# Regulatory Compliance Category > National Credit Act Forum >  Then NCA nightmare!

## Xander

A company lent money to one of its employees to buy a house. The loan was for about half a million rand  and the mortgage loan agreement was concluded on 2 June 2006. A mortgage bond was registered by the employee over the property in favour of the company in 2006. The employee, recently dismissed, failed to comply with his obligations in terms of the loan agreement by failing to pay the monthly installments. The company is not a registered credit provider, despite having provided similar credit to a couple of other employees over the last few years. 

The following questions now arise:
(1) How is the NCA going to impact on this transaction come 1 June 2007? I have issued summons against the debtor and my priority is to obtain judgement before 1 June 2007 when section 89 of the NCA comes into operation.
(2) Am I misguided when advising my client that the transaction will be invalid and unenforceable after 1 June 2007? 
(3) Is the act in other words retrospective?

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## Eugene

While s89 is retrospective, it is only partly retrospective. One can argue that the particular instance which makes a credit agreement void (i.e. not being registered as a credit provider) was not a sanction present before 01 June 2007 and thus is not retrospective.

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## Eugene

_(2) Am I misguided when advising my client that the transaction will be invalid and unenforceable after 1 June 2007?_ 

I would say that you would still be able to recover the debt after the 01 June 2007 as the credit agreement was entered into before 01 June 2007 - thus before the new Act came into opertaion. 

If your client enters into any further credit agreements after 01 June 2007 and is still not registered then of course he/she/it would run a very real risk of not being able to recover their loan from the debtor as s89(5) indicates as he/she/it is not registered as a credit provider as required. (But see s89(4)(a) which gives you a 30 days grace period if your client does enter into a credit agreement after 01 June 2007 without being registered).

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## Eugene

If the Credit Provider is required to be registered in terms of s40 of the NCA when the loan is entered into and is not registered as a Credit Provider with the National Credit Regulator then the loan is unlawful and void (not voidable!). 

The consequences of this agreement being void are that a court MUST order that:

a) the credit agreement (loan) is void;
b) all instalments (with interest) must be repaid to the consumer (mortgagor); and
c) all the rights that the credit provider had to recover the loan are either cancelled, not cancelled or forfeited to the State. 

However there is an exception to this rule as contained in s89(4)(a), which allows that the agreement will not be unlawful if the Credit Provider applies to be a registered Credit Provider within 30 (presumably calendar) days after entering into the loan agreement.

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## RKS Computer Solutions

Nice to have the law in the forum  :Big Grin:   Can already see Eugene making a difference!

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## Xander

Thanks for the info , but I am still unclear as to the position after 1 June 2007.

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## duncan drennan

Is this not a case of immovable property, and therefore the NCA does not apply?

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## Eugene

Duncan,

The NCA excludes all leases of immovable property. The bond still falls under the ambit of the NCA.

Any attempt to collect any arrear rental connected to a lease of immovable property would be outside of the ambit of the NCA.

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## Eugene

Xander, the situation after June 2007: I do not consider that the credit agreement that your client entered into is likely to be affected by section 89. In my opinion the credit agreement would need to be entered into after 01 June 2007 for section 89 to be an obstacle to you. 

With regards to further collection on this matter consider section 129, which provides that a letter of demand must be sent and must contain a reference to the rights of the consumer or else you can't send out a summons. Since you have already issued the summons before 01 June 2007, I do not consider that this would be pertinent to you, but I would caution you that if you haven't issued a summons before 01 June 2007 then you will be required to comply with section 129 irrespective of whether the credit agreement was entered into before 01 June 2007 (i.e. section 129 applies retrospectively to debt collection for credit agreements entered into before 01 June 2007 where you attempt to recover the debt after 01 June 2007).

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## duncan drennan

> The NCA excludes all leases of immovable property. The bond still falls under the ambit of the NCA.


Ahh, thanks  :Embarrassment:

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## Xander

Thanks!

