Is one required to register as a credit provider?
The National Credit Act protects consumers and Debtors in a world wherein credit is utilized by many people. If a person advances credit and is not a registered credit provider as required by the Act, the agreement could be found to be invalid and accordingly may result in the Debtor from paying the debt.
Section 1 of the National Credit Act No. 34 of 2005, states as follows:
‘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’.
In a recent case Potgieter vs Olivier & Another (2016)SA(GP), Mr Potgieter entered into a purchase and sale agreement for the sale of his home for the sum of R 1 000 000 – 00 (One Million) Rand. The purchase price was payable in installments of R 10 000 – 00 (Ten Thousand) Rand per month until the final payment was received. Further, interest accrued at a rate of R100 000 – 00 (One Hundred Thousand) Rand for every three-year period.
The issue before the Court was whether the agreement of sale was void? It was contended that the agreement of sale was a credit transaction in terms of the Act and accordingly Mr Potgieter was obliged to register as a credit provider. Hence it was alleged that the sale agreement was unlawful and in terms of the Act, a declaration should be made that the agreement is void.
Mr Potgieter stated in Court that he was not a registered credit provider, as he did not know that he had to be registered as one.
The Court found that the agreement permitted the purchaser to discharge the purchase price by way of monthly installments over a lengthy period of time, as an alternative to the payment of cash on registration of title. The deferral of payment attracted the concomitant obligation to pay interest and accordingly was found to be the hallmark of a grant of credit, as defined in the Act.
Since it was found that Mr Potgieter was required to register as a credit provider as the agreement exceeded the minimum threshold of R 500 000 – 00 (Five Hundred Thousand) Rand, it was argued on Mr Potgieters behalf that the agreement is unlawful and accordingly the Court must order that the credit agreement is void from the date that the agreement was entered into between the parties.
In making its decision, the Court considered another decision of the full bench namely, Friend vs Sendal. The Court interpreted that S40(1)b is directed at credit providers and not at those who participate in a once off credit transaction.
As a result, the Court found that Mr Potgieter was not required to register as a credit provider for the said transaction.
The Court however noted that should the Full Benches decision not have been binding upon it, it would have not followed it. The Court further stated that the legislature set the threshold firstly by reference to the number of credit agreements and secondly by reference to the quantum of the total principle debt.
In light of the recent National Credit Act amendment, which was with effect from 11 November 2016, one is required to register as a credit provider if the principle debt under all outstanding credit agreement, other than incidental credit agreements, exceeded R0, 00.
In essence, it is noteworthy that before one advances credit or enters into an agreement, which results in, payment being deferred to it, on has sought legal advice pertaining to it.