Does your Business have to Register as a Credit Provider in terms of the National Credit Act?

Does your Business have to Register as a Credit Provider in terms of the National Credit Act?

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in this video we'll explore and give you guidance on whether or not you as a business should be registered with the national credit regulator as a credit provider the national credit act is a well-known minefield as a result of its poor drafting and all businesses that do any form of charging of interest on overdue accounts or even delayed payments should best understand the applicability of the national credit act to them and specifically whether or not they should be registered as a credit provider the consequences of not being registered as a credit provider is that any relevant agreements will be unlawful and void [Music] [Applause] [Music] hi this is brett bentley from bentley attorneys and welcome to another edition of our video series called appealing opinion in which i express my legal opinion on various topics and today's topic is when does a business have to register as a credit provider in terms of the national credit act if you do get value out of this video if i could please ask if you could give it a like in the button below so before we get into the nitty-gritty of the question i think you have to look at the nature of the beast that we're dealing with in terms of the national credit act um there's been numerous judgments where various judges have made remarks about the poor drafting of the act and my particular favorite which are probably have quoted far too many times is that of judge milan in the net bank versus national credit regulator case that was a supreme court of appeal decision in 2010 where judge milan said unfortunately the national credit act cannot be described as the best drafted act of parliament which was ever passed nor can the draftsman be said to have been blessed with the draftsmanship of the chalmers numerous drafting errors and tidy expressions and inconsistencies make its interpretation a particularly trying exercise just for those of you that were wondering about chalmers he was a a united kingdom draftsman who drafted the bulls of exchange act in 1886 i think it was and that act went unamended for many many many years so unfortunately this act has been amended a couple of times and probably will have to be amended a few more times so because of these vaguenesses we have in these inconsistencies we do have interpretive problems with the act so let's look at section 40 which deals with the registration requirements of a credit provider and what it says is 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. so let's break that down a little bit and try get a little bit of a better understanding so you've got to be a person that's providing credit otherwise giving extended terms of payment and it's got to be a credit agreement now so we've got to look at what is defined in terms of the act as a credit agreement and then we've also got to look at this other little section called incidental credit agreements because that section doesn't have to be registered okay you with me so far we look at the threshold prescribed in terms of section 41. we'll we'll have a look at that because first because just to understand that there's been a number of amendments to that particular section over the years firstly pre-2014 there was a with one of the biggest amendments and the national credit act came in a 2014 amendment and pre-2014 it said people that have over 100 transactions that aren't incidental credit agreements or have credit agreements again that aren't incidental credit agreements of a value of more than 500 000 had to register the 2014 amendment comes in and the act has changed the reference to the 500 000 is taken out of the act and given to the minister to promulgate in terms of the government gazette and the reference to a hundred is removed just to give you a little bit of understanding behind the reasoning in terms of this a number of the smaller loan shocks and i'll use the word widely there abusers of the national credit act actually fell under the 100 or fell under the half a million mark and therefore didn't have to register so the national credit regulator wanted to narrow the the the its amount of people that don't have to register and include these micro lenders that were abusing the system these number of these small micro lenders so it says the change said that a person must apply to be registered as a credit provider if the total principal debt owed to that credit provider under all outstanding agreements so the reference to 100 removed but the amount was still set at half a million then in 2016 the minister of trade and industry also passed one of these government gazettes where they eliminated the amount of half a million and that was effective from the 16th of november 2016. from

