The Supreme Court Ruling on the 28 of September 2018 finally made clear one of the most contentious interpretations of the National Credit Act (NCA): when is it obligatory to register as credit provider.
In the case of De Bruyn v Karstens, it ruled that it is obligatory to register as a credit provider even in the instance of a single provision of credit if the amount is not less than R500 000,00 and is an arm's length transaction, despite the fact that the lender is not active participant in the credit industry.
The decision of the Supreme Court of Appeal has the following effects :
- The person or business must register as a credit provider even if they are not participants in the credit market and it is a single transaction at arm's length.
- The sale of a property, shares in a company or business and loan accounts, etc where part of the purchase price is to be secured by security in whichever form, securing the balance of the purchase price for the seller by virtue of instalments to be paid by the borrower to the seller, imposes an obligation on the seller to register as credit provider, which might delay an otherwise speedy finalisation of the transaction, due to the fact that it can take up to three months to register as a credit provider in terms of the NCA, prior to concluding the agreement.
- The credit provider will have to comply with legislation and conditions, in that the credit provider must have regard to the condition which can be imposed by the credit regulator in terms of the NCA which includes inter alia :
- Compliance with the Financial Intelligence Centre Act legislation, the provisions of the NCA, the applicable provincial legislation of the province in which the credit provider conduct registered activities, including providing the credit regulator to search the premises form which the credit provider conducts business and to seize anything which may have a bearing on the investigation. Further specific conditions may be imposed by having regard to over indebtedness and broad based black economic empowerment.
- The credit provider in a single transaction for registration as a credit provider will have to pay a fee, which fee is determined by the amount being borrowed and together with the annual renewal fee making it more expensive to be lending funds by the credit provider.
- Failure to register a credit provider is unlawful if the principal debt exceeds the threshold of R500 000,00 and it is at arm's length, with consequential result that the agreement will be void.
- The borrowers of money will be protected in terms of the National Credit Act in that the fees charged will have to be within the parameters prescribed by the NCA.
Overall the decision is welcomed as protection will be afforded to any business or person as borrower in terms of the National Credit Act 34 of 2005, which aim is to protect borrowers.
Written by Aidan Kenny, Director at Werksmans Attorneys