Barko Financial Services (Pty) Limited v National Credit Regulator

Barko Financial Services (Barko), a registered credit provider, entered into credit agreements with consumers. Barko required consumers to sign supplementary agreements (Annexure D5) whereby consumers agreed to pay a "service provider fee" to NuPay (a third-party payment processing company) in addition to the maximum R50 service fee permitted under the National Credit Act (NCA). This fee was for processing repayments via the Authenticated Early Debit Order (AEDO) system. Barko had a Service Level Agreement (SLA) with NuPay whereby Barko was obliged to pay NuPay a transaction processing fee of 2-2.5% per successful transaction. The NuPay Service Agreement (Annexure D5) purported to pass this obligation from Barko to consumers. On 24 June 2010, the National Credit Regulator (NCR) issued Barko with a compliance notice alleging contraventions of sections 90, 91, 100 and 101 of the NCA, requiring Barko to cease charging the fee and reimburse consumers. Barko objected to the National Consumer Tribunal, which modified but upheld the compliance notice. Barko appealed to the High Court, which dismissed the appeal. Barko then appealed to the Supreme Court of Appeal.

• Whether the supplementary agreement (Annexure D5) was an agreement between NuPay and the consumer (as contended by Barko) or between Barko and the consumer
• Whether Barko induced consumers to enter into a supplementary agreement containing provisions that would be unlawful if included in the credit agreement, contrary to section 91(a) of the NCA
• Whether charging consumers a fee in excess of the maximum prescribed service fee of R50 contravened sections 90, 100 and 101 of the NCA
• Whether the National Consumer Tribunal had the power under the NCA to order Barko to repay the excess fees to consumers
• The proper interpretation of the parol evidence rule and whether extrinsic evidence could be used to contradict the written agreements

The appeal was dismissed with costs, including costs consequent upon the employment of two counsel. The decision of the National Consumer Tribunal (as modified) was upheld, requiring Barko to: (1) cease charging the NuPay service provider fee where it would increase the service fee above the prescribed maximum of R50; (2) provide the NCR with a list of affected consumers; (3) reimburse consumers the amounts paid in excess of R50; and (4) provide the NCR with an affidavit and auditor's certificate confirming compliance.

The binding legal principles established are: (1) A credit provider cannot evade the maximum fee restrictions in the NCA by requiring consumers to enter into supplementary agreements with third parties for fees that the credit provider is itself obliged to pay. Such arrangements constitute a breach of sections 90, 91, 100 and 101 of the NCA. (2) Section 91(a) of the NCA prohibits credit providers from directly or indirectly requiring or inducing consumers to enter into supplementary agreements containing provisions that would be unlawful if included in the credit agreement. "Inducing" includes presenting agreements and explaining their advantages with the intention of persuading consumers to sign. The fact that consumers are free to decline is irrelevant to whether they were induced. (3) Where a credit provider presents a suite of documents to consumers including a supplementary agreement for additional fees, and the vast majority of customers sign such agreements, this constitutes inducement within the meaning of section 91(a). (4) The characterization of agreements must be determined by their true legal nature as reflected in their terms, not by labels attached by the parties. The parol evidence rule prevents parties from using extrinsic evidence to contradict or modify the clear meaning of written agreements. (5) The National Consumer Tribunal has power under section 56(2) of the NCA to confirm, modify or cancel compliance notices, and under section 150(h) to order repayment of excess amounts charged in contravention of the Act. This remedial power is essential to give effect to the consumer protection purposes of the NCA set out in sections 2 and 3. (6) The NCA must be interpreted in a manner that gives effect to its purposes, particularly the protection of consumers from unfair conduct and the addressing of imbalances in bargaining power between consumers and credit providers.

The court made several obiter observations: (1) There are only three companies in South Africa that can provide AEDO payment services, of which NuPay is one, suggesting limited competition in this market. (2) The court noted that it would have been "inconceivable" that Barko would adopt a neutral stance regarding the use of AEDO given the benefits to it of that system. (3) The court expressed that it would be "astonishing" if the Tribunal could find fees unlawful but lack power to order repayment, indicating strong policy considerations supporting consumer remedies. (4) Regarding the amicus curiae, the court expressed disapproval of MFSA's initial approach of attempting to place before the court "relevant and material facts that are not adequately dealt with or traversed in the appeal record," noting this "unacceptably disregarded the order of this court" and the limitations in SCA rule 16(7) and (8). The court noted "fortunately" the amicus did not press in oral argument its written submissions regarding inappropriate provisions of the NCA and dire consequences for the micro-lending industry. (5) The court observed that to save bank charges, the service provider fee due to NuPay and the consumer's payment obligation were processed as a single payment instruction, though this did not affect the legal characterization of the arrangements. (6) The court referenced the consumer protection purposes of the NCA without deciding whether these would independently ground the Tribunal's remedial powers, as the express terms of section 150(h) were sufficient.

This case is significant for South African consumer credit law as it: (1) Confirms that credit providers cannot circumvent the maximum fees prescribed by the NCA through the use of supplementary agreements with third parties. (2) Provides authoritative interpretation of section 91(a) of the NCA, which prohibits credit providers from inducing consumers to enter into supplementary agreements containing unlawful provisions. The court clarified that "induce" means to succeed in persuading or leading someone to do something, and that the availability of choice does not negate inducement. (3) Affirms the broad remedial powers of the National Consumer Tribunal under sections 56 and 150 of the NCA to order repayment of amounts charged in contravention of the Act. (4) Reinforces the consumer protection purposes of the NCA as set out in sections 2 and 3, requiring the Act to be interpreted to protect consumers from unfair conduct and to address imbalances in bargaining power. (5) Reaffirms the continued applicability of the parol evidence rule in South African contract law, following KPMG v Securefin, preventing parties from using extrinsic evidence or "context" to contradict clear written terms. (6) Has important implications for the micro-lending industry in South Africa, clarifying the limits on fees that can be charged to consumers and the consequences of non-compliance with the NCA's fee restrictions.