Credit Agreements: should I be registered as a Credit Provider?

by hnydmn

Uncategorized6 November 20180 comments

What does the National Credit Act say?
1. Section 40(1) of the National Credit Act, Act 34 of 2005 (hereinafter referred to as the “Act”), states that a person should be registered as a Credit Provider if the total principal debt owed to that person under all Credit Agreements, excluding incidental Credit Agreements, exceeds the threshold prescribed by the Minister.
2. Under notice 513 of 11 May 2016, that appeared in Government Gazette No. 39981, Rob Davies, the Minister of Trade and Industry, established a new threshold for Credit Provider registration at an amount of R0-00. This threshold was a substantial step down from the previous threshold of R500 000-00. Effectively a person is therefore required to be registered as a Credit Provider if that person is contemplating to enter into a Credit Agreement, irrespective of the amount of such Credit Agreement, subject to the other exclusions that may apply.
What constitutes a Credit Agreement?
1. The criteria for determining whether or not an agreement constitutes a Credit Agreement, is contained in Section 8 of the Act. In terms of Section 8(1), and subject to the exclusions contained in Section 8(2) as discussed in paragraph 2.3 below, the following agreements constitute Credit Agreements: credit facilities, credit transactions, credit guarantees or any combination of these three agreements.
2. What are credit facilities, credit transactions and credit guarantees?
  1. A credit facility, is an agreement where the Credit Provider undertakes to-
    1. supply goods or services to a consumer, or to pay certain amounts to the consumer or on behalf of the consumer, and
    2. where the Credit Provider then further agrees to either-
      1. defer the consumer’s obligation to pay for the goods or services or to defer the consumer’s obligation to repay any amount that was paid to the consumer or that was paid on behalf of the consumer, or
      2. to bill the consumer periodically for the costs of the goods or services or to bill the consumer periodically for the repayment of the amount(s) that was paid to the consumer or paid on behalf of the consumer; and
    3. a charge, fee or interest is payable by the consumer to the Credit Provider for the deferment mentioned in 2.2.1.2.1 above, or for the periodical billing arrangement referred to in 2.2.1.2.2 above.
  2. A credit transaction includes the following-
    1. pawn transactions or discount transactions;
    2. incidental credit agreements (however the Act has limited application in the case of incidental credit agreements);
    3. instalment agreements;
    4. mortgage agreements or secured loans;
    5. leases (as defined in the Act and not including normal lease agreements, the precise details of which are not going to be elaborated further on in this article); or
    6. any other agreement not defined as a credit facility or credit guarantee in terms of which an amount is owed by one person to another and repayment thereof is deferred while any charge, fee or interest is payable to the Credit Provider in respect of the agreement or the amount that has been deferred.
  3. A credit guarantee is an agreement where one consumer undertakes to satisfy any obligation of another consumer in terms of a credit facility or credit transaction upon demand.
3. Section 8(2) specifically states that the following agreements are not deemed to be Credit Agreements:
  1. insurance policies or credit extended by an insurer to maintain the payment of the premiums of an insurance policy;
  2. a lease of immovable property; and
  3. a transaction between a stokvel and a member of that stokvel in accordance with its rules.
Agreements where the Act does not apply.
1. A transaction that satisfies the requirements for being a Credit Agreement as described in paragraph 2 above, can however still be excluded from the application of the Act in terms of Section 4.
  1. Section 4(1) states that the Act applies to every Credit Agreement between parties dealing at arm’s length and that was made in or has effect within South Africa, subject to the exclusions and the limited application of the Act mentioned hereafter.
  2. In terms of Section 4(1), the Act does not apply to the following agreements:
    1. a Credit Agreement where the consumer is 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 of entering into the agreement, equals or exceeds the amount determined by the minister, which currently stands atR1 000 000-00, or where the consumer is the state or an organ of state;
    2. a Credit Agreement that constitutes a large agreement (meaning that it is either a mortgage agreement or any other credit transaction except a pawn transaction or a credit guarantee and the principal debt equals or exceeds the amount of R250 000-00, as this amount currently stands) and in terms of such large agreement, the consumer is a juristic person whose asset value or annual turnover, is below R1 000 000-00 (as this amount currently stands).
    3. a Credit Agreement where the Credit Provider is the Reserve Bank of South Africa; or
    4. a Credit Agreement where the Credit Provider is located outside South Africa, subject to the approval of the Minister on application.
  3. With regard to the term “arm’s length”, Section 42(2)(b) states that the following agreements shall not be deemed to be made at arm’s length (meaning the act does not apply to them)-
    1. shareholder loans to the company (or relevant juristic person),
    2. company (or relevant juristic person) loans to a shareholder,
    3. Credit Agreements between natural persons that are in a familiar relationship and that are co-dependent on each other or where one of them is dependent on the other, and
    4. any other arrangement where each of the parties are not independent from each other and therefore does not strive to obtain the utmost advantage out of the transaction or that has been held in law not to be at arm’s length.
2. Furthermore, Sections 5 and 6 of the Act states that the Act shall only have limited application to incidental credit agreements and agreements where the consumer is a juristic person. In the case of incidental credit agreements, it is not required to be registered as a Credit Provider. Incidental credit agreements refer to agreements where goods and services were rendered to a consumer, and an additional fee, interest or charge (meaning a fee, interest or charge above and beyond the costs of the goods and services) is payable only in the event of the consumer not paying for the goods and services on or before a specific date – there is however no fee, interest or charge payable for the deferment of payment in itself.
Should I therefore be registered? Taking into account what is stated above, you should register as a Credit Provider if you are considering to enter into an agreement which constitutes a Credit Agreement as contemplated in paragraph 2 above and none of the exclusions mentioned in sub-paragraph 2.3 or paragraph 3 apply.
What is the effect of entering into a Credit Agreement while not being registered as a Credit Provider, when in terms of the Act, you should be? Section 40(3) and (4) of the Act states that if you are not registered as a Credit Provider, you must not offer, make available or extend credit, enter into a Credit Agreement or agree to do any of these things and that any such agreement shall be unlawful and void and in terms of Section 89(5) of the Act, the court will be required to make an order that is just and equitable.

Written by: L Theron (B.com Law, LL.B, Dipl. Fin. Plan)