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Section 89(5)(C) of the National Credit Act declared unconstitutional

by Hayley Langdon

The Western Cape High Court recently heard the matter of Opperman v Boonzaaier and Others (24887/2010). In this matter the Applicant who is a farmer by occupation, lent his friend, the First Respondent an amount of R7 million to assist him in a property development.

The First Respondent was unable to meet his payment obligations and the Applicant applied for his sequestration.

The court took into account the provisions of the National Credit Act (NCA) as the loans made were credit agreements. In terms of Section 40 of the NCA a credit provider to whom the total principal debt owed exceeds the threshold (currently R500 000.00) is required to apply to be registered as a credit provider.

The Applicant was therefore required by statutory provisions to have applied for registration as a credit provider, which he had not done.

Section 89(5) of the NCA provides that a credit agreement is unlawful if at the time the agreement was made, the credit provider was not registered and the Act requires that credit provider to be registered. The Act further provides that if a credit agreement is unlawful, a court must order that:

  1. the credit agreement is void;
  2. the credit provider must return to the consumer any money paid under that agreement, with interest;
  3. all the purported rights of the credit provider to recover any money paid are either:
    1. cancelled; or
    2. forfeited to the state.

The clear effect of the aforesaid is that loan agreements being dealt with herein are unlawful and must be treated as void. Therefore the Applicant’s right to repayment is either cancelled or forfeited to the state.

Section 89(5)(c) of the National Credit Act was declared to be inconsistent with the provisions of Section 25(1) of the Constitution in that it infringed the right not to be deprived of property.

The court held that Applicant’s loss of his right to claim repayment was a deprivation of property.

This declaration of invalidity however has no force unless it is confirmed by the Constitutional Court.

15 May, 2012

**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.**