National Credit Act: Must one register?

The National Credit Act, No 34 of 2005 (Act) has gone a long way to protect the rights of consumers. A defence debtors often raise is that the credit provider is not registered as such in terms of the Act, making the particular credit agreement void, absolving the debtor from the obligation to repay the debt.

Our courts have been called upon to determine this defence on various occasions but in Potgieter v Olivier and Another 2016 (6) SA 272 (GP), the court had to determine this proposition, not raised by a debtor, but by a creditor.

This case, and the outcome thereof, have important consequences for parties extending some form of credit, subject to the provisions of the Act, without being registered as a credit provider in terms thereof and heeds a strong warning to creditors, even in the case of a once-off credit transaction.

The plaintiff, Mr Potgieter, sold his property to the defendants in terms of a written agreement. The purchase price agreed upon was R1 million. The purchase price was payable either in cash or by way of payments of R10,000 per month, commencing 1 November 2008 until final payment. In the event that the purchasers elected to pay the purchase price by way of instalments, then interest accrued on the purchase price at the rate of R100,000 for every completed period of three years.

The sole issue before the court was whether the agreement of sale was void on the basis that the agreement of sale is a credit transaction in terms of s8(4)(f) of the Act and that Mr Potgieter was obliged, as a credit provider, to register in terms of s40(1)(b) thereof. Mr Potgieter failed to register as a credit provider, and in consequence, so it was alleged, the sale agreement was unlawful and in terms of s89(5)(a) of the Act, void.

Mr Potgieter, as part of his evidence, confirmed that he was not a provider of credit in the credit industry.

However, a credit provider is defined in s1 of the Act, in relevant part, as follows:

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.

The court had to determine first whether the sale agreement was indeed a credit agreement as defined in the Act. After considering the relevant provisions of the sale agreement the court held that the sale agreement was one that permits the purchasers to discharge the purchase price by way of monthly instalments over a lengthy period, as an alternative to the payment of cash on registration of title. The court found that this constituted a deferral of the payment of the purchase price. It is this deferral of payment that then attracts the concomitant obligation to pay interest, making the sale agreement a credit agreement and Mr Potgieter a credit provider in that he has advanced credit to the buyers under a credit agreement.

It was argued on behalf of Mr Potgieter that he was required to apply to be registered as a credit provider in terms of s40(1)(b) of the Act, it being common cause that the threshold prescribed in s40(1) was at the relevant time R500,000. The consequence of such failure is set out in s89(2) and s89(5) of the Act. There it is provided that a credit agreement is unlawful if at the time the agreement was made the credit provider was unregistered and the Act required that the credit provider be registered. If a credit agreement is unlawful then, so it was contended, a court must order that a credit agreement is void from the date the agreement was entered into.

The court considered recent cases, in particular a decision of the full bench of its division, and confirmed that at the heart of the issue to be decided was the correct interpretation of s40(1)(b) of the Act, which the full bench of the court reasoned by recourse to the purposes of the Act that s40(1)(b) does not refer to a single credit agreement, but is rather directed at those who participate in the credit market and that a once-off transaction cannot be seen to be participation in the credit market, as such an interpretation would be, so the full bench found, at odds with the purpose of the Act.

The court found that it is bound to follow the decision of the full bench and on this basis found that as there was a single credit transaction and Mr Potgieter was not engaged upon the business of providing credit in the credit market, s40(1)(b) is not directed to transactions of the kind concluded between Mr Potgieter and the defendants. Thus, so the court found, Mr Potgieter was not burdened by an obligation to apply to be registered as a credit provider.

Importantly however was the further remarks of the court in Potgieter when the court noted that had the full bench decisions not been binding on the court, it would have been disinclined to follow it as s40(1) imposes an obligation to apply to be registered as a credit provider where a person is a credit provider under at least 100 credit agreements or where the total principal debt owed to the credit provider under all outstanding credit agreements exceeds a prescribed amount, at the time R500,000. The court remarked that the legislature has thus set thresholds that trigger the obligation to register: first by reference to the number of agreements and secondly by reference to the quantum of the total principal debt. That the principal debt is expressed by reference to ‘outstanding credit agreements’ is not an indication that a single credit agreement is not implicated in the legislative language and the stress in s40(1)(b) is upon the quantum of the outstanding principal debt and not the origin of that debt in more than one agreement.

The uncertainty created by the judgment and the interpretation of the Act could be seen to have been resolved when the threshold to register as a credit provider in terms of the Act was amended with effect from 11 November 2016.

The position with effect from 11 November 2016 is that a person is required to register as a credit provider if the principal debt owed under all outstanding credit agreements, other than incidental credit agreements, exceeds R0.00. The Minister of Trade and Industry gazetted this amendment on 11 May 2016. This amendment does not eliminate all uncertainty, as it could be argued, applying the principles and reasoning in Potgieter, that it does not necessarily follow that the provider of a once-off credit transaction must register.

The amendment substantially widens the net of credit agreements to which the Act applies.