so from the 16th of november 2016 anybody that's involved in a credit agreement that is not an incidental credit agreement has to register as a credit provider so then the question is asked what are the consequences for not being registered as a credit provider when you should have been registered as a credit provider all of those credit agreements for which you should have been provided which triggered registration requirements will become unlawful and void and that's obviously a very serious legal consequence previously in terms of section 89 they were the situation was even worse so in the national credit regulator versus opperman a constitutional court decision you have the constitutional court striking down a much more onerous provision that was section 89 5c which actually provided that the credit provider if they weren't registered in terms of the national credit act couldn't recover any monies or benefits advanced to them to the consumer in terms of such an agreement so that really unfair provision was was struck down but still there is the situation where you've got this uh situation where the agreement is unlawful and void and while maybe one can recover the funds through an unjust enrichment action there are consequences of of the uh illegality of of the agreement or the unlawfulness should i say the other very important case impacting on the whole application of the act is the case of de brain and others versus costings which is a judgment of the supreme court of appeal which was handed down in september 2018 which confirms uh or puts to bed eventually the debate about whether if you had a single transaction and you weren't involved in the credit industry whether or not you had to register just to quote directly from the court at 28 in the judgment the requirement to register as a credit provider is applicable to all credit agreements once the prescribed threshold is reached irrespective of whether the credit provider is involved in the credit industry and irrespective of whether the credit agreement is a once-off transaction so yeah that's got quite severe consequences you think of a private individual maybe at arm's length lending money to each other involved charging interest or some form of of charge and in that situation they would have to register and that's quite uh quite a harsh position to to find oneself in so let's then move along to the pivotal question of who is required to register in terms of the national credit act as a credit provider in order to determine that you have to see whether or not the national credit act is applicable to the particular type of transaction because if you look at section 4 which sets out the requirements it basically sits at a to two-hurdle test to national credit applicability and in term then the in turn the provisions of section 14. and that to hurdle test i think best is described as does the consumer in the credit agreement fall within the nca and does the transaction fall within the definition of credit agreement as set out in section 8. so if you get over the first hurdle it's not automatic registration so we've determined that the consumer the nca does potentially apply to the consumer the next test is to find out whether or not the transaction involved was a credit agreement as defined in section 8. so then the question is who does the nca apply to which persons or which entities because it's consumer legislation obviously the private individual is potentially covered by that even if the private individual is trading as a sole proprietor the next type of potential entity that it covers to some degree is juristic persons now touristic persons again we've got our national credit act with differing definitions to what the rest of our law or our common understanding in south africa is and their definition in the national credit act of juristic person is not only incorporated entities like close corporations or companies but also extends to partnerships associations and certain types of of trusts which juristic persons are protected by the national credit act or potentially protected by the national credit act there's very limited application to juristic persons and it's juristic persons with assets or and or annual turnover of less than one million rand in that situation those type of juristic persons have potential protection if they're over the million mark definitely no nca protection and if you're doing it all your customers are over the million mark in terms of of income and or and or assets then you wouldn't be required to be registered as a credit provider notwithstanding that the type of transactions that you may be entering into are in fact credit agreements the other qualifying criteria is the size of the transaction so even if you are a small in other words under the 1 million mark a juristic person if the transaction that you're entering into is over 250 000 that particular transaction is not considered to be a protected transaction section four also goes on to say with the debt is a state or an organ of state there's there's no uh nca application or where the creditor is the reserve bank then it also falls outside of the national credit act so that's the first hurdle of the test to national credit applicability who is the consumer and let's say that it is a consumer in other words it's either potentially a private individual sole proprietor or small juristic person and the transaction is under 250 000 and you've got transactions like that it doesn't mean you automatically have to register because now we go on to the second hurdle of the test which is is the particular transaction a credit agreement as defined in section 8 of the national credit act now section 8 specifically excludes certain types of transactions and those include insurance policies importantly leases of immovable property and stockpile agreements that's section 82 but when we get on uh to the definitions of what is a credit agreement in terms of section 8. this is again

