Currently, a credit provider providing credit in excess of R500,000 must be registered with the National Credit Regulator (“NCR”) in terms of the National Credit Act (“NCA”). This R500,000 credit provider registration threshold is calculated by determining “the total principal debt owed to that credit provider under all outstanding credit agreements” in terms of section 40(1)(b) of the NCA.
However, on 11 May 2016, the Department of Trade and Industry published a notification (in Government Gazette number 39981) that the current credit provider registration threshold will be removed i.e. there will no longer be a monetary threshold. This means thatany person who grants credit within the ambit of the NCA, irrespective of the principal debt, must apply to be registered as a credit provider with the NCR before providing a loan or granting credit. The removal of the monetary threshold takes effect six months after the date on which it is published in the Gazette. It will, therefore, take effect on 11 November 2016.
The effect of this amendment means that
When considering the effect, bear in mind that the NCA, according to section 4, does not apply to consumers that are juristic persons (together with all its related juristic persons) with an asset value or annual turnover exceeding R1 million or where the juristic person concludes a large credit agreement with a principal debt exceeding R250,000.
If a credit provider is required to register for the first time as a result of the new threshold, the credit provider must apply for registration before 11 November 2016 and may continue to grant credit until the NCR makes a decision in relation to the application. Credit providers must, therefore, act swiftly in preparing and submitting their applications, together with the required supporting documents, to the NCR before 11 November 2016 to avoid adverse consequences from materialising.
Registered credit providers will now include anyone who lends or grants credit for any amount to two or more people if interest or costs are charged at a commercial rate.
Consequences of failing to register as a credit provider
If a credit provider is required to register under the NCA but fails to do so, a credit agreement concluded by it constitutes an unlawful credit agreement under section 89(2)(d) of the NCA. The consequences of a credit agreement being declared unlawful, as provided for in section 89(5), are severe, in that
“a court must order that –
(a) the credit agreement is void as from the date the agreement was entered into;
(b) the credit provider refunds to the consumer any money paid by the consumer under that agreement, plus interest, and
(c) all the credit providers rights under the agreement to recover money paid or goods delivered are either cancelled (unless the court concludes that to do so would unjustly enrich the consumer) or forfeit to the State (if the court concludes that cancelling those rights would unjustly enrich the consumer)”
The constitutionality of section 89(5)(c) of the NCA was challenged in the Constitutional Court in its judgment handed down on 10 December 2012, in the matter of The National Credit Regulator v Opperman and Others, 2013 (2) SA (1) CC. In this case, the Constitutional Court confirmed the order of the Western Cape High Court which declared section 89(5)(c) of the Act constitutionally invalid. The Constitutional Court confirmed that it constitutes an unlawful deprivation of the credit provider’s property and is, therefore, inconsistent with s25(1) of the Constitution. The practical implication of this judgment is that a credit provider which is required to register under the Act but fails to do so, will have to repay any interest and charges paid to it by the consumer but may, however, be able to recover the original loan amount from the consumer on the basis of a claim for unjustified enrichment.
With the introduction of the removal of the R500,000 credit provider registration threshold, almost all credit providers, regardless of the total amount of credit they provide, will have to register with the NCR. The impact of the new threshold is likely to be controversial. All credit providers should be aware of this new law and take the necessary protection measures in their businesses, as the consequences of failing to comply are severe.
Noorjehaan Edros |Associate | Dispute Resolution: Litigation & Arbitration
Nicholas Meyer |Candidate Attorney
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 legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)