“The requirement that credit providers must be registered allows for their control and regulation, especially in relation to their financial probity and integrity, thereby avoiding the unscrupulous exploitation of credit consumers by so-called fly-by-night operators and loan sharks.” (Extract from judgment below)A recent High Court case highlights once again the dangers of lending money, or granting credit, in contravention of our credit laws. By understanding the pitfalls associated with being an unregistered credit provider and of not complying with the National Credit Act (NCA), you can protect yourself from the potential legal and financial risks.
Close friends fall out, and the lender loses R1.5m
- The parties involved in this unhappy saga were previously close friends. An admitted but non-practicing advocate, who acted as a trustee of his friend’s personal trust, asked the friend (who had just sold his house) for a loan. The friend obliged with loans totalling R2.5m.
- To simplify a long and complicated factual history, disputes arose and a series of acknowledgments of debt (AODs) were signed to document the loan, the last AOD recording a settlement agreement/compromise.
- Over time, the borrower had made payments totaling just over R3m to the lender, the dispute went to arbitration, an arbitration award was made, and ultimately the lender sued his ex-friend in the High Court for a balance of R1,535,000.
- The Court, holding that the loan agreement and AODs were unlawful and invalid, dismissed the lender’s claim – which leaves him R1.5m out of pocket, plus costs and lost interest. That’s a very hard lesson that all would-be lenders should take careful note of.
How do you lose everything by not complying with the NCA?
In protecting consumers from incurring debt beyond their means, our National Credit Act (NCA) requires that, with only a few exceptions, “credit providers” (which would include anyone lending money or giving credit to a friend) must –- Register in terms of the NCA; and
- Conduct a “credit assessment” to confirm that the borrower is in a financial position to enter into the loan and repay it.
There are no longer any thresholds – all loans are at risk
Finally, note that no matter what you may read in the media to the contrary, there is no longer any R500,000 debt threshold – any loan of any amount falls into the net since 2016. And since 2014 even one-off loans are at risk (before that, the NCA applied only to providers with one hundred or more credit agreements). Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.© LawDotNews