On 11 May 2016, the Department of Trade and Industry announced in Government Gazette 39981 that the new credit provider registration threshold will be Nil (R0). Is the threshold rational and reasonable? If the threshold is not rational, credit providers whose credit agreements are to be declared void may be able to challenge the threshold.
The essence of the newly set threshold is that any person who grants credit within the ambit of the National Credit Act (NCA), irrespective of the principal debt, must apply to be a registered credit provider with the National Credit Regulator (NCR) before giving a loan or granting credit.
The net seems to have been cast too wide.
Section 40(1) requires a person to 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). The previous threshold set out in section 42(1) was R500 000, but this has now been significantly reduced to zero.
In a previous blog we mentioned that the high court confirmed that a simple acknowledgement of debt is a credit agreement but a credit provider who only enters into one such agreement does not have to register as a credit provider under the NCA even if the principal debt is more than R500 000. The court found that section 40(1)(b) does not refer to a single lending transaction. Someone giving a once-off loan more than the threshold of R500 000 or R0 threshold who is not intending to be a multiple lender does not need to be a registered credit provider.
When considering the effect bear in mind that the NCA does not apply to consumers that are juristic persons (together with all its related juristic persons) with an asset value or annual turnover of at least R1 million or where the juristic person concludes a large credit agreement with a principal debt of at least R250 000.
The effect of this new threshold means that:
- Any person providing more than one loan bearing interest at commercial rates must register as a credit provider with the NCR.
- The person must follow the registration process set out in the NCA which includes providing the NCR with its CIPC documents, auditor details, details of the total value (principal debt) of all credit agreements entered into during the most recent financial year, and signed resolutions and criminal name clearance certificates for all directors. They must also pay an application fee of R550, an initial registration fee, branch fee of R250 and annual renewal fee, as the case may be to the NCR. Unless the two loans are more than R800 plus your costs of registration, you could be considerably out of pocket.
- The NCR may impose penalty fees on a credit provider if it fails to pay its annual renewal fees within 30 days of the due date.
- Possible administrative fines may be handed down by the National Consumer Tribunal for a failure to register as a credit provider.
- The court may declare the credit provider’s credit agreements void from the date the credit agreements were concluded, which will have the unfortunate consequence that the credit provider may only be able to recover the capital amount granted to the consumer, but not any interest or other fees charged to the consumer under those credit agreements.
Section 42(2) of the NCA states that the threshold takes effect six months after the date on which it is published in the Gazette. This means that the new threshold will take effect on 11 November 2016.
If a credit provider is required to register for the first time as a result of the new threshold, the credit provider must apply for registration before 11 November 2016 and may continue to grant credit until the NCR makes a decision in relation to the application. Credit providers must therefore act swiftly and prepare and submit their applications with supporting documents to the NCR before the due date to avoid the dire consequences set out above.
Registered credit providers will now include anyone who lends or grants credit for any amount to two or more people (even friends) if interest or costs are charged at a commercial rate. The net seems to have been cast too wide.