In today’s economic climate, it seems to be a more common occurrence than ever before for loans between family and friends. People seem to borrow money from friends and family for anything from starting their own small business, to buying a property or to pay off debts.
Few lenders however realise that by lending money albeit “casually”, you yourself may have become a credit provider. Therefore, the uncertainty about whether and when a person is obliged to register as a credit provider was clarified in the judgment in Van Heerden v Nolte.
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.
Since the amendment Act has into effect, the provision relating to the number of agreements has been removed. Thus, registration is now only based on the amount credit so extended. This means, many people and businesses previously unregistered should now reconsider their position.
The consequences of extending credit when not registered as a credit provider are set out in section 89 (5) (c) of the Act. 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.
