You may be a Credit Provider and not even realise it
At some point or another, many of us are asked if we can loan someone money. Whether it is a friend, a family member, a colleague or a complete stranger, one needs to be cautious before loaning money out, because you might struggle to recover it.
When you loan someone money, even if it is a verbal agreement, you are technically entering into a Credit Agreement, but the question that then arises is when such credit agreement is governed by the National Credit Act, 2005 (“the “NCA”).
The NCA is an extremely complicated piece of legislation that often leaves experienced legal practitioners confused and uncertain, so it is important to know when a credit agreement you have entered into falls within the ambit of the NCA, because it will directly impact your right of recourse should you be unable to recover the money you loan out.
Currently, any credit agreement above R0.00 loaned to a consumer in South Africa, where interest (or similar a charge/fee) is charged (subject to certain exceptions touched on below or where the parties are not transacting at arm’s length) on the loan would indeed be within the ambit of the NCA. The NCA applies to every credit agreement having effect in South Africa except where:
- In terms of section 4(1)(a)(i) of the NCA, the borrower (“consumer”) is a juristic person whose asset value or annual turnover, together with the combined asset value or annual turnover of all related juristic persons, at the time the agreement is made, equals or exceeds the threshold value determined by the Minister, which is currently set at R1 million; or
- In terms of section 4(1)(b) of the NCA, the credit agreement is a large agreement, which large agreement is currently above R250.000 and the consumer is a juristic person whose turnover asset value or annual turnover is below R1 million.
Do I need to register as a credit provider?
Section 42 of the NCA is the part of the NCA that deals with the requirement to register as a Credit Provider. Prior to Government Gazette notice 513, signed by the Minister of Trade which came into effect on 11 November 2016, Section 42(1) of the NCA provided that you were required to register as a credit provider if the amount being loaned was over R500 000.00. What this meant was that if you, for example, loaned R499 999.99 to a person, while charging 0.5% interest, you needed to comply with several provision of the NCA, but you did not need to register with the National Credit Regulator (the “NCR”).
Government Gazette notice 513 changed the threshold of R500 000.00 to R0.00. This changed things to mean that even if you loaned someone R25.00, you are now technically, in terms of the NCA required to register as a credit provider with the NCR.
This is important to note, because up until very recently, the failure to register as Credit Provider when you needed to resulted, in terms of section 89(5) of the NCA, in you forfeiting the entire loan amount to the State plus you would need to refund to the consumer any money paid by the consumer under the agreement with interest.
Section 89(5) changed due to a decision in the Constitutional Court in National Credit Regulator v Opperman and Others (CCT 34/12)  ZACC 29) which made provision for unregistered credit providers to now recover the capital amount of the loan, but they will still have to forfeit any additional fees or interest.
While this places unregistered credit providers in a better position than they once were, individuals and companies alike need to be aware that even loaning as little as R100.00 requires them to register as a credit provider with the NCR, otherwise they won’t be permitted to charge interest or any additional fees, removing any and all incentive to loan money out for many people.
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