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## Dave A

Hopefully not a spoke in any wheels, but I vaguely recall that credit providers were required to register as such about a year ago...

I think this forum format could be a real boon for legal folk testing their arguments. Is there anything like that available out there? I could always make up an area if needed, complete with a custom level of privacy if required.

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## Eugene

To further Xander's enquiry and to answer Dave's question: The responsibility to register as a credit provider came into operation 40 business days after 01 June 2006 (about 27th July). In terms of the transitional provisions of the NCA (see schedule 3), sections 89 and 90 only apply to the extent that the common law/national law applied beforehand. Thus the question is:

"Was a credit provider obliged to register as a credit provider in terms of the Credit Agreements Act or Usury Act before 01 June 2007, failing which any loan he entered into would be deemed to be void?"

To the best of my knowledge the answer is "no". Thus, because the loans were entered into at a time when that sanction did not apply elsewhere in law (such as in the Usury Act or Credit Agreements Act), one should be fine. The question does raise some concern because the other possibility - that all credit agreements entered into by an unregistered credit provider between 27th July and now would be void - was so alarming that we couldn't believe that result was possible. 

In this particular case, the fact that the credit agreement was entered into in June (i.e. before the deadline expired - the client's need to register as a credit provider (in terms of the transitional provisions - see Schedule 3 section 2)) would be a further defence against a claim that the contract was void.

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## Graeme

My limited understanding of the law which governs business in Islam is that the charging of interest is forbidden.   They get Ã¢â¬Ëround this by adding an amount up-front in lieu so that the interest consideration is part of the price.  After that it is simply a case of the payment of a debt, albeit with maybe some delay before paying.  Just guessing, but perhaps a discount is given if payment is made promptly?

If IÃ¢â¬â¢ve got it right, then does this not avoid the provisions of the National Credit Act?  Is doing it this way not regarded as the granting of credit?  I guess the legislators must have thought of that, but how then would a straight cash transaction across the counter differ from a later payment?

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## Eugene

Graeme,
Credit is defined in the NCA as:

_“credit”, when used as a noun, means-
(a) a deferral of payment of money owed to a person, or a promise to defer such a payment; or
(b) a promise to advance or pay money to or at the direction of another person;_

Interesting point of the Islam custom - but is this not what is going to happen in the near future with all credit agreements? The prices that retailers (such as clothing shops and furniture stores) can charge are not regulated. Surely they will increase their prices to make provision for defaulting debtors not paying on time.  Bottom line: although the new Act looks good on paper, the cost of credit will increase.

A straight cash transaction OTC and one that defers payment upon invoice(30 days) will be regarded the same IF the agreemenst does not fall under the ambit of the NCA and if you do not levy a fee, charge or interest.

Firstly establish if the agreement is governed by the NCA and if it is considered an instalment agreement. The definition is:

_“instalment agreement” means a sale of movable property in terms of which-
(a) all or part of the price is deferred and is to be paid by periodic payments;
(b) possession and use of the property is transferred to the consumer;
(c) ownership of the property either-
(i) passes to the consumer only when the agreement is fully complied with;
or
(ii) passes to the consumer immediately subject to a right of the credit
provider to re-possess the property if the consumer fails to satisfy all of
the consumer’s financial obligations under the agreement; and
(d) interest, fees or other charges are payable to the credit provider in respect of the agreement, or the amount that has been deferred;_

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## Dave A

I think these are what is described in the Act as _discount transactions_.

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## Eugene

Further to the above post: if an agreement is an instalment sale agreement and discount is offered for early payment, it would be considered a discount transaction as defined:

_“discount transaction” means an agreement, irrespective of its form, in terms of
(a) goods or services are to be provided to a consumer over a period of time; and
(b) more than one price is quoted for the goods or service, the lower price being applicable if the account is paid on or before a determined date, and a higher price or prices being applicable if the price is paid after that date, or is paid periodically during the period;_

In the above instance the credit provider would be registered as such and the full NCA would be applicable. Again, I think the first thing would be to establish if you are really extending credit as contemplated in the Act, if the agreement is considered a credit transaction and if the NCA is applicable.

