The Act regulates credit agreements between credit providers and consumers. There are of course strict provisions that a credit agreement must include, which are in turn, binding on the parties entering into the said agreements.Before entering into a credit agreement with a consumer, it is important that you are aware of the provisions of section 89 of the Act.
Section 89 speaks to unlawful contracts and section 89(2)(d) states that “a credit agreement is unlawful if at the time the agreement was made, the credit provider was unregistered and this Act requires that credit provider to be registered”. Section 89(5)(a) goes further to say that “[I]f a credit agreement is unlawful in terms of this section, despite any other legislation or any provision of an agreement to the contrary, a court must make a just and equitable order including but not limited to an order that the credit agreement is void as from the date the agreement was entered into”.
Credit agreements appear frequently in litigation where the credit agreement is the subject of the cause of action. Courts have enforced that where a credit agreement exceeds the threshold of R500 000.00, as set out in sectiom 42(1) of the Act, a person is required to register as a credit provider. The threshold requirement was removed by way of legislative amendment on 11 May 2016, thus, except for certain exceptions, registration is required for all credit providers.
The now unconstitutional section 89(5)(c) of the Act, declared as such in the Western Cape High Court, which decision was confirmed in the Constitutional Court in National Credit Regulator v Opperman and Others (CCT 34/12) [2012] ZACC 29 (10 December 2012)), absolved the consumer of any liability if the debt exceeded the prescribed threshold and deprived the credit provider of the right to reclaim that amount if they were unregistered. Section 89(5)(c) essentially forced a court into giving a specific order, namely, that where a credit agreement is entered into by an unregistered credit provider, such agreement must be declared void. However, the Western Cape High Court found that this legal position was unconstitutional in that it deprived the credit provider of the right to property.
In Blacher v Josephson (A15/22) [2023] ZAWCHC 27 (14 February 2023), the court said that “In Opperman the Constitutional Court set out what the important aims and purposes of the NCA are viz. to promote and advance the social and economic welfare of South Africans in order to achieve a fair, transparent, competitive, sustainable, responsible, efficient, effective and accessible credit market and industry, and to protect consumers. The requirement that credit providers must be registered allows for their control and regulation, especially in relation to their financial probity and integrity, thereby avoiding the unscrupulous exploitation of credit consumers by so-called fly-by night operators and loan sharks”. Enforcing that consumers must repay the capital amount on a credit agreement entered into by an unregistered credit provider would encourage credit providers not to register, thus evading regulation and control of their activities which the Act seeks to achieve.
The current legal position relating to credit agreements entered into by an unregistered credit provider and a consumer is that the agreement is still void in terms of section 89(5)(a) of the Act, however, an unregistered credit provider would be able to claim back the amount advanced to the consumer through the common law principal of unjustified enrichment, on condition that the requirements of such a claim are met. The court in this instance has the discretion to make an order based on fairness and equity.
In the circumstances, it is crucial to ensure that before entering into credit agreements, both parties are aware of the requirements necessary to do so, and that the credit provider specifically, is apprised of the legal position in order to safeguard themselves against such an agreement being the subject of litigation and is later declared void.
Litigation is expensive, and often, the expenses one incurs to reclaim money owed, exceeds claimed amount. In such an instance, litigation becomes impractical, and most parties end up settling on amounts that are far less than money that they are aiming to acquire.
Therefore, always consult an attorney before entering into a credit agreement and ensure that you are protected in the event of a breach of payment and that such agreement is valid and enforceable to begin with.
This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your adviser for specific and detailed advice. Errors and omissions excepted (E&OE).