Your Client Signed the Loan. Are You Exposed Too?

28 Apr

Written By Heynes Kotze, Head of Legal, Chartered Institute for Business Accountants (CIBA)

Your client calls. Their vehicle finance is in default. The bank is threatening repossession. They want to know what to do and, almost as an afterthought, they mention that the monthly instalment was calculated using figures from the financial statements you compiled.

This is the moment most accountants don't prepare for.

Credit agreements sit at the intersection of consumer law, professional liability, and client advisory work. The National Credit Act 34 of 2005 (NCA) touches nearly every SME client you advise, yet most accountants treat it as a banking problem, not their problem. That assumption carries real risk.

What the NCA actually covers

Under section 8 of the NCA, a credit agreement is any arrangement where one party defers payment or advances money, and a fee, interest, or charge is payable. That covers loans, instalment sales, mortgages, overdrafts, revolving credit, credit cards, and leasing transactions with a buy-out option. It even covers suretyships and personal liability undertakings, the very instruments your clients sign without a second thought when their business needs financing.

The NCA also draws a meaningful line: if both parties to a credit agreement are juristic persons above the prescribed threshold, the consumer protection provisions fall away entirely. That distinction matters when advising clients on how to structure a transaction.

The two enforcement bodies are the National Credit Regulator (NCR) and the National Consumer Tribunal (NCT). Neither is a paper tiger. The NCR investigates contraventions and refers matters to the NCT for adjudication. It is the NCT that imposes administrative fines, which can reach R10 million for the most serious contraventions. The NCT can also rescind agreements, order restitution, and issue compliance orders. These are not administrative technicalities, they carry real financial consequences.

When interest stops being simple

The moment a client misses a payment, the debt does not stand still. It grows, daily, quietly, and faster than most consumers expect. Interest continues to accrue, default administration charges stack up, and collection costs are added on top. What starts as a manageable shortfall can balloon significantly over just a few months of non-payment, to the point where a client owes materially more than the original principal, despite having made some payments along the way.

The NCA caps interest rates and permits only prescribed charges: initiation fees, monthly service fees, credit insurance, default administration charges at the prescribed rate, and collection costs on a court-tariff basis. Any charge outside that list is prohibited. The problem is that consumers, and sometimes their advisors, only discover these contraventions once a matter reaches enforcement.

The default sequence is mandatory, every step

When a client defaults, the credit provider must follow a precise sequence before enforcement is possible. First, a section 129 notice must be served, a written notice drawing the default to the consumer's attention in writing and proposing that the consumer refer the matter to a debt counsellor, alternative dispute resolution agent, consumer court, or ombud. The notice is compulsory: although section 129(1)(a) uses the word "may," section 129(1)(b) expressly prohibits the commencement of legal proceedings unless that notice has first been provided.

The Constitutional Court confirmed the weight of this requirement in Sebola and Another v Standard Bank of South Africa Ltd and Another ([2012] ZACC 11; 2012 (2) SA 216 (CC)). The Court held that a section 129 notice is not a procedural technicality but a jurisdictional prerequisite to enforcement. Where a credit provider cannot establish that the notice actually reached the consumer (or at minimum reached the correct post office in the case of registered mail), the court is obliged to adjourn the proceedings to allow the credit provider to rectify the omission. The proceedings do not simply continue.

Common failures (wrong address, missing information, inadequate cure period) each trigger this consequence. For credit providers, non-compliance with section 129 means losing the ability to proceed until the defect is cured. For clients who are consumers, those same procedural requirements can buy critical time.

If the section 129 notice is properly served and the consumer does not cure, dispute, or enter debt counselling within the applicable period (the consumer must have been in default for at least 20 business days, with at least 10 business days having elapsed since the notice was delivered, as required under the NCA read with the Credit Amendment Act 7 of 2019) the matter proceeds to section 130 court proceedings. There, strict requirements apply: territorial jurisdiction, verified section 129 compliance, and a demonstrated cure opportunity. Under section 130(4), the court must dismiss the matter where specific circumstances apply, including where the consumer has complied with a debt rearrangement order. Ultimately, outcomes include judgment, execution, and repossession, though repossession of the asset does not extinguish the shortfall liability. If the repossessed vehicle sells for less than the outstanding debt, the consumer remains liable for the balance.

Where the accountant enters the frame

This is the section most training skips. As explored in CIBA's practice management piece on managing your professional exposure through engagement letters, your scope of work and the limits of your liability are defined by what you agreed to do, not by what the client assumed you would do.

The NCA's professional liability map is broader than most practitioners realise. Loan officers and credit assessors bear the affordability assessment obligation under sections 80 to 82. Compliance officers face NCR fines for pre-contract disclosure failures. Debt collectors risk criminal prosecution for prohibited conduct under sections 131 to 133. But accountants sit in the chain in three specific ways.

First, the advisory role: if you advise a client to enter a credit agreement you have not scrutinised, and that agreement later turns out to contain prohibited charges or reckless credit indicators, you have a problem. Second, the assurance role: financials you prepare are frequently used to inform credit assessments. If those statements materially misrepresent the client's financial position (even through omission or error rather than intent) the negligence exposure is real. Third, the NOCLAR connection: if you become aware, in the course of a client engagement, that a credit provider (whether your client or a counterparty) is engaging in reckless lending or prohibited collection conduct, your professional ethics duties under CIBA's Code are triggered. The precise response obligations differ depending on whether the conduct is that of your client or a third party, but awareness alone is sufficient to engage the framework.

The underlying principle is information asymmetry. Credit professionals have the tools, the data, and the regulatory knowledge. Consumers often do not. That asymmetry is the legal basis on which duty, and blame, attaches.

Practical protection for your practice

The recovery barriers in NCA matters are substantial and frequently decisive. Procedural failures adjourn or dismiss actions. Prescription runs and is interrupted only by payment, written acknowledgment of liability, or the service of process, including summons or other initiating documents under section 15 of the Prescription Act 68 of 1969. Credit providers frequently rely on the service of process ground; clients should not assume that prescription runs uninterrupted simply because no payment has been made.

For your practice, the practical checklist is short.

Your engagement letter must clearly delineate whether you are advising on a transaction or merely preparing financial information for the client's own purposes. It should state explicitly that review of financing agreements falls outside your standard scope unless separately instructed. As CIBA's guide on when to terminate a client engagement makes clear, knowing where your exposure begins and ends is as much a risk management decision as a contractual one.

When a client presents financing documents for your input, identify whether the NCA applies. Check the classification (small, intermediate, or large credit). Confirm whether the agreement is between juristic persons above threshold, if so, consumer protections fall away and different terms may apply. Flag any charge that does not appear on the NCA's prescribed list. And if a client is already in default, be clear: your role is to help them understand their rights under section 129, not to provide legal advice, but knowing the framework well enough to refer them correctly is the service they are actually paying for.

👉 Join CIBA and we'll show you how to turn legal knowledge into a professional edge your clients will rely on, and pay for.