1. INTRODUCTION
The National Credit Act, No. 34 of 2005 (hereafter "the NCA"), is a complex piece of legislation that often leaves legal practitioners across all spheres of the legal profession scratching their heads.
The purpose of this non-academic article/blog entry is to assist individuals and businesses in determining whether they are required by law to register as a credit provider in terms of the NCA.
2. DISCLAIMER
This non-academic article/blog post is for informational purposes only and does not constitute legal advice in any way, manner, or form. It is intended solely to provide a general guideline on some factors for consideration related to the subject matter. The information contained herein reflects the legal position as of the date of publication. However, readers should note that the law is constantly evolving and subject to interpretation. As such, it is possible that other legal practitioners may hold different views from those expressed in this article.
3. PURPOSE OF THE NCA & DEFINITIONS
To understand who is required to register as a credit provider, it is important to bear in mind the purpose of the NCA, which is to:
• Promote social and economic welfare;
• Establish a fair, transparent, competitive, sustainable, responsible, efficient, effective, and accessible credit market;
• Discourage the granting of reckless credit;
• Prevent and address consumer over-indebtedness; and
• Address imbalances in negotiating power between consumers and credit providers.
It is, therefore, clear that the NCA primarily intends to protect vulnerable players within our economic environment.
When attempting to determine whether you or your business are required to register as a credit provider, it is important to familiarize yourself with the definitions provided in Section 1 of the NCA. However, we believe that a detailed discussion of such definitions is not necessary for the purpose of this non-academic article.
4. THE AMBIT OF A CREDIT AGREEMENT AS DESCRIBED IN THE NCA
Section 8(1) of the NCA determines that an agreement is considered a credit agreement for the purposes of the NCA if:
• It constitutes a credit facility as described in Section 8(3);
• It constitutes a credit transaction as described in Section 8(4);
• It constitutes a credit guarantee as described in Section 8(5); or
• Any combination of the above.
Section 8(2) of the NCA lists specific agreements that are expressly excluded from the definition of a credit agreement, while Section 40 of the NCA addresses the registration of credit providers. Some agreements that are not considered credit agreements, irrespective of their nature, include insurance policies, leases of immovable property and transactions between a stokvel and its members.
5. REGISTRATION REQUIREMENT AS CONTEMPLATED IN SECTION 40 OF THE NCA
Section 40(1) specifically stipulates that one 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). This threshold has been set at an amount of R0.00 since 2016. Therefore, anyone who advances any form of credit to another, regardless of the amount involved, may be required to register as a credit provider with the National Credit Regulator.
6. SECTION 4 EXCLUSIONS
Section 4(1)(a) to (d) of the NCA confirms that the NCA does not apply when the consumer/debtor is:
• The state, an organ of state, or the Reserve Bank of South Africa;
• Contracting with a credit provider located outside the Republic of South Africa, approved by the Minister on application by the consumer in the prescribed manner and form; or
• A juristic person whose asset value or annual turnover, together with the combined asset value or annual turnover of all related juristic persons, at the time the agreement is made, equals or exceeds the threshold value determined by the Minister in terms of Section 7(1).
A credit agreement, therefore, falls within the ambit of Section 4 of the NCA where:
• The consumer/debtor is a natural person; and
• The consumer/debtor is a juristic person whose asset value or annual turnover is, at the time the agreement is made, below the threshold value determined by the Minister in terms of Section 7(1)(b). However, one should also pay attention to whether the agreement constitutes a large agreement as defined in the NCA.
Currently, the threshold value determined by the Minister in accordance with Section 7(1)(a) of the NCA is R1 million, while an agreement is considered a large agreement if the principal debt relating to the agreement is equal to or exceeds R250,000.00, as currently determined in accordance with Section 7(1)(b), read together with Section 9(4) of the NCA.
One should also consider that the NCA, along with the Constitution, explicitly prohibits a credit provider from discriminating in deciding whether to grant credit. This makes it advisable for credit providers not to reject any credit applications merely on the basis that the applicant does not fall within the exclusions set forth in Section 4 of the NCA. Doing so would likely amount to improper discrimination. Therefore, it is preferable to adhere to the strict registration requirement envisaged in Section 40, rather than uphold a practice of only granting credit to applicants who fall within the exclusions provided for in Section 4.
7. CONCLUSION
Considering the above, it is clear that several provisions of the NCA, as well as the nature and form of the agreements concluded with consumers/debtors, should be carefully considered in determining whether one is required to register as a credit provider. It is, therefore, advisable to consult an attorney or accountant with the necessary experience to assist you in the relevant evaluation.
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