Can’t find our NCR number? Here’s why!

The National Credit Regulator (NCR) is a regulatory body put in place by the National Credit Act No. 34 of 2005 (The NCA) for credit transactions like loans. One of the main aims of the NCR is to promote the healthy provision and usage of credit and to regulate such transactions – thus all Credit Providers are obliged to register with the NCR and are subject to their provisions.

WHAT IS A CREDIT AGREEMENT?

A credit agreement refers to an agreement between a credit provider and a consumer, which can be a natural or juristic person, by which the credit provider supplies goods or services or lends money to the consumer. (https://nca.co.za/nca-explained)

According to the National Credit Act, the definition of a credit agreement can be applied to any of the following agreements or transactions:

  1. Pawn transactions
  2. Incidental credit agreements (e.g. Invoices with late payment penalties)
  3. Instalment agreements
  4. Secured loans
  5. Any other agreement on which payment is deferred and a charge or interest is applicable.

The examples above clearly depict what type of transactions are to be regulated by the NCR.

BRIDGING FINANCE IN ITS OWN UNIQUE CATEGORY

Bridging Finance, often confused with a credit agreement, involves the cession or sale of rights to certain proceeds. The cession or sale of rights has long been recognised and dealt with as a transaction in its own category. The difference between Bridging Finance and credit agreements, has however been noted and dealt with over a decade ago in various court cases.

In the case of Renier Nel Inc and Another vs Cash on Demand, the issue of whether property Bridging Finance ought to be regulated under the NCR is dealt with. The judge concluded that he sees ‘’little to no difference’’ between the cession of rights arising out of a delictual claim, and the cession of rights to proceeds arising out of a property sale.

The judge further reiterates why Bridging Finance in this case falls outside the ambit of the NCR:

“In each instance in the present case this much, however, is clear:

  1. The Applicant discounted commercial paper in the property market;
  2. The Applicant did not supply goods or services to the Seller;
  3. There is no agreement of mortgage or lease as between the Applicant and the Seller;
  4. The Applicant takes a well-calculated risk in parting with its money to the Seller but looks to the conveyancer (and no one else) for the recovery of the money with which it has parted as well as the ‘discounting fee’”

The legally recognised conclusion that the above judge came to, can certainly be extrapolated to Bridging Finance on Road Accident Fund claims, and the like.

In another similar case of Rodel Financial Services (Pty) Ltd vs Naidoo and Another it has also been concluded that Bridging Finance practised as the cession of rights, cannot fall under the regulation of the NCR as it is clearly distinguishable from a loan agreement.

The judge in the Rodel case, referenced the outcome of the Bridgeway Ltd v Markham in which the following argument was presented:

“The agreement in question was a discount sale and was different from a money-lending transaction or credit transaction. The reason for this is that in a money-lending transaction the borrower