Since its inception the National Credit Act 34 of 2005 (“the NCA”), has significantly stirred the waters of the credit industry in South Africa. The purpose of the NCA is to promote and advance the social and economic welfare of South Africans as well as to ensure a fair, transparent, comparative, sustainable, responsible, efficient, effective and accessible credit market and industry and to protect consumers. It seeks to do this by, amongst others, ensuring consistent treatment of different credit products and credit providers, encouraging responsible borrowing, avoidance of over indebtedness, discouraging reckless credit granting by credit providers and contractual default by consumers.
One of the ways in which the legislature, through the NCA, endeavors to exercise more control over the credit industry, is to require that certain credit providers be registered as such. Section 40 of the NCA requires that a credit provider must apply for registration if the total principal debt owed to that credit provider exceeds the threshold prescribed in terms of section 42 of the NCA.
Initially, when the NCA came into force, it provided that a person or entity had to register as a credit provider if the credit provider, alone or together with any associated person, facilitated at least 100 credit agreements or if the total principal debt of all its credit agreements exceeded the amount of R500 000.00. These credit agreements did not include incidental credit agreements.
This was later amended to the effect that the number of credit agreements was no longer an issue, however the threshold requirement of R500 000.00 continued to apply In terms of a Notice published on 11 May 2016, the threshold for credit provider registration has been reduced to NIL (R0). This new threshold of R0 will take effect on 11 November 2016 and have the effect that credit providers can no longer hide behind the R500 000.00 threshold.
Therefore if, from 11 November 2016, the agreement falls under the definition of “credit agreements”, in terms of the NCA, the credit provider needs to be registered as such. The term “credit agreement” is defined in Section 8 of the NCA. If a loan is repayable with interest or an amount greater than the capital loan amount the agreement will usually fall within the scope of the NCA. For example if an employer loans an amount to an employee, and the amount must be paid back with interest, the employer will have to register as a credit provider. There are however certain agreements that are excluded from the definition of credit agreements, for example, incidental credit agreements these are agreements whereby interest is levied on late payment for goods or services) and agreements between family members (there are further qualifications to this exception).
The standard conditions of registration are found in section 50 of the NCA. The credit provider must:
- permit the National Credit Regulator or its authorized agents to enter any premises from which the credit provider conducts its registered activities to conduct reasonable inquiries for compliance purposes; and
- comply with every applicable provision of the NCA, the Financial Intelligence Centre Act 38 of 2001 and other applicable provincial legislation.
Once a credit provider complies with the standard conditions, the National Credit Regulator, having regards to prescribed criteria, may require the credit provider to comply with further specific conditions. Upon receipt of a notice outlining the required specific conditions, the credit provider may object to such notice and refer the matter to the National Credit Tribunal, within a specific time period which is generally 15 days.
Section 89 of the NCA states that a credit agreement is unlawful if, the credit provider is not duly e registered in terms of the NCA. The consequence of non-registration is quite far reaching. In this regard section 89 (5) of the NCA states that where a credit agreement is unlawful, a court must make a just and equitable order which may include that the credit agreement is void as from the date the agreement was entered into. Furthermore, should an unregistered credit provider conduct activities for which it should be registered, the National Credit Regulator, may notify such credit provider to stop such activities. Should the credit provider fail to comply therewith, the credit provider will be guilty of an offence.
The above might create the wrong impression that if the credit provider failed to register as such the consumer do not have to repay the debt. That is however not the case. In the case of the National Credit Regulator vs Boonzaaier the Constitutional Court confirmed a judgment of the Western Cape High Court. In this case the credit provider was not registered as such and the consumer relied on Section 89(5)(c) of the NCA, which states, inter alia, that in the event of an unlawful agreement the credit provider may not recover any monies from the consumer. The Court found that the credit provider will have the right to recover the capital loan amount on the ground of unjustified enrichment but will not be able to recover any interest or other charges in terms of the agreement.
Where credit providers are uncertain as to the steps to take to comply with the new threshold and the registration requirements and processes, it is suggested that they consult with their legal representatives to assist them therewith.
Andries Stander is a Director at Barnard Incorporated in Centurion
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