The at arm's length principle in terms of the National Credit Act 34 of 2005

Abstract

The National Credit Act 34 of 2005 (“NCA”) applies to a credit agreement that is concluded between the parties to the agreement “at arm’s length”, in South Africa, or having an effect in South Africa, provided that no exclusion applies. The legislature opted not to define the concept “at arm’s length”, but rather to provide an open list of arrangements in section 4(2)(b) in terms whereof the particular credit agreement is entered into “within arm’s length”, with the implication that the consumer in any of these arrangements is not protected by the NCA. The arrangements related to within arm’s length in section 4(2)(b) form the focus of my dissertation, and all the section 4(2)(b) arrangements centre around dependency between the credit provider and the consumer. In the absence of dependency between these parties, in other words, where each is independent of the other, the consumer needs protection, the transaction is at arm’s length, and the NCA applies. The provisions in section 4(2)(b) and their interpretation by the courts are addressed, together with conclusions. The introduction of the principle of at arm’s length as a prerequisite for the NCA’s application to a credit agreement is endorsed.