There are questions often asked about Credit Providers and compliance. Some of these include “What is a Credit Provider?” and “Who can apply for a Credit Provider licence?”. In this article we look at some of these frequently asked questions.
The National Credit Act (“the Act”) states that a person will be in contravention of the Act if any person who is required to be registered as a credit provider, but who is not registered, offers, makes available or extends credit, enters into a credit agreement, or agrees to do any of the above. According to the case of Du Bruyn NO and Others versus Karstens 2019 (1) SA 403 (SCA): “… the requirement to register as a credit provider applies to all credit agreements once the prescribed threshold is reached, irrespective of whether the credit provider is involved in the credit industry and irrespective of whether the credit agreement is a once-off transaction.”
However, before applying for a credit provider licence, it is important to take time to understand the requirements. This will ensure that the right documentation and application process is followed. It is also important that you keep up to date with any recent developments, or news in relation to credit providers – this will also assist with ongoing compliance. When applying for a credit provider licence to the National Credit Regulator (NCR), applicants will be required to complete the prescribed forms as part of the application process.
Guidance has been set out below on some of the most frequently asked questions in relation to credit provider licence applications.
Q: Who must register as a Credit Provider?
A: Any person who executes or participates in the following credit transactions must follow the application process to register as a credit provider:
- A person who supplies goods and services under a discount transaction or an installment sale agreement e.g. Where the client engages in a transaction with a goods supplier, from whom they want to purchase for example a microwave oven and the microwave oven is being paid in full over an extended period.
- A person who advances money and or credit under a pawn transaction, e.g. When credit is provided to a person against a valuable item such as a high-value watch or motor vehicle.
- Any person who extends credit under a credit facility, in terms of a bank or similar credit facility, a mortgage agreement or a lessor under a lease, like a house or building loan, a lender under a secured loan where the amount is made available to the borrower is usually based on the value of the collateral.
- In a situation where a promise or assurance is made for credit under a certain agreement. This also includes a transaction where a person advances money or credit to another in terms of a credit agreement. The person will need to have the necessary rights of a credit provider to comply with the Act.
- A juristic person with assets and/ or an annual turnover of less than R1 Million and where the transaction size is less than R250 000 or a natural person (Sole Proprietor) may follow the application process to register as a credit provider in terms of the Act.
Q: When does the National Credit Act not apply?
A: The Act does not apply to the following:
- Where the consumer is a Juristic Person with asset value or annual turnover of more than R1 Million;
- If the consumer forms part of the state or an organ of the state;
- When the creditor is the Reserve Bank.
- Section 8(2) of the Act excludes immovable property, Stokvel Agreements, Insurance Policies and Leases from the limits of the Act.
Q: What is an Incidental Credit Agreement?
A: According to the definition in Section 1 of the Act, incidental credit agreement is defined as:
“…an agreement, irrespective of its form, in terms of which an account was tendered for goods or services that have been provided to the consumer, or goods or services that are to be provided to a consumer over a period of time, and either or both of the following conditions apply:
(a) a fee, charge or interest became payable when payment of an amount charged in terms of that account was not made on or before a determined period or date; or
(b) two prices were quoted for settlement of the account, the lower price being applicable if the account is paid on or before a determined date, and the higher price being applicable due to the account not having been paid by that date;”
This type of transaction is not established to benefit the supplier with interest or deferred payment charges, but for commercial convenience. An example is when services or goods are taken in common practice, and the client is allowed to pay the amount in 30 days from the day of the statement. It will happen that sometimes some of your customers will not pay in the required time that was agreed on. Some motivational approaches will need to be used for example interest to be charged on overdue accounts or maybe an “early settlement discount” when the client pays off the amount before the due date.
Q: What documents and information are required for the application?
A: As this is a formal application for licensing, there are prescribed forms that need to be completed as well as supplementary documents. These include-
- A fully completed and signed application Form 2;
- Proof of Companies and Intellectual Property Commission (CIPC) registration document;
- Copy of the share certificate(s) if the applicant is a company;
- The following information is requested from each member/ directors/ shareholders/ trustees/ partners/ sole proprietors:
- Part 7 of Form 2 (disqualification of natural person form);
- Criminal clearance certificate not older than six (6) months). Criminal Clearance Certificates are issued by the South African Police Services (SAPS) or other service provider (eg. MIE, Huru, IPAC, LPS, etc).
- Certified copies of ID/Passports
- Resolution– If the applicant is a juristic person. This needs to be signed by each member/ director/ shareholder/ trustee/ partner that confirms that they have the necessary rights to sign off on any document regarding the entity that is applying as the Credit Provider.
An applicant must also submit-
- A signed and stamped letter from the bank confirming the applicant’s banking details or a copy of a cancelled blank cheque or a stamped bank statement not older than six (6) months;
- Proof of registration with the South African Revenue Services (SARS);
- Proof of payment of the registration fees and Annexure A: Confirmation of Payment of Fees
Q: What fees are involved when applying for a Credit Provider licence with the NCR?
A: There are 9 sub-categories, and you need to establish which category your application falls into in order to correctly determine appliable fees. An applicant must prepare for and make payment of the following:
- Non-refundable application fee of R550;
- A Branch fee of R250 per location or premises at or from which the applicant conducts registered activities;
- The initial registration fee is indicated in the table for each sub-category of the applicant.
Q: What is the effect or impact of failing to register as a Credit Provider?
A: When a person or entity is not registered with the NCR and where credit is provided within the ambit of the Act, the capital and interest of that credit agreement will be at risk.
In addition, the Act states:
- Section 40 (3): “A person who is required in terms of subsection (1) to be registered as a credit provider, but who is not so registered, must not offer, make available or extend credit, enter into a credit agreement or agree to do any of those things.”
- Section 40(4): “A credit agreement entered into by a credit provider who is required to be registered in terms of subsection (1) but who is not so registered is an unlawful agreement and void to the extent provided for in section 89.”
Q: Once the licence is issued, are there any further requirements?
A: After the licence is issued, the credit provider must comply with the Act, this entails monitoring and reporting obligations. The Credit Provider Compliance Department at the NCR is responsible to monitor credit providers and the credit industry to detect and prevent non-compliance with the Act.
Some of the requirements for prescribed statutory reporting include:
- Statistical Returns (NCR Form 39)
- Compliance Report
- Annual Financial Statements
- Annual Financial and Operational Return
- Assurance Engagement Reports Audited or Unaudited
- Language Policy Review
Before applying for a Credit Provider licence, it is important to take time to understand the requirements and the impact of what such a licence entails as well as whether this is suitable for your business model.
Masthead can assist you with registering for an NCR licence. Please contact your nearest Masthead regional office or compliance officer to find out more.