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Court ruling squeezes mashonisas

Interest-bearing loans between people are subject to the provisions of the NCA.
Interest-bearing loans between people are subject to the provisions of the NCA.
Image: 123RF

If you borrow money from someone who charges you interest on the loan, the lender is obliged to register as a credit provider and abide by the terms of the National Credit Act (NCA), even if the loan is a once-off transaction and even if it is for a small amount, according to a recent ruling by the Supreme Court of Appeal.

The ruling clarifies "one of the most contentious interpretations of the National Credit Act", namely when it is obligatory to register as a credit provider, Aidan Kenny, a
director at Werksmans Attorneys, says.

According to the judgment, a lender is obliged to register as a credit provider with the National Credit Regulator when the credit agreement exceeds the threshold set out in NCA - which is currently nil - irrespective of whether the loan is a once-off transaction and irrespective of whether or not the lender participates regularly in the credit industry.

This means that interest-bearing loans between people who are independent of one another and not related are subject to the provisions of the NCA even when the loans are for small amounts, or where the lender is not in the business of providing credit.

The only exception is in cases where the credit is incidental - as it is when you get charged interest for paying late for goods or a service - as is the case with a medical bill, legal bill or school fees.

With this "incidental credit", the doctor, lawyer or school did not extend credit to you, but if you fail to pay within 30 days, they can charge you interest of 2% a month for late payment.

Riccardo Petersen, a director at law firm Norton Rose Fulbright, says the supreme court "reluctantly" adopted the approach it took in the judgment confirming that anyone who offers an interest-bearing loan must be registered as a credit provider.

The judges note that the judiciary is limited in its power to interpreting law, and not writing law, and says it is for "the legislature to remedy" the deficiencies in the NCA.

Before the NCA was amended in 2014, lenders were obliged to register as credit providers only if they had at least 100 credit agreements in force or had extended credit above the threshold set in the act, which was R500000.

In a bid to prevent unregistered lenders and mashonisas from escaping the regulatory net, the act was amended to delete the reference to the number of credit agreements and subsequently the threshold was reduced to nil.

Failure to register as a credit provider is unlawful and, if an unregistered credit provider agrees to lend you money, that agreement will be void.

Kenny welcomed the court's decision because the NCA protects borrowers.

As a borrower of money you will be protected by the terms of the NCA because the fees you will be charged will have to be within those set in terms of the act, Kenny says.

But Petersen says the judgment will have huge financial implications for those who make a once-off loan to an individual.

"Once-off lenders will now need to consider alternative funding arrangements such as waiving any interest, fees or charges on their loans to avoid the onerous credit provider registration requirements and costs, the risk of not being
repaid and becoming involved in protracted litigation to recover any money owing to them."

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