REGISTRATION AS A CREDIT PROVIDER UNDER THE NATIONAL CREDIT ACT
Lending money without being registered as a credit provider may have a dire effect on your rights as a lender. It is therefore important to know whether you are required to register as a credit provider under the National Credit Act (“the Act”) before entering into a loan or other credit agreement.
The essence of a credit agreement is that it involves deferral of payment of an amount owed. Section 8 of the Act broadly defines a credit agreement as an agreement in terms of which payment of goods and services by a consumer, or an amount owed by one person to another is deferred, and any charge, fee or interest is payable to the credit provider in respect of the agreement or the amount that has been deferred.
Certain agreements are excluded. The lease of immovable property, a policy of insurance or credit extended by an insurer solely to maintain the payment of premiums on a policy of insurance or a transaction between a stokvel and a member of that stokvel in accordance with the rules of that stokvel does not constitute as a credit agreement.
Who is a credit provider?
Section 1 of the Act defines a credit provider in respect of a credit agreement, to which the Act applies, as:
- the party who supplies goods or services under a discount transaction, incidental credit agreement or instalment agreement;
- the party who advances money or credit under a pawn transaction;
- the party who extends credit under a credit facility;
- the mortgagee under a mortgage agreement;
- the lender under a secured loan;
- the lessor under a lease;
- the party to whom an assurance or promise is made under a credit guarantee;
- the party who advances money or credit to another under any other credit agreement; or
- any other person who acquires the rights of a credit provider under a credit agreement after it has been entered into.
Application of the Act
The Act applies to every credit agreement between parties dealing at arm’s length and made within, or having an effect within, the Republic, except a credit agreement where the consumer (the borrower in case of a loan) 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 the agreement is made, equals or exceeds the threshold value determined by the Minister in terms of section 7(1), which is currently R1,000 000.00. The Act also does not apply when the consumer is an organ of state.
An example to illustrate: A and B, both private companies, conclude a mortgage agreement. Neither A nor B are holding companies, nor do the one have a controlling interest in one another, and nor do they have any other related juristic persons to them. A, the mortgagor (borrower), has an annual turnover of R1, 000, 000.00. The Act therefore does not apply to the agreement, because A is a juristic person and the consumer in terms of the agreement, whose total annual turnover equals the section 7(1) threshold. The result thereof is that B does not have to apply to register as a credit provider, as the Act does not apply.
The Act also does not apply to “large” agreements, even if the consumer (borrower) is a juristic person whose asset value or annual turnover is, at the time of the agreement, below the
section 7(1) threshold. A large agreement is a mortgage agreement or any other credit transaction (except a pawn transaction or a credit guarantee) where the principal debt is equal to or higher than the threshold established under section 7(l)(b), which is currently R250,000.00.
An example to illustrate: C and D, both private companies, conclude a mortgage agreement to the value of R250,000.00. The principal debt equals the section 7(1)(b) threshold, and therefore the agreement constitutes a large agreement. C, the mortgagor (borrower), has an annual turnover is R800,000.00. This falls below the section 7(1) threshold, and therefore the Act does not apply to the agreement and B does not have to be registered as a credit provider.
The Act also does not apply to a credit agreement where the credit provider is the Reserve Bank of South Africa or where the credit provider is located outside the Republic (in which case approval by the Minister is required).
As mentioned, the Act only applies between parties dealing “at arm’s length”. Section 4(b) explains this concept with certain examples where the parties are not considered to be dealing at arm’s length:
- A shareholder loan or other credit agreement between a juristic person, as consumer, and a person who has a controlling interest in that juristic person, as credit provider;
- A loan to a shareholder or other credit agreement between a juristic person (the credit provider) and a person who has a controlling interest in that juristic person (the consumer);
- A credit agreement between natural persons who are in a familial relationship and—
- are co-dependent on each other; or
- one is dependent upon the other; and
- Any other arrangement—
- in which each party is not independent of the other and consequently does not necessarily strive to obtain the utmost possible advantage out of the transaction; or
- that is of a type that has been held in law to be between parties who are not dealing at arm’s length.
In terms of section 40(1) a person must 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) of the Act. The threshold as of
11 November 2016 is currently R0.00. This means that every credit provider under a credit agreement which is not excluded from the application of the Act and is not an incidental credit agreement, must register as a credit provider with the National Credit Regulator (“the NCR”), regardless of the amount of credit provided.
The effect of failing to register is stated in section 40(4), read with section 89: A credit agreement entered into by a credit provider who is required to be registered but is not so registered, is an unlawful agreement and void.
This does not apply if an application is pending or made within 30 days: Under section 89(4) the agreement will not be unlawful and void if at the time it was made, or within 30 days after that time, the credit provider had applied for registration in terms of section 40, and was awaiting the determination of that application, or if the credit provider held a valid clearance certificate issued by the NCR in terms of the section 42(3)(b) of the Act. Under this section, a clearance certificate is issued when a credit provider who was previously required to be registered falls below a newly determined threshold by the Minister. The credit provider can then apply to the NCR for a clearance certificate to release it from the obligation to be registered. However, until the NCR makes a decision in respect of such an application, the credit provider must continue to be registered regardless of whether the total principal debt exceeds the threshold.
