Is registration as a credit provider in terms of the National Credit Act obligatory?
The National Credit Act (“the NCA”) has not always provided clarity on the application of the Act regarding credit agreements and the registration as a credit provider, amongst others, and this confusion has been recognised by various courts on numerous occasions.
A credit agreement is present when the repayment of an amount paid by a credit provider to a consumer or payment for goods and services is deferred and interest or other charges is payable in respect of such deferment. Section 40(1) of the NCA sets out the conditions when a person must register as credit provider. A person must register as a credit provider if the total of the principal debt owed to the credit provider under all outstanding credit agreements exceeds the prescribed threshold. Previously, the prescribed threshold was R500 000.00 but on 11 May 2016 the prescribed threshold was amended to nil (R0.00).
Basically, anyone who concludes a credit agreement in terms of which any amount of money is owed to them, after 11 May 2016, is required to be registered as credit provider. This will effect and accordingly cover many transactions concluded between family members, friends and business associates.
The full bench of the Gauteng Division of the High Court attempted to introduce a “common-sense exception” to the requirement of registering as a credit provider in the case of Friend v Sendal 2015 (1) SA 395 (GP). In the Friend case, the court held that the registration requirement was only aimed at members in the credit industry and further held that a person cannot be regarded as a credit provider for a once-off agreement. Unfortunately, this judgment introduced inconsistencies in the application of the NCA as it was authority that a person involved in a single credit agreement, regardless of the amount of the transaction or debt, did not have to adhere to the registration requirements of the NCA.
The case of Du Bruyn NO and Others v Karsten (unreported case no 929/2017) provided the Supreme Court of Appeal (“the SCA”) with the possibility to deal with judgment of the Friend case and provide clarity regarding the requirement of registration as a credit provider. The SCA overruled the judgment handed down in the Friend case.
The facts of the Du Bruyn NO and Others v Karsten briefly are as follows:
- Mr and Mrs Du Bruyn offered to purchase Mr Karsten’s interest in three business entities in the sum of R 2 000 000.00.
- Sale agreements were drafted for each business entity and the payment terms included payment of a deposit in the amount of
R500 000.00, monthly instalments in the amount of R30 000.00 for a period of 5 years and interest was to be levied on the deferred amount.
- Mr and Mrs Du Bruyn also bound themselves and sureties and co-principal debtors for the three agreements and gave an undertaking to register a covering bond over their immovable property within 60 days.
- At the date of conclusion of the agreements, Mr Karsten was not registered as a credit provider.
- Mr Karsten only registered as a credit provider eight months after the conclusion of the agreements.
- Mr and Mrs Du Bruyn defaulted on the instalment payments and the Gauteng Division of the High Court found in favour of Mr Karsten for payment of the balance of the purchase price in the amount of R1 133 169.39. The Gauteng Division of the High Court was bound to the Friend decision.
The question before the SCA was whether the NCA was directed only at those in the credit industry and did not apply to single transactions or once-off agreements where credit was provided, irrespective of the amount.
The Friend case held that the NCA was meant to regulate those participating in the credit industry and persons who frequently provide credit, and was not applicable to once-off transactions. The SCA found that even though the approach in the Friend case was sensible and pragmatic, it was difficult to marry such an approach with section 40 of the NCA which is clear and unambiguous.
At the time of the conclusion of the agreements between the Du Bruyns and Mr Karsten, the applicable threshold was R500 000.00. The amount of the credit agreements therefore exceeded the prescribed threshold and consequently Mr Karsten was obliged to be registered as a credit provider at the time of conclusion of the agreements. Due to his non-compliance with the requirements of the NCA to register as a credit provider, the agreements were unlawful and null and void.
The SCA found that it is the threshold which triggers the obligation to register as a credit provider, irrespective of whether it is a once-off agreement or not and found in favour of the Du Bruyns and therefore set aside the order of the High Court.
Section 40 of the NCA makes it obligatory for a person to register as a credit provider if the total debt exceeds the prescribed threshold. Non-compliance with the requirements of the NCA to be registered as a credit provider at the conclusion of a credit agreement, will have dire consequences and result in any agreement being declared null and void.
In conclusion, the requirement to register as a credit provider is applicable to all credit agreements within the Republic of South Africa. This is irrespective of whether the credit provider is in the credit industry or if the credit agreement is a once-off transaction. Therefore anyone who wishes to lend money to an individual in the Republic of South Africa on credit terms, which are at arm’s length (meaning that each person contracts on terms that are in their own interest), will be required to register as a credit provider in terms of the NCA.
Disclaimer – this article is for information purposes only and cannot be construed as legal advice
Author: Tarryn Howard
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