where we're moving into the territory of the confusing and poor drafting of the national credit act so if you look at it on face value a particular transaction could fall into the category of incidental credit agreement credit facility and discount transaction if you took a very liberal interpretation of it and this is obviously led to various court cases and will give you some sort of guidance in terms of what actually is a credit agreement and what type of credit agreement they are in terms of the act there's four basic categories the first category is credit facilities the second one is credit guarantees the third is credit transactions and the fourth is a catch-all phrase which sort of is any combination of credit facility and credit transaction the way that the act is defined specifically we need to pay attention to credit facilities and credit transactions will come back later to the credit guarantees and and and how they fall into place with these other transactions but if you look at creative facilities it gives a singular definition of what is a credit facility whereas when it comes to credit transactions there are various different types of credit transactions which are defined in terms of section one and this being the national credit act some of these definitions are not quite conventional definitions as we as we know them so what is a credit facility it's the supplier of goods or services or payment to consumer or payment on behalf of or the directional consumer an important part is that it includes a charge or interest for the deferred payment privilege and if you really want to understand fully the extent of what is a a credit facility then the case of jmv textiles versus de chalene is a good case in which wallace j as he was then gives a very good exposition on the distinction between a credit facility and an incidental credit agreement yes we will eventually get to defining what a incidental credit agreement is before we do that let's just look at broadly the category of credit transactions as i mentioned earlier the credit transactions are defined per transaction so you've got pawn transactions that's p-a-w-n transactions get your mind out of the gutter the next one is discount transactions then there's installment agreements there's mortgage bonds there's secured loans and then there's leases the leases being of movable property because as we mentioned earlier immovable property is excluded from the ambit of the national credit act and if you are involved in the uh the leasing of movables i suggest that you go and read very carefully the definition because it's not a common legal or commercial definition of lease of movable property it talks about ownership passing at the end and various other aspects so pay attention to to to that and as i said each of these mortgage agreements secured loan installment agreement each of these types of agreement you have to read the specifics of the case but the type of credit transaction that i'm going to spend a bit of time describing and explaining what it is is incidental credit agreement because not only is our incidental credit agreements excluded from the registration requirement in terms of of section 40 but also in terms of section a lot of the more onerous provisions that we'll see that apply to what are referred to as full-blown credit agreements as opposed to incidental credit agreements don't apply to incidental credit agreements so then what is an incidental credit agreement section one of the nca defines an incidental credit agreement it means an agreement irrespective of its form in terms of which an account was tended for goods or services that have been provided to the consumer or goods or services that are to be provided to the consumer over a period of time and either or both of the following conditions apply a a fee charge or interest became payable when payment of the amount charged in terms of that account was not made honorable for the determined period or date or b two prices were quoted for settlement of the account the lower price being applicable if the account is paid on or before the determined date and the higher price being applicable due to the account not having been paid by that date okay let's let's just think through those two and maybe uh explain them with examples so that you can get a better understanding for it this section of incidental credit agreements is meant to cover those people that incidentally provide credit i think that's what the name meant but there's been a lot of debate about whether or not it was the correct name and whether or not it should be in the national credit act be that as it may incidental credit agreements is meant for that category of per person that isn't in the business of making money out of interest or charges in terms of their agreements they are allowing the food payment usually as a matter of convenience think about it a person supplies goods on a 30-day account normal 30-day account because there's no numerous transactions in the month to their client and then they build them at the end of the month and expect payment within 30 days that type of person can be even a general practitioner it can be a hardware store it can be a business that supplies goods and services to other businesses and they are just using this as a means of facilitating commercial ease of payment but the problem that these type of credit providers have is that when they extend these 30-day payments perhaps the debtor doesn't pay on time in many cases they don't so what do you do you invoke the usual psychological tools of a stick and a carrot part a of that definition is the stick you wield the stick and you say if you don't pay my account within 30 days i will charge you interest on the overdue account it is not the intention to make a fortune out of the interest the intention is to be a persuasion to the person to pay on time the other alternative and in many instances a credit providers can't afford to weld the stick is the carrot and the characters part b you tell the debtor that if they pay within the 30 days using the 30 day account as the example you will give them a 5 discount so if they paid they can take 5 off so that's the the the carrot and that in a nutshell is what an incidental credit agreement is so then the question is what are the benefits of your particular transaction being an incidental credit agreement obviously the most important as we have just discussed is that uh it's excluded from the registration requirements but there's other things like pre-agreement disclosure forming content to the agreement unlawful agreements and unlawful provisions that are put in the act the reckless credit granting provisions marketing practices surrender of goods consumer cooling down rights dispute rights there's many many benefits of your particular type of transaction being an incidental credit agreement and in this way i describe uh the national credit act i divided into sort of three categories for full understanding of it you've got what i refer to as the full-blown credit agreements they get the full impact of the national credit act you've then got incidental accredited agreements and section five excludes them from a lot of the more onerous provisions finally you've got agreements that fall outside of the national credit act and obviously in that case none of the the ncaa impacts on them so from a credit provider's perspective first prize is to have your credit agreement fall outside of the national credit act second prize is it to have it as a classified as an incidental credit agreement and for credit provider full compliance comes with full-blown credit agreements so then moving along to the category of credit guarantees which most commonly covers surety ships and section 4 sub 2 sub c provides that this act applies to credit guarantees only to the extent that the actor applies to the credit facility or the credit transaction in respect of which the credit guarantee was granted now just to explain that in a little a bit more simple terms let's have a look at our three categories as we set them out so we've got full-blown credit agreements we've got incidental credit agreements and we've got agreements that fall outside of the nca so if you've got a surety ship with a full-blown credit agreement so let's say for example uh somebody is applying for a bank loan and the bank says we will only lend money to that person if they have a surety the bank in that situation because let's assume that the bank loan is a full-blown credit agreement there's charging of interest from day one there's uh and because of that falls within the the definition of a credit agreement the transaction of the surety ship will also be considered a full-blown credit agreement in this instance the bank for provisions of reckless credit granting which apply to full-blown credit agreements will have to do an affordability test not only on the person that's applying for the loan but also in fact the surety so that is the situation there so let's uh take the instance of an incidental credit agreement we've got a let's say a close corporation and they're applying for 30 day account and the annual turnover is under the 1 million marks the assets are under the 1 million mark the particular transaction they never their creative facility is is under 200 000 or 250 000 let's say and they also so the agreement itself the main agreement is an incidental credit agreement and the company that is granting this credit also wants the member of the cc to sign as a surety that surety ship will follow the main agreement and also be an incidental credit agreement same as if you have the same situation 30-day account but the transaction is with the company whose annual turnover is more than a million rand the assets are more than a million rand that agreement will fall outside of the national credit act and if they were to perhaps get a director to sign a surety that surety ship would also fall outside of the national credit act so then just coming back to the whole registration requirements just to to to summarize what we have been saying we have to look at section 40 which says a person must apply to be registered as a credit provider if the total principal debt owed to that credit provider at all credit agreements other than the incidental agreed agreements exceeds the threshold so we've seen that that threshold is now zero we see that you must register if you are giving credit agreements but there was also one proviso to that which says if you're providing that credit to a person that falls outside of the national credit act then you don't have to register as a credit provider i know this whole national credit act and the registration requirements can sometimes be trying and in that regard i stress don't make any decisions just based purely on this video this viet video is purely for guidance and i strongly suggest that if you're in business of allowing any form of deferred payment that you do consult with an attorney to get advice on whether or not your credit agreement or transaction falls within the required definitions and you are required to register as a credit provider i hope you've enjoyed this episode of our videos called appealing opinion and do join us for the next one thank you

2021-01-12 05:25

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