“Aye, there’s the rub” (Hamlet)
If you are a credit provider and required to register as such in terms of the NCA (National Credit Act), not doing so can have drastic consequences for you. For a start, a court can make any “just and equitable order” in relation to your credit/loan agreements, including an order that they are declared void and unenforceable.
Important: The NCA and Regulations are convoluted with a lot of technical requirements and pitfalls for the unwary. What is said below is of necessity just a summary of some very complex definitions and issues, so get help from your accountant if you are unsure of anything!
Do you need to register?
Not every category of credit provider is required to register. Answer these questions to find out where you stand –
- Are you a “credit provider”? The formal definition in the NCA is very broad, and if you grant credit or advance loan/s in any form you are likely to fall within it. If you answered “yes”, read on…..
- Is your agreement a “credit agreement”? Again the formal definition in the NCA is widely worded to include any credit facility, transaction or guarantee, including any agreement where monies are lent or goods or services are supplied but payment is deferred, “and any charge, fee or interest is payable to the credit provider”. So an interest-free and fee-free loan for example wouldn’t fall into the definition.Note here that six months ago, registration was only compulsory if you had over 100 credit agreements but that has changed – you are in line for compulsory registration even if you have only one agreement.Again, if you answered “yes” here, read on…..
- Does the total principal debt owed to you under all outstanding credit agreements exceed the gazetted threshold? And here’s the rub – the threshold is currently R500,000, so until now if you are a small lender you will probably have been exempt from registration. But (effective 11 November) the threshold has been reduced to nil. In other words, from 11 November, you will be answering this question “yes” regardless of the amount owed to you.
You needn’t register if …..
Let’s move on to circumstances in which you don’t have to register –
- If the agreement is an “Incidental Credit Agreement”. This is where you haven’t given credit, but you charge interest or some other fee for overdue accounts, or give early settlement discounts.
- If your credit consumer is a “juristic person” (broadly, a company, partnership, or trust with 3 or more trustees) and either –
- It (together with all “related” juristic persons) has an asset value or annual turnover of R1m or more, or
- Your agreement with it is a “large” one (more than R250,000).
- The NCA only applies if you are “at arm’s length” with the debtor. “Arm’s length” isn’t defined in the NCA but it generally means you are independent of each other. Just note that there are specific exclusions here in terms of which the NCA will apply. So for example a personal loan to a close family member will generally not fall under the NCA except where there is a state of “dependency” or “co-dependency” between you.
- Certain agreements are specifically excluded from the definition of “credit agreement” – for example insurance policies and leases of immovable property, so landlords need not register. And, as noted above, an interest-free and fee-free loan would also fall outside the definition.
As we said above, full advice from your accountant is essential here in any doubt – there is too much at stake to take any chances. And don’t forget that even if you don’t have to register, other provisions of the NCA, such as the prohibitions against reckless lending, may well still apply.
If you have to register, the deadline is 11 November 2016 and registration is a complicated process, so don’t delay!