Who must register as a credit provider?
The NCA requires a person to register as a credit provider if the total principal debt owed to that credit provider under all outstanding credit agreements, other than incidental credit agreements, exceed the threshold determined by the Minister (currently R 0 (nil)). Therefore, requiring all credit providers (irrespective of the debt amount) to register as credit providers with the National Credit Regulator (NCR). Failure to register as a credit provider could result in the credit agreement being declared unlawful and consequently void.
A recent judgment handed down on the 1st of April 2019 by the Supreme Court of Appeal (SCA) in the matter, Ratlou v Man Financial Services finally provided some much-needed clarity surrounding the applicability of the National Credit Act to certain settlement agreements.
What is a credit agreement?
A credit agreement is an agreement that provides for a deferral or delay of payment by one person to another, and a fee or interest is charged for the deferred payment.
Does a settlement agreement/acknowledgment of debt constitute a ‘credit agreement’ as defined in the NCA?
Since the enactment of the National Credit Act in 2005 (“the Act”), there has been grave uncertainty and varying decisions surrounding whether or not settlement agreements and/or acknowledgements of debt constitute “credit agreements” as envisaged by the Act, requiring a creditor to register as a credit provider.
In Ratlou, the SCA held that if the underlying contract giving rise to the settlement agreement is not governed by the Act, the settlement agreement itself falls outside the ambit of the Act. In such an instance, the settlement agreement cannot logically be converted into a credit agreement requiring the credit provider to register with NCR.
The SCA argued that if one was to base their answer on a literal interpretation of Section 8(4)(f) of the Act, a settlement agreement would meet the definition of a credit transaction. However, this result would be so absurd that it could not have been the intention of the legislature.
The SCA therefore adopted a purposive approach and held that labelling all settlement agreements to be credit agreements would have a devastating effect on a party’s willingness to settle disputes outside of the arena of the courts, thereby curtailing litigation. Creditors would be forced to institute legal action in instances where a settlement could have been reached, if it was not for the creditor’s legal obligation to registered as a credit provider.
Examples of underlying causes of action not governed by the Act include incidental credit agreements, delicts, immovable property leases and movable property rental agreements.
Additional agreements expressly excluded from the ambits of the NCA include agreements with juristic persons whose asset value or annual turnover at the time of the agreement, equals or exceeds the threshold value determined by the Minister (currently 1 million rand) and certain ‘large agreements’ with juristic persons that do not meet the aforementioned threshold.
Conclusion
It is however vital to note that there has been devastating and harsh consequences for non-complaint creditors who institute legal action against debtors on the basis of an agreement that is in fact governed by the Act.
It is therefore imperative that a creditor consult with a knowledgeable professional before entering into an agreement with a debtor that may constitute a credit agreement.