash is obtained by a credit card holder under a credit card scheme, in which case the price at which the goods are so purchased or those services are so rendered or that amount of cash is so obtained must for purposes of this Act be regarded as a sum of money lent by the manager concerned to that credit card holder;
(c)  any transaction under which immovable property is sold against payment by the purchaser to, or to any person on behalf of, the seller of a sum of money at a stated or determinable future date or in whole or in part in instalments over a period in the future, in which case that sum, excluding finance charges, must for purposes of this Act be regarded as a sum of money lent by the seller to the purchaser but does not include a transaction under which immovable property is sold and in terms of which —
(i)  no finance charges are levied by the seller on the purchase price;
(ii)  the full purchase price is payable against registration of the immovable property in the name of the purchaser or a transferee nominated by the purchaser; and
(iii)  no interim instalment is payable by the purchaser between the date of the sale and registration, save for an initial deposit payable in one amount by the purchaser to a practising attorney or an estate agent to be held in trust pending such registration, and rent or occupational interest constituting a reasonable compensation for the use and enjoyment by the purchaser of the immovable property in question;
(d)  any transaction in which a sum of money owing for alterations or improvements to immovable property is to be paid by a debtor at a stated or determinable future date or in whole or in part in instalments over a period in the future,
Application of the Act, continued / In short a credit and leasing transaction have the following meaning:
A credit transaction is any transaction whereby a Credit Grantor (also referred to as a creditor), grants credit to a Credit Receiver (debtor), for the:
·  Sale/supply of movable property/services against payment of a sum of money.
·  transfer/granting of the use/enjoyment of movable property/services against payment of a sum of money.
A leasing transaction is a transaction by which a Lessor (creditor) leases movable property to a Lessee (debtor) and the monies owing are payable after the date of conclusion of the transaction.
/ Leasing Transactions, which expire within 3 months, are excluded if the principal debt and finance charges are paid before or on expiry of the lease.
/ Read through the definitions of a leasing and credit transaction of the Credit Agreements Act as discussed in Section 1.
Use the space below and note the difference between these definitions described in the Credit Agreements Act as opposed to the definitions of a credit and leasing transaction as described in the Usury Act.
Definition of a credit transaction – Credit Agreements Act / Definition of a credit transaction – Usury Act / Difference
Definition of a leasing transaction – Credit Agreements Act / Definition of a leasing transaction – Usury Act / Difference
Money Lending Transactions / In short, a Money Lending Transaction is a transaction between a moneylender and a borrower.
Section 1 of the Act describes a moneylender and borrower as follows:
/ ‘moneylender’ means a person who is granting or has granted a loan of a sum of money to a (prospective) borrower under a Money Lending Transaction, any person to whom the rights, or the rights and obligations, of the money lender for that transaction have passed; the holder of an instrument of debt for a Money Lending Transaction; any manager;
‘borrower’ means any person to whom a money lender has granted a loan of a sum of money in terms of a Money Lending Transaction, or to whom the rights and obligations of a borrower for that transaction have passed;
Besides money loans in the normal sense of the word, other transaction such as credit card transactions and home improvements on credit are also regard as Money Lending Transactions.
/ Can you recall any other transactions that you have dealt with that can also be regarded as a Money Lending Transaction?

Exclusions from the application of the Act / There are also several exclusions from the Usury Act: According to Section 15 of the Act, the provisions of the Usury Act does not apply to:
·  Transactions involving the Reserve Bank
·  Transactions involving the Agricultural Bank
·  Transactions where a moneylender outside South Africa grants a loan outside the country to a borrower inside South Africa
·  Transactions where the amount involved exceed R500 000
·  Leasing Transactions with a term of less than 3 months
·  Debentures quoted on the South Africa Stock Exchange
·  Leasing Transactions where the principal debts exceeds R100 000 and the Lessee agrees to exempt the transaction from the operation of the Usury Act
·  Leasing Transactions where the Lessee is entitled to terminate the agreement at any time by giving notice of less than 90 days
·  Leasing Transactions in terms of which the lease payments are deductible for tax purposes, ownership never passes to the Lessee, and he/she is not liable to guarantee the value of the leased goods at any time
Section 1 of the Act defines a “debenture” as follows:


