Should You Register as a Credit Provider?

In the current economic climate where more than 11 million of South Africans are over indebted it is often found that persons conclude personal loans amongst themselves in order to escape the stringent credit requirements imposed by the National Credit Regulator. The crisp question to consider is whether a natural person who is not registered as a credit provider may extend credit. A trite defence often used by debtors who fail to honour their obligations is, “the credit is void based on the failure on part of the credit provider to register as a credit provider”. ¹ The effect of the latter is that the debtor is abolished from the obligation to repay the debt.

This position of the debtor was considered on numerous occasions. In the recent judgment handed down by D.N. Unterhalter AJ, the court was afforded the opportunity to consider the position in the eyes of the credit provider, in Potgieter v Olivier and Another (15456/2011) [2014] ZAGPPHC 829; 2016 (6) SA 272 (GP).

Facts

• Mr Potgieter sold his property to the Defendants in terms of a written agreement.
• The purchase for the price for the property was in the amount of R 1 million.
• The Defendants could elect to settle the outstanding amount in instalments of R 10 000.00 per month with interest incurring on the purchase price every 3 years.

A Credit provider, in respect of a creditor agreement to which this Act applies means:

(h) the party who advances money or credit to another under any other credit agreement

For clarity, the above constitutes credit insofar that Mr Potgieter deferred payment for the purchase price and the deferral of the payment incurred interest, therefore making the sale agreement a credit agreement.

The solitary issue before the court was whether the sale was void. The basis of the claim was that Mr Potgieter had to register as a credit provider in terms of section 40(1)(b) of the Credit Act. Mr Potgieter failed to register as a credit provider, and in consequence, so it is alleged, the sale agreement is unlawful and in terms of section 89(5)(a) of the Credit Act, a declaration should issue declaring the agreement void. ²

At the time when Mr Potgieter concluded the agreement a credit provider was obliged to register as a credit provider if the total credit extended exceeded the threshold of R 500 000.00 as prescribed by the minister. ³ Failure to comply with the latter resulted in a credit agreement that is unlawful and it was contended that the Court should declare such agreement is void ab initio (from the beginning). In order to the determine the interpretation and the effect of the latter section the court relied on the judgment handed down in of Friend v Sendal Case No 973/2010, an unreported decision dated 3 August 2012. ⁴ The full bench respectfully reasoned by recourse that the legislator intended that the threshold requirement applies to credit provider who participates in the credit market. The Court found that transaction concluded by Mr Potgieter and the Defendants cannot therefore be seen to as participation in the credit market and burden imposed on Mr Potgieter to register in terms of sec 40(1)(b) is not applicable. It must be note that the court was bound by the full bench decision handed down in the Friend-case. However the court remarked that if the court was not inclined to adhere to the full bench’s decision to result may have been otherwise. The court remarked the registration requirement in terms of the NCA is triggered in two instances:

• Where the total outstanding agreements concluded by a single credit provider exceeds 100 agreements;
• Where the total outstanding debt exceeds the threshold (R 500 000.00) as determined by the minister from time to time irrespective whether there is only one agreement. ⁵

With effect from 11 November 2016 the above threshold is amendment and a burden of registration is placed on a credit provider to register in terms of the act of the total principal debt owed under all outstanding credit agreements, other than incidental credit agreements, exceeds R0.00.

Section 4 of the National Credit Act excludes the following:

“every credit agreement between parties dealing at arm’s length and made within, or having an effect within, the Republic, except—

1. (a) a credit agreement in terms of which the consumer is—
   1. 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 the agreement is made, equals or exceeds the threshold value determined by the Minister in terms of section 7(1);
   2. the state; or
   3. the state; or
2. a large agreement, as described in section 9(4), in terms of which the consumer is a juristic person whose asset value or annual turnover is, at the time the agreement is made, below the threshold value determined by the Minister in terms of section 7(1);
3. a credit agreement in terms of which the credit provider is the Reserve Bank of South Africa; or
4. a credit agreement in respect of which the credit provider is located outside the Republic, approved by the Minister on application by the consumer in the prescribed manner and form”.

Conclusion

If the exclusions above do not apply, you are obliged to register as a credit provider for the provision of any credit provided irrespective of the amount of credit.

¹ Section 40 of the National Credit Act 34 of 2005 hereinafter NCA.
² Para 4 Potgieter v Olivier and Another (15456/2011) [2014] ZAGPPHC 829; 2016 (6) SA 272 (GP).
³ S 40(1)(b) NCA.
⁴ Para 15 Potgieter v Olivier.
⁵ Para 31 Potgieter v Olivier.