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Consumers need to be made aware of recent drastic changes to the National Credit Act which may render even the tiniest of loans susceptible to the NCA registration requirements.
Previously, a person providing a loan to another which equaled or exceeded a threshold of R500 000, or who had provided at least 100 separate loans, or who had provided a number of loans which amounted to R500 000 in total had to register as a credit provider with the NCR. Because of this relatively high threshold, these provisions did not normally affect the average consumer, or even employers making small loans to their employees (although such loans may have been regarded as credit agreements, no registration would have been required).
Unfortunately, the DTI has recently gazetted a new regulation to the NCA which reduces the R500 000 threshold to nil. Yes, you heard us – nil! What this means is that any person lending any amount, no matter how small, to someone, will be required to register as a credit provider with the NCR unless the agreement is exempted. Failure to do so renders the entire loan agreement void.
A small measure of relief may be found in the fact that some transactions are exempted. This includes incidental credit agreements (agreements that are really only credit agreements because interest is charged); loans made to juristic persons (such as companies) with an asset value or turnover above a certain threshold; and, most significantly for the average consumer, agreements that are not made at arm’s length. These are agreements between family members or loans by shareholders to their company or agreements between persons who are not independent of each other and are not seeking the maximum advantage from the transaction.
It is especially this last exemption that employers, small businesses, or even just friends who are not related to each other, will need to rely on if they want to avoid having to register as credit providers. But the definition is fairly limited and uncertain. It is not clear what is meant by “independent” or “the utmost advantage.” This question has been posed especially by employers in the past – is a small loan to an employee a credit agreement (which under the new regulation would mean that registration is required)? Unfortunately this issue has not been definitively resolved. At best one can say with some certainty that an interest free loan to an employee is unlikely to be regarded as an arm’s length transaction. But once one adds interest to the mix, things become pretty murky pretty fast. There are a lot of opinions out there on this issue, and some commentators argue (quite convincingly) that as long as the interest rate is low (as in below prescribed rates such as the repo rate) and there are no penalty clauses or acceleration clauses, etc. (the type of clauses one would find in a normal loan agreement that help the creditor to enforce payment), the agreement would probably pass muster. But this is speculation. Solid, legally informed speculation, but speculation nonetheless.
So if you have loaned money to friends, employees or business relations in the past, it is crucial to revisit those agreements now in order to establish whether you will be required to register as a credit provider in terms of the new regulations.