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Am I required to register as a Credit Provider?

by Matthew Thomson

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.

1) 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.

2) 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.

3) Who needs to register?

In determining whether a person or entity must be registered as a Credit Provider, Chapter 3 of the Act is relevant. Section 40(1) states that a person or entity is required to register as a Credit Provider if:

  1. “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
  2. 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).”

Accordingly, if you or your company have 100 or more outstanding credit agreements, as defined by the Act, or have credit agreements outstanding, in terms of which the total principal debt owed exceeds R500 000.00, you are required to register as a Credit Provider.
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. Incidental Credit Agreements are a notable exception in terms of section 40(1). This type of agreement would typically be where interest is levied on late payment for goods or services.

4) The National Credit Amendment Act

Although enacted on 19 May 2014, the new Act is yet to come into force and it is unknown when this will be . However, this Act has removed the requirement of 100 Credit Agreements outstanding; the Minister now determines the threshold.

5) The New Regulations

The Department of Trade and Industry recently tabled new Regulations to the Act which have not yet come into force; in fact, they are still open for public comment. Of particular concern however, is the proposal, likely to come into force, to change the threshold in terms of section 40(1)(b) to R0.00. 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.

Any loan or credit extension which does not include interest or a fee for late or deferred payment will, however, not fall under the definition of Credit Agreement and accordingly registration as a Credit Provider will not be necessary when providing such facilities. Also note that the Act does not apply to Credit Agreements concluded between persons who are ‘at arm’s length’; meaning that small personal loans between family members etc. will most likely fall outside the terms of the Act.

For more information on registration as a Credit Provider or further queries on the above, please do not hesitate to contact the author of the above or alternatively Hayley Langdon.

10 December, 2014

**Please note that these comments are summarised, may not be applicable to your particular situation and do not constitute legal advice. Please consult your legal professional should you wish to obtain a formal legal opinion.**