Lending to a Friend or Selling Property on Credit - Must You Register as a Credit Provider?
“Neither a borrower nor a lender be
For loan oft loses both itself and friend” (Shakespeare)
It seems logical that the very strong consumer protections in the NCA (National Credit Act) are designed for commercial situations in which credit is advanced by “credit provider” businesses to “credit consumers”. But does the NCA also apply to non-commercial, once-off loans? Like a loan to a friend or relative? And what about property sales?
Why should you be worried?
If you aren’t in the business of providing credit it seems counter-intuitive that you should have to worry about NCA registration when making a single loan or giving credit on a once-off basis. And in fact until now our various High Courts have been split over the question. But that has all changed with a recent Supreme Court of Appeal (SCA) decision of Du Bruyn NO and Others v Karsten (929/2017)  ZASCA 143, and your danger is this – if you should have registered as a credit provider but didn’t, your agreement is unlawful and could be declared void. You might have to write off your whole loan.
A “family” fall out and a R2m “time to pay” share purchase deal
What is excluded from the registration requirement?
So are you at risk? Firstly, the NCA has many general exclusions and situations of limited application, such as to “incidental” credit agreements, interest-free loans, larger corporates and agreements (thresholds apply - take advice for details).
Secondly, the NCA only applies if you are “dealing at arm’s length”. What does that mean in practice?
Outside those specific exclusions, deciding whether or not a court will consider you to be “at arm’s length” is always going to involve grey areas.
Sale of property with deferred payments
There’s particular danger here for the increasing number of property sellers who, in order to attract cash-strapped buyers in these tough times, are agreeing to sell their properties on a deferred payment or instalment sale basis rather than the standard “pay in full against transfer” basis. Watch out also for a normal “pay in full” deal morphing into a “pay me the rest later” sale when the buyer can only get a bank loan for part of the total price.
If either of those scenarios apply, your sale may have to comply with both the NCA’s obligation to register as a credit provider and with the strict requirements of the Alienation of Land Act. Specific legal advice is essential before you agree to any form of “deferred payment” property sale.
The bottom line
Unless and until the NCA is amended to make it clearer, less confusing and more pragmatic, tread very carefully in lending money or giving credit – in relation to a property sale or otherwise - to anyone. Even family and friends.
Ask your lawyer for advice on your specific circumstances – do you fall into one of the exceptions or must you register as a credit provider? If you do need to register, prepare for lots of red tape and delay!
NOTES: The judgment in Du Bruyn NO and Others v Karsten (929/2017)  ZASCA 143 is on SAFLII. Note that the facts of the matter have been somewhat simplified in the article. Also that references in the judgment to a R500,000 debt threshold no longer apply – the threshold was reduced to nil in 2016 (the original “100 credit agreements” requirement fell away in 2014). It is not apparent from the judgment whether the Court had regard to s.89(4) of the NCA which provides that an agreement is not unlawful if “… at the time the credit agreement was made, or within 30 days after that time, the credit provider had applied for registration in terms of section 40” – on the face of it relevant to this case since the businessman had applied for registration prior to the credit agreements being concluded.
Download the National Credit Act, Act 34 of 2005, from the University of Pretoria’s “Laws of South Africa” website – find it under “Debtor-Creditor”. Note the discretion given to courts in s.89(5) by a 2014 amendment to the Act.
“Application for Registration” forms are downloadable from the National Credit Regulator’s website here.
Download the Alienation of Land Act, Act 68 of 1981, from the University of Pretoria’s “Laws of South Africa” website – find it under “Land”. In the interests of simplicity the article does not discuss the implications of the definition of “contract” in section 1(1).
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I have difficulty understanding this judgement. In terms of Sec 89(4) of the Act an agreement is not unlawful if "at the time the credit agreement was made, or within 30 days thereafter the credit provider had applied for registration in terms of section 40 and was awaiting a determination of that application". The agreement of sale was concluded on 26th April 2013 and the seller had already applied for registration on 22 October 2012 - well before the date of conclusion of the sale agreement.
Why did Section 89(4) not apply in this case. It is not even mentioned. Does the fact that the application for registration was only granted on 27 November 2013 - about 6 months after the date of sale - make any difference. Am I missing something? Or could it be that the legal representatives on both side and the judges concerned were ignorant of Section 89(4)?