When to Register as a Credit Provider

When legislation is unclear, courts will seldomly  let this go unnoticed. Even so, some pieces of legislation receive more frequent and blatant criticism than others. One example is the National Credit Act 34 of 2005 (“the Act”) which has been scorned for its lack of clarity since its inception.

One of the Act’s most common areas of confusion relates to the circumstances under which one must register as a credit provider. Section 40(1) of the Act provides that a person advancing credit must be registered if the total debt owed to that person under all credit agreements exceeds a prescribed threshold. The difficulty comes in that the prescribed threshold, as of May 2016, is R0,00.

So, in effect, every person lending money, where interest or some other charge is received, regardless of the amount, is required to register as a credit provider. This creates obvious practical difficulties for small-scale or once-off lenders, and because of this seemingly unintended result, this created legal uncertainty.

The uncertainty in the Act was exacerbated by certain courts finding that, despite what the Act says, the obligation to register cannot apply to once off lenders but only those who are active in the credit market (see for example the High Court of Pretoria’s judgment in Friend v Sendal). Fortunately, however, after some time, the Supreme Court of Appeal (“the SCA”) has now provided clarity on this issue.

In Du Bruyn & Others v Karsten, the SCA held that all credit providers must register as such, regardless of whether it is a once of transaction or whether the lender is a regular participant in the credit market. Although this seems somewhat unpragmatic, especially because of the harsh consequence that failure to register the agreement leads to it being null and void, I believe that the clarity and finality of the issue is welcomed.

It is therefore clear now that all lenders entering into a credit agreement must now be registered as such in terms of the Act. The Act itself does however provide that certain agreements, for example agreements that are not at arm’s length (for example an agreement between family members where there is an incentive to act against your own interests), do not constitute credit agreements. We therefore recommend that anyone looking to advance money obtains confirmation that all aspects of the Act have been sufficiently complied with.