With all the pieces of legislation that are constantly being updated it is easy to miss changes to legislation that are really important – especially if that change comes in the form of a Regulation (something typically drafted by a ministry such as the Department of Trade and Industry(DTI)) instead of an amendment to an Act (which requires parliamentary approval). One such game-changer came into force with little (if any) fanfare in the form of Government Gazette notice 513 which was signed by Minister of Trade and Industry Rob Davies on the 14th April 2016 and comes into effect on the 11th November 2016 (see s42(2) as to why it is delayed by 6 months).
The notice is only 7 lines long and all it does is change the threshold ‘required by section 42(1)’ to ‘nil (R0)’. So far that seems pretty innocuous stuff – until you realise what this means…
Section 42 of the National Credit Act is the part of that Act that deals with the requirement to register as a Credit Provider. Before this notice that threshold was at R500 000. Essentially what this meant is that – before 11 May 2016 – if you loaned R499 999 to a person and received 1% interest on this per month you still needed to comply with several of the provisions of the National Credit Act (you are still considered to be a ‘Credit Provider’) but you did not need to register as a Credit Provider with the National Credit Regulator. This is vitally important as (in the past) the failure to register as Credit Provider when you needed to should have resulted in you forfeiting the entire loan amount to the state (in terms of section 89(5)).
Section 89(5)(c) has now changed (thanks to the Constitutional Court judgment of National Credit Regulator v Opperman and Others (CCT 34/12) [2012] ZACC 29) so that a credit provider who is unregistered will be able to recover the capital amount loaned but not any additional fees or interest.
So what does this all mean for you? Well, to take an extreme example this means that if I loan R10 to Joe Soap and we agree that he will repay an amount of R15 to me then I need to register with the National Credit Regulator as a Credit Provider.
Seriously.
If I don’t register as a Credit Provider then I will not be able to recover the R5 in interest / fees that I charged Joe Soap but I can recover the R10 capital amount.
So let’s take this a little further. The reduction of the threshold to register to R0 means that:
- Any company providing an employee loan (of any amount) where they charge interest and/or a fee must register as a credit provider; and
- Small loans between people who know each other but still act at arm’s length will effectively become impractical (as there will be no incentive to loan the money).
While I recognise that the National Credit Regulator has had to deal with schemes where companies use elaborate structures to avoid crossing the threshold (and so avoid having to register as a credit provider) it is amazing that this fundamental change to the way smaller loans are granted (especially by small businesses and people who know each other) has not received greater publicity. Until it does it seems very likely that a great number of people trying to provide small loans on terms generally more favourable than commercial credit providers will suddenly find themselves rueing their kindly nature when they realise that they:
- cannot legally recover interest or fees for those credit agreements before they are registered, and
- they still need to register as a credit provider.
Once again this action by the DTI begs the question as to whether they really thought this through?
– Paul Esselaar, May 2016
Paul Esselaar and Elizabeth de Stadler will be presenting an update on the National Credit Act at the University of Cape Town on the 30th May 2016. For more information on this please click here.