Imagine the scenario: a business associate asks you for a personal loan. You agree to the loan and to an interest rate of prime. Your associate agrees to repay the loan in a year’s time. But the time for repayment passes and you are not repaid. Your attorney writes to your associate demanding repayment and receives a letter back saying the loan does not need to be repaid because you are not a registered credit provider. Is he correct?
In legal-speak, the question is whether a credit agreement between a private lender and borrower is valid in terms of the National Credit Act (NCA).
It might be unimaginable to think that one would be required to be registered as a credit provider in terms of the NCA when lending money to a business associate or friend. However, this is what the Supreme Court of Appeal (SCA) found in Du Bruyn No & Others v Karsten in September 2018.
In the Du Bruyn case, an elderly couple purchased shares from Mr K (who was like a son to them) in their capacities as trustees of a trust. The purchase price was to be paid by way of a deposit and equal monthly instalments. Interest was payable. The Du Bruyns defaulted on their monthly instalments, were sued by Mr K, and raised the defence that the agreement was null and void due to the Du Bruyn’s non-registration as a credit provider in terms of the NCA. Mr K then hurriedly registered as a credit provider.
Mr K’s original action against the Du Bruyns in the High Court was successful, but the Du Bruyns appealed.
In the appeal the Du Bruyns contended that Mr K was required to have been registered as a credit provider at the time the agreement was concluded and that his subsequent registration did not remedy the situation. Mr K relied on two arguments. He first alleged that the transactions were not arms-length transactions (which would mean the NCA would not apply – note that the NCA would not apply if you lent your child money). Secondly, he alleged that the requirement to register as a credit provider was directed at participants in the credit market and not at private once-off transactions where credit had been provided.
The SCA held that in any instance when credit in terms of the NCA is advanced, the loan agreement will be invalid unless the lender is registered as a credit provider at the time the agreement was concluded. (Note that not all credit is granted in terms of the NCA.)
The impact of the abovementioned decision is far-reaching in that private individuals may well be discouraged from lending money on credit. The SCA accepted the situation was far from ideal and stated that the “imperfect solution is readily accepted, but is for the legislature to remedy, rather than for the courts to attempt to accommodate deficient drafting by attributing a meaning to [the NCA] that is not justified by the wording of the statute.”
Note however that although registration as a credit provider can be a time-consuming and costly exercise, it is possible for a private individual to register.
Contributor: Fallon Finnegan (Associate) (Litigation & Commercial Departments) (Johannesburg Office)
Tel: 011 7842634
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