Who is required to register as a credit provider?
National Credit Act
The credit industry is governed by the National Credit Act(“NCA”), as amended. The purpose of the act as stated in Section 3 of the NCA are “to promote and advance the social and economic welfare of South Africans, promote a fair, transparent, competitive, sustainable, responsible, efficient, effective and accessible credit market and industry, and to protect consumers”. In terms of the act, it is required to register as a credit provider. Section 40(1) states that “A person must apply to be registered as a credit provider if 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).”
During 2016 the threshold in relation to principal debt was published and is R 0(nil). This means that regardless of the amount owed in terms of a credit agreement (excluding incidental credit agreements), the credit agreement could potentially fall within the aforementioned section which imposes the obligation to register as a credit provider.
In the matter of Du Bruyn NO and others v Karsten the Supreme Court of Appeal had to determine whether the requirement to register as a credit provider is only applicable to credit providers within the credit industry or any person extending credit or any credit agreement. The Supreme court found that Section 40 of the NCA is applicable to all credit agreements once the prescribed threshold is reached, regardless of whether the credit provider operates in the credit industry or the fact that it was a once-off agreement.
Does this mean that every person or business which loans money to another person is required to be registered as a credit provider?
Unfortunately, this is not a simple yes or no answer. Despite the aforementioned court ruling, there are certain factors you have to consider when assessing your obligation to register as a credit provider. Perhaps it may assist you to go through a process of elimination by answering the following questions:
1. Are any of the exceptions in Section 4 of the Act applicable to your situation?
According to Section 4 of the Act, the provisions of the act (and thus the requirement to register as a credit provider) applies to every credit agreement between parties with the certain exceptions.
Is the credit agreement between parties not dealing at arm’s length?
Is the consumer/client a juristic person whose asset value/annual turnover is equal or exceed the threshold, the state or an organ of the state?
Is the credit agreement categorised as a large agreement in terms of which a consumer is a juristic person whose asset value or annual turnover is, at the time the agreement is made, below the threshold?
Is the credit provider be located outside the Republic of South Africa?
If you have answered yes to any of the above you will not be required to register as a credit provider.
2. Do you or your business fall within the definition of a credit provider in relation to a credit agreement?
The Act defines a credit provider in relation to a credit agreement as:
the party who supplies goods or services under a discount transaction, incidental credit agreement or instalment agreement;
the party who advances money or credit under a pawn transaction;
the party who extends credit under a credit facility;
the mortgagee under a mortgage agreement;
the lender under a secured loan;
the lessor under a lease;
the party to whom an assurance or promise is made under a credit guarantee;
the party who advances money or credit to another under any other credit agreement; or
any other person who acquires the rights of a credit provider under a credit agreement after it has been entered into.
If any of the aforementioned descriptions describe you or your business in relation to a credit agreement there is a possibility that you will be required to register as a credit provider.
3. Does the agreement or transaction constitute a credit agreement?
The following are examples of credit agreements namely:
Credit facility(for instance a credit card);
Credit transaction(for instance mortgage agreement);
Credit guarantee ( for instance to satisfy upon demand an obligation to pay another consumer in terms of the credit transaction);
Or a combination of the aforementioned.
The following agreements are not considered to be credit agreements:
a policy of insurance or credit extended by an insurer solely to maintain the payment of premiums on a policy of insurance;
a lease of immovable property; or
a transaction between a stokvel and a member of that stokvel.
4. If the agreement or transaction constitutes a credit agreement is it an incidental credit agreement?
If yes you will not be required to register as a credit provider.
Section 40(1)(a) of the Act does not require the registration of a credit provider if the transaction relates to an incidental credit agreement. An incidental agreement, irrespective of its form, in terms of which an account was tendered for goods or services that have been provided to the consumer, or goods or services that are to be provided to a consumer over a period of time and either or both of the following conditions apply—
A fee, charge or interest become payable when payment of an amount charged in terms of that account was not made on or before a determined period or date;
Two prices were quoted for settlement of the account, the lower price being applicable if the account is paid on or before a determined date, and the higher price being applicable due to the account not having been paid by that date.”
How can Etude help?
In light of the aforementioned information, a person or business should seek professional assistance or advice when determining whether it has an obligation to register as a credit provider.
If you are thinking of entering into a credit agreement or want to set up such an agreement, please feel free to contact us. We have a team of experienced compliance officers who can assess your requirements and recommend the best course of action.
Our administration office also regularly deals with the NCR and we can assist you in your current application or existing registration. Give us a call and we will gladly assist you.