Exchequer = a royal or national treasury/the money of a private individual or group / ‘debenture’ means —
(a)  a debenture created and issued in terms of, and in respect of which the person issuing it has complied with the provisions of, the Companies Act, 1973;
(b)  a security as defined in Section 1(1) of the Exchequer and Audit Act, 1975;
(c)  any bill, bond, security or any other document issued as evidence of the borrowing of money by any institution, council or body contemplated in Section 84(1) (f) of the Republic of South Africa Constitution Act, 1961;
or by the Electricity Supply Commission or the Rand Water Board or by any other institution, council or body designated for the purposes of this paragraph by the Registrar by notice in the Gazette;
/ Discuss the above exclusions with a fellow Learner or your Coach. Ensure you understand why the above transactions are excluded from the provisions of the Usury Act.
/ Complete the following questions without referring back to the discussions on the nature, purpose and application of the Act. On completion, exchange books with another Learner and mark each other’s answers. Discuss any uncertainties with your Coach.
Question 1 / Define the following terms of the Usury Act in your own words:
1.  Credit transaction:
2.  Leasing transaction:
3.  Money Lending Transaction:
Question 2 / Describe the aim of the Usury Act in your own words.
Question 3 / List 2 examples of Money Lending Transactions from your own work environment.

2.2 Provisions of the Act

Introduction / Unlike the Credit Agreements Act, the Usury Act automatically applies to certain types of transactions where there are no requirements, for example a written contract, which is necessary to make it applicable to Credit Transactions.
Subject to the provisions mentioned previously in this Section, it applies by operation of law.
The Usury Act is primary concerned with financial and interest charges issued, and making the Credit Receiver (debtor) aware of the cost of credit. It also prevents the Credit Receiver from being exploited by means of having to pay excessive interest rates.
The Act has an impact on the financial aspects of the credit sale by providing that, where finance charges are payable in credit and/or Money Lending Transactions, certain terms and particulars of a monetary nature must be included.
It is the duty of the Credit Grantor (creditor) to include or provide these details.
Details required in a Credit Agreement / In every Credit Agreement, the Usury Act provides that the following details must be provided:
·  The cash price of the goods or the amount of the money, which has been loaned.
·  All other charges which form part of the principal debt. This could be the cost of:
·  A maintenance contract
·  Insurance
·  The premium of a life insurance considered necessary to secure the debt
·  Accessories for which finance is required, namely, where a radio or tow bar is added to a car
·  The cash amount, or the reasonable value of goods, which are deducted from the selling price of the goods. This would apply to the amount of the deposit, which has been paid, or the value of any trade-in, which the seller has accepted
·  The principal debt, which is the nett amount, which the Credit Receiver wishes to have financed. This figure comprises the charges referred to above, added to the selling price, minus any deposit or trade-in
Details required in a Credit Agreement, continued / ·  The annual finance charge rate, normally expressed as a percentage. This may not exceed the maximum rates as prescribed
·  The amount of the finance charges, expressed as in Rand and Cent value. This is calculated by applying the annual finance charge rate to the principal debt and makes the Credit Receiver aware of the actual amount of finance charges, which will have to be paid
·  Date on which, and the number of instalments, which must be paid
·  The amount and due date of each instalment
·  An indication of the period, which must elapse before the Credit Receiver, may repay the outstanding instalments in one amount
/ As with the Credit Agreements Act, the Usury Act also contains a provision to the effect that any person who contravenes any of its provisions is guilty of a criminal offence, punishable with a fine of R10 000 and/or 3 year’s imprisonment.
/ In the 1st Section, we discussed the contents of a Credit Agreement and specifically the details that must be included according to the Credit Agreements Act. As can be seen, the Usury Act also requires that certain details must be included in a Credit Agreement.
Refer back to the example of a Credit Agreement you used in the activity in Section 1. Are the details of the Usury Act, as prescribed on the previous pages, contained in the agreement?
If there are any deviations from the requirements, list them in the space below. Note any additional information that is contained in the Credit Agreement that is not required by the Usury Act.

2.3  Finance charges on Credit Agreements