Government Gazette ushers in new era for credit providers

Cape Town - A new ruling means that all credit providers who charge interest, no matter how small the principal amount, will have to register under the National Credit Act (NCA). 

Up to May 11, a person was required to register as a credit provider under the NCA only if the total principal debt owed to that party under all outstanding credit agreements was more than R500 000, or if they were the credit provider under at least 100 credit agreements.

However, the latest Government Gazette has now reduced that threshold to zero, meaning that all credit providers within the definitions of providing credit under the NCA will now have to be properly registered.

Lloyd Chater, partner in Bowman Gilfillan Africa Group's corporate department, comments: "Although up until now all credit providers who provided credit to a consumer were required to comply with certain provisions of the NCA by virtue of the fact that they were providing credit, not all such credit providers were required to register."

Chater points out that under the new ministerial prescription, the credit provider must register even if a loan of as little as R1 is given on credit (with more than R1 to be repaid).

"Failure to register will mean that the credit provider may only be able to recover the capital amount granted to the consumer, but not any interest or other fees charged to the consumer" - the result of a 2012 Constitutional Court ruling, explains Chater.

He added that all arms’ length credit agreements, including loans given by companies to their employees where a fee or interest is levied for such a loan, will require the credit provider to register. This entails paying a registration or annual renewal fee to the National Credit Regulator, as well as complying with "a number of onerous provisions under the act".

The new law kicks in on November 11 this year. Chater notes that applications to register must be made in good time to ensure that potential credit providers are fully compliant by this date.

The administrative effect of this change cannot be understated as it has ramifications - subject to certain express exclusions - for any party granting credit to any individual or corporate entity (unless such an entity has a turnover or asset value of over R1m, or if the credit agreement is for an amount of over R250 000), said Chater.

In addition, new measures in the Government Gazette in November last year are also set to affect all consumers who have credit such as home loans, vehicle finance or any other loans.

New rules announced by Minister of Trade and Industry Rob Davies set a standard of maximum calculated amounts which credit providers will not be allowed to exceed or abuse. The Department of Trade and Industry said these new maximum interest rates for all types of credit agreements will reduce the cost of credit for consumers.

However, industry experts have warned that the new measures may boost the loan shark industry. Wikus Olivier, debt management Expert at DebtSafe, said that despite the lowering of most limitation fees and rates, this could lead to reputable credit providers not approving loans as easily as in the past since it might not be profitable.

This situation could also prompt more desperate people to turn to loan sharks - a bad thing for consumers because of the extremely high interest rates these lenders charge, said Olivier.

READ: New credit fees, rates laws to hit consumers in 2016

The new ruling on credit providers is becoming even more relevant for consumers in the wake of steep petrol and food price hikes, with an economist warning that 94% of South African households are now at risk of a negative net income.

READ: Consumers reel as price hikes hit home

Standard Bank economist Zaakirah Ismail said households with a negative net income lack the means to cover their costs. To overcome this, they will either take out credit or take advantage of financial support from wealthy family members in the form of gifts or donations.

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