The National Credit Act requires certain categories of money lenders to register as Credit Providers in terms of the Act. The Act is, however, applicable to all Credit Providers, even those who are exempt from registration (this category has, in light of recent amendments, been drastically narrowed).
Who needs to register? The effect of the National Credit Amendment Act and the New Regulations
In determining whether a person or entity must be registered as a Credit Provider, Chapter 3 of the Act is relevant. Section 40(1) previously stated that a person or entity was required to register as a Credit Provider if:
(a) “that person, alone or in conjunction with any associated person, is the credit provider under at least 100 credit agreements, other than incidental credit agreements; or
(b) the total principal debt owed to that credit provider under all outstanding credit agreements, other than incidental credit agreements, exceeds the threshold prescribed in terms of section 42( 1).”
The National Credit Amendment Act came into effect on 13 March 2016 with the effect that Section 40 has now been amended by removing the requirement of 100 Credit Agreements outstanding. This means that any person or entity with a principal debt owed to them, in terms of any credit agreement that is not an “Incidental Credit Agreement”, in excess of the threshold is required to register.
Previously, the generous threshold of R500 000.00 excluded most casual lenders from having to register. However, on 11 May 2016 Rob Davies, the Minister for the Department of Trade and Industry published a new determination of the threshold which has reduced the threshold to “nil R0)”.
The term “Credit Agreement” is defined in terms of the broadly formulated Section 8. Essentially, when an amount is charged as interest, as a penalty for late payment or where a payment of a greater amount for a late payment is required by an agreement, the agreement will usually fall within at least one of the categories of “Credit Agreement” for purposes of the Act.
The consequence being that anyone, with just one loan or other Credit Agreement, other than an Incidental Credit Agreement, with interest, will be required to register as a Credit Provider in terms of the Act.
- Incidental Credit Agreements – typically where interest is levied on late payment for goods or services;
- Agreements where the consumer is a juristic person whose asset value or annual turnover at the time the agreement is made equals or exceeds R1000 000.00 or where the credit agreement is for an amount in excess of R250 000;
- Interest or fee free – if the agreement does not provide for interest or a fee to be charged for the extension of credit; and
- Agreements between persons who are not “at arm’s length” – small personal loans between family members, friends etc. will most likely fall outside the terms of the Act.
What Happens When I Register?
Credit Providers must pay an initial application fee and thereafter, an annual registration renewal fee which is based on the amount of principal debt due to that Provider. Once registered, Credit Providers become subject to parts of the Act, the Financial Intelligence Centre Act (FICA) and certain provincial legislation for the jurisdiction where the Provider conducts its business, which they would otherwise be exempt from.
The Act sets out the powers of the National Credit Regulator in enforcing compliance. Where necessary, the Regulator will issue compliance notices to Providers; failing to comply with these notices may incur civil or even criminal liability, resulting in a fine or in the latter case a fine and / or imprisonment. Of course, the Provider does have a right to object to such notice and bring the matter before the National Credit Tribunal within 15 days of receipt of such notice or such longer period as may be allowed by the Tribunal on good cause shown.
Consequences of Failure to Register
The Act also provides for mechanisms to enforce registration. Where an unregistered Provider is required to register, the Regulator will issue a compliance notice, forcing the Provider to either discontinue providing credit or register in terms of the Act. Again the unregistered Provider does have the right to object and failure to comply carries the same penalties as above.
Where a Credit Agreement is concluded between a consumer and a Credit Provider who is not registered and is required to be registered as such, the Act states that the Agreement is void ab initio. Therefore, the Provider will be unable to enforce the terms of the Agreement and further, will not have a claim, based on the Agreement, for the amounts paid or credit extended (the Provider will however, have a claim against the consumer based on undue enrichment). Accordingly, persons or entities required to be registered as Credit Providers should do so.
For more information on registration as a Credit Provider or further queries on the above, please do not hesitate to contact the author.