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## Eugene

Dave, correct. But is will only be regarded as a discount transaction if it falls under the NCA. If I have a little cooka-shop and someone buys from me and offer to pay at a later stage (I am not registered as a credit provider nor charge a fee or levy or charge on overdue accounts) then it can not be regarded as a credit transaction under the NCA.

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## Dave A

Eugene - that's where I'm actually a little troubled.

The inclusion of discount transactions was probably intended to cover financing as facilitated under Islamic law, but the definition of a discount transaction seems to extend beyond this to (possibly) COD discounts.

Once you are in this territory, it then becomes a threshold issue - and there are lots of businesses who don't consider themselves as financial institutions or money lenders, but are going to be classified as such by those thresholds.

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## Eugene

Let's look at some Q & A's I got (can't remember where) which might be useful - it mainly deals with money lending transactions:

*Q.* Is a person who lends more than R500 000 required to register as a Credit Provider? 

*A.* Yes. Section 40(1)(a) of the NCA requires a person/entity to register as a credit provider if the person/entity has 100 or more credit agreements (loans) or (section 40(1)(b)) the total value of all the loans exceeds R500 000. 


*Q.* What happens if a person lends more than R500 000 in a loan but isn't registered as a credit provider? 

*A.* Section 89 of the NCA and section 40(4) of the NCA make it completely clear that a credit agreement (loan) entered into by a credit provider who should have been registered with the National Credit Regulator is void. 


*Q.* How can the Credit Provider rectify the problem if he is not registered when granting a loan? 

*A.* If the Credit Provider is required to be registered in terms of s40 of the NCA when the loan is entered into and is not registered as a Credit Provider with the National Credit Regulator then the loan is unlawful and void There is an exception which allows that the agreement will not be unlawful if the Credit Provider applies to be a registered Credit Provider within 30  days after entering into the loan agreement. (s89(4)(a))


*Q.* If the loan is granted two years ago and the duration is a ten-year term, must the Credit provider still register? 

*A.* Yes, provided the total amount of the loan exceeds R500 000. The duty to register as a Credit Provider in terms of this example would have arisen 40 working days after the implementation date of s40 which was 01 June 2006 (in terms of s2 of Schedule 3 of the NCA). Thus in this example the Credit Provider needed to apply to be a registered Credit Provider by 27th July 2006. 


*Q.* Are Micro lenders exempt if they have 99 agreements which in total amount to less than R500 000? 

*A.* Yes and no. Yes they are exempt from registering as Credit Providers. No they aren't exempt from complying with the many provisions of the NCA as they are still Credit Providers in terms of the NCA - they simply don't need to register as Credit Providers.

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## Eugene

> The inclusion of discount transactions was probably intended to cover financing as facilitated under Islamic law, but the definition of a discount transaction seems to extend beyond this to (possibly) COD discounts.
> 
> Once you are in this territory, it then becomes a threshold issue - and there are lots of businesses who don't consider themselves as financial institutions or money lenders, but are going to be classified as such by those thresholds.



Very true Dave - this point also came up at one of the workshops I attended. There are no clearcut guidelines and I believe that this might be one of the first issues to be considered in a Court and a declatory order issued as it affects many small business owners.

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## duncan drennan

Question: If there is this threshold of 100 agreements, and R500000....does that mean that a business who is providing credit (with no interest, etc.) and has more than 100 clients (or total amounts due over R500k) would still need to register as a credit provider?

Is this affected by who their clients are, e.g. if the client asset value is greater than R1mil? Or is it a flat issue, regardless of the make up of the clients?

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## Dave A

There's nothing to indicate that the threshold count is affected by the profile of the debtors as far as I can tell.

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## Eugene

Quite correct.

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