The National Credit Act 34 of 2005 forms a critical part of the consumer protection landscape of South Africa. Together with the Consumer Protection Act 68 of 2008, it ensures that the consumers of South Africa are protected from unfair and unreasonable practices of service providers.
Even though it is a progressive act with noble intentions, the National Credit Act at times reads like a disjointed fairy tale. The learned judge Lewis aptly remarked in Absa Technology Finance Solutions (Pty) Ltd v Michael’s Bid A House CC and Another 2013 (3) SA 426 (SCA) that:
“The National Credit Act) may sound like a fragment of Alice in Wonderland. If that is so, it is because the Act itself could have been written by Lewis Carroll so peculiar are some of its provisions.”
In terms of section 40(1) of the National Credit Act a person or entity 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).
Therefore, the amount of credit provided is the sole determining factor to ascertain whether a credit provider is obliged to register.
Furthermore, any person who is required to be registered as a credit provider, but who is not so registered, may not offer, make available or extend credit, enter into a credit agreement or agree to do any of those things.
On 11 May 2016 the Minister of Trade and Industry changed the threshold prescribed in section 42(1) from R500 000.00 to R0.00 by way of notice in the Government Gazette.
This amendment of the threshold left once-off credit providers in a very precarious position – should people or entities who do not grant loans in their ordinary course of business suddenly register as credit providers?
A moment of clarity was provided on 3 August 2012 in Friend v Sendal [2020] ZAGPPHC 162. It was held that entities or persons who extended once-off credit agreements are not credit providers and that they do not need to register as such.
However, this moment of clarity was short lived as various conflicting judgements followed.
The ambiguity between the conflicting decisions and the National Credit Act was resolved by the Supreme Court of Appeal in Du Bruyn NO and Others v Karsten [2018] ZASCA 143 on 28 September 2018.
The Supreme Court of Appeal followed a literal approach in interpreting the National Credit Act and held that where any credit agreement falls within the ambit of the National Credit Act, and exceeds the threshold set out in section 42 of the Act, irrespective of whether it is a single transaction and irrespective of whether the credit provider is a regular participant in the credit industry, such entity or person should register as a credit provider.
However satisfying the clarity provided, a pressing legal question arose:
Should persons or entities who extended credit agreements under the auspices of Friend v Sendal have registered as credit providers and does their failure to register make the credit agreements unlawful, void and unenforceable?
In this regard section 40(4) states unequivocally that a credit agreement entered into by a credit provider who is required to be registered but who is not so registered is an unlawful agreement and void from the date the agreement was entered into.
Furthermore, in terms of section 42(3), if, as a result of a change of the section 42 threshold, a credit provider is required to be registered as such for the first time, that credit provider must apply for registration by the time the threshold takes effect, and may thereafter continue to provide credit until the time that the National Credit Regulator makes a decision in respect of its application.
Therefore, the position as it stands currently is that any person or entity that extended a credit agreement after the amendment of the threshold must and should have registered as a credit provider, or at least applied for registration as such before the effective date of 11 November 2016.
The daunting reality of a literal interpretation of these sections draws the conclusion that agreements entered into under the auspices of Friend v Sendal are, in fact, void as at the date of conclusion thereof and therefore unenforceable.
As of now, no challenges regarding the abovementioned dilemma have reached the court. We would, however, hope that the court is somewhat lenient in understanding the predicament created and that it will provide an outcome for persons and entities who did not knowingly and intentionally fail to adhere to the National Credit Act.
Nevertheless, it is in the best interest of persons and entities who have extended credit agreements that are subject to the National Credit Act to register as credit providers, even though their registration may be long overdue.
Should you wish to ascertain whether credit agreements extended by yourself or any of your entities are subject to the National Credit Act, therefore compelling you to register as a credit provider, feel free to contact VDT Attorneys.
Petrus van der Walt is an Associate in the Litigation and Dispute Resolution. You can reach him at petrusv@vdt.co.za