An example to illustrate: A and B, both private companies, conclude a mortgage agreement on 07 May 2021 to the value of R100, 000.00 (not a large agreement). A is the mortgagor (borrower) and has an annual turnover of R900, 000.00. The Act applies to the agreement because A (the consumer under the Act) is a juristic person whose total annual turnover is below the section 7(1) threshold. At the time the agreement was made, B was not registered as a credit provider. However, if B on 6 June 2021 (within 30 days after the agreement was entered into) submits its application to the NCR to register as a credit provider the registration requirement is complied with. Although B was not registered as a credit provider at the time the agreement was entered into and therefore does not meet the requirements of section 40(1), the agreement is not unlawful and void, because B applied for registration within 30 days after the agreement was entered into.
It is therefore of paramount importance to ensure that before, or within 30 days after a credit agreement is entered into, the credit provider applies for registration, unless it has a valid clearance certificate.
To register, the following documents need to be submitted to the NCR:
- Completed and signed application form.
- Companies and Intellectual Property Commission (CIPC) registration document or other official legal registration document.
- Copy of the share certificate(s) if the applicant is company. Where the majority shareholder is a natural person, the following documentation is also required:
- Certified copy of the person’s identity document;
- Completed disqualification of natural person form); and
- Criminal clearance certificate not older than six (6) months.
- Certified copies of ID/Passports of all members / directors / shareholders / trustees / partners / sole proprietors.
- Resolution if applicant is a juristic person.
- A Criminal Clearance Certificate for all the members / directors / shareholders / trustees / partners / sole proprietors, issued by the South African Police Services (SAPS) or other listed service providers by NCR. The clearance certificate must not be older than six (6) months.
- A signed and stamped letter from the bank confirming the applicant’s banking details or a copy of a cancelled blank cheque or a stamped bank statement not older than six (6) months.
- Proof of registration with the South African Revenue Services (SARS).
- Proof of payment of the registration fees:
- Non-refundable application fee of R550;
- Branch fee of R250 per location or premises at or from which the applicant conducts registered activities; and
- Initial registration fee, which is calculated as per the table below:
|Category 1||Total principal debt equal or greater than R15 billion||R330 000|
|Category 2||Total principal debt equal or greater than R5 billion, but less than R15 billion||R190 000 plus 0,001% of the amount by which the total principal debt exceeds R5 billion|
|Category 3||Total principal debt equal or greater than R1 billion, but less than R5 billion||R70 000 plus 0,003% of the amount by which the total principal debt exceeds R1 billion|
|Category 4||Total principal debt equal or greater than R100 million, but less than R1 billion||R16 000 plus 0,005% of the amount by which the total principal debt exceeds R100 million|
|Category 5||Total principal debt equal or greater than R5 million, but less than R100 million||R7 000 plus 0,01% of the amount by which the total principal debt exceeds R5 million|
|Category 6||Total principal debt equal or greater than R1 million, but less than R5 million||R2 500 plus 0,1% of the amount by which the total principal debt exceeds R1 million|
|Category 7||Total principal debt equal or greater than R500 000, but less than R1 million||R2 000|
|Category 8||Total principal debt equal or greater than R250 000, but less than R500 000||R1 500|
|Category 9||Total principal debt less than R250 000||R1 000|
An example to illustrate: A is a natural person and credit provider to B. The total principal debt is R8,000,000.00. The Act applies to the agreement and therefore A must register as a credit provider with the NCR. The total principal debt falls in Category 5 in the table above; and the registration fee is R7,000.00 plus 0,01% of the amount by which the total principal debt exceeds R5 million, which in this case amounts to R300.00, for a total registration fee of R7, 300.00. A branch fee of R250.00 and application fee of R550.00 is also payable, so that the total fees amount to R8,100.00.
The consequences of failing to register as a credit provider appear from the recent judgment of the Supreme Court of Appeal in Du Bruyn NO and Others v Karsten (929/2017)  ZASCA 143, which was handed down on 28 September 2018. The case concerned credit agreements between the De Bruyns and Karsten to which the Act applied. Karsten was the credit provider and was not so registered at the time the agreements were entered into. Karsten only registered as a credit provider a few months afterwards. The De Bruyns defaulted on their monthly instalments to Karsten, and Karsten instituted proceedings against them to recover the balance due. The De Bruyns defended the claim on the basis that Karsten was not registered as a credit provider at the time the agreements were entered into and, as a result, the agreements were null and void.
The Court held that the amount of credit provided is the sole determining factor to ascertain whether a credit provider is obliged to register. A plain reading of section 40(1)(b) of the Act makes it clear that a person must register as a credit provider if the principal debt exceeds the prescribed threshold, which is currently R0.00. Consequently, the agreements concluded by the Du Bruyns and Karsten were unlawful and void.
The effect of a credit agreement being declared unlawful and void under section 89(5) of the Act is that the credit provider cannot rely on the agreement to recover a balance that would have been due in terms of the agreement. The only option left for a credit provider would be to sue the consumer for unjustified enrichment, which is likely to result in recovery of only the capital amount.
For enquiries and assistance with the process of registering as a credit provider or any other related matters, please contact Cluver Markotter’s Commercial Department.