In many instances people borrow money from friends and families to start a business or buy a small property. In few instances do these people truly consider or realise the repercussions.

The uncertainty about whether and when a person is obliged to register as a credit provider was clarified in the recent judgment in Van Heerden v Nolte (19428/11) [2014] ZAGPPHC 12; 2014 (4) SA 584 (GP) (28 January 2014)  earlier this year.

Section 40 (1) of the National Credit Act sets out the circumstances under which a person is obliged to register as a credit provider. It states that a person must apply to be registered as a credit provider if that person has at least one hundred (100) credit agreements, other than incidental credit agreements, or if the total principal debt owed to that credit provider is R500 000 or more.

In the Van Heerden case, Murphy J found that section 40 (1) is clear in that a person must register as a credit provider if one or both of the aforementioned scenarios or subsections are applicable.

When the National Credit Amendment Act comes into operation, it would seem that the number of credit agreements entered into would become irrelevant and that only the sum total will be a yardstick.
In the van Heerden case the plaintiff (Nolte) bought immovable property from the defendant (van Heerden), paid the purchase price and took occupation. It subsequently became apparent that the defendant was unable to transfer the property to the plaintiff, because it has been unlawfully transferred to a close corporation and was subject to a mortgage bond in favour of a financial institution. To overcome this obstacle the parties entered into three oral agreements in terms whereof the plaintiff advanced the necessary amounts for the property to be transferred in his name. It was agreed that the defendant will refund these amounts to the plaintiff with interest. When the defendant failed to pay, the plaintiff instituted action against the defendant claiming these amounts.

In addition, the defendant excepted to the plaintiff’s particulars of claim on the basis that it did not comply with the National Credit Act and specifically that he had not registered as a credit provider in terms of the National Credit Act.

In addition, importantly the consequences of extending credit when not registered as a credit provider are set out in section 89 (5) (c). This section provides that the credit provider’s right to recover any money or goods delivered to the consumer will be cancelled or terminated as such where the creditor was not duly registered as a credit provider.

This means that a creditor will still have a claim based on unjustified enrichment, but no claim in terms of the National Credit Act. Practically this may result in a delay in the conclusion of the matter and as such the costs in instituting the claim.

As such it is of the utmost importance that lenders ensure that they are duly registered as a Credit Provider if needs be.

Written by Nicolene Schoeman-Louw of Schoeman Tshaka Attorneys