ARE YOU A “CREDIT PROVIDER”?

Are you providing credit or deferring payment for goods or services? Are you charging interest on your clients’ accounts? Are you providing credit to employees?

Section 3 of the National Credit Act 34 of 2005 (as amended) encouraging responsible borrowing, avoidance of over-indebtedness and fulfilment of financial obligations by consumers; and discouraging reckless credit granting by credit providers and contractual default by consumers.

Who are subject to the act?

All credit providers are required to register with the National Credit Regulator (the “NCR”) irrespective of the number or amount of credit transactions. This is due to the new threshold of R0 which was published on 11 May 2016. Therefor when a credit provider provides credit of more than R0 the credit provider is obliged to register as a credit provider. 

There are four questions that need to be asked:

1.         Was it concluded by parties dealing at arm’s length?

·         A relationship where the parties want to extract the maximum benefit out of the transaction

·         What will not qualify as dealing at arm’s length? Natural persons in a familial relationship with each other 

2.         Is it a credit agreement falling within the ambit of the act?

·         Credit facilities

·         Credit transactions such as instalment agreements, pawn transactions, secured loan, mortgage agreements

·         Credit guarantees

·         Any combination of above: Where the payment obligation is deferred and interest, fees or other charges are asked on the agreement

3.         Was it included, or intended, to have effect in SA?

4.         Is the transaction subject to any exemption, provided for in the act?

·         A juristic person as a consumer with an asset or turnover value equal to or more than R1 million

·         State as a consumer

·         Lease of immovable property 

·         Even though these exemptions apply, certain sections of the act still applies with regards to marketing, reckless credit provisions, debt review and rules with regards to fees and maximum interest rates

·         Parties to an incidental credit agreement are not required to register in terms of the act. An example of such a transaction will be doctor bills, the purpose is not to provide credit but rather to provide a service to the consumer.

Consequences of non-compliance?

Failing to register as a credit provider will result in the agreement being unlawful. The effect will be that the agreement will be null and void with regards to the interest and capital.

Disclaimer: The material contained in this document is provided for general information purposes only and does not constitute legal or other professional advice. We accept no responsibility for any loss or damage which may arise from reliance on information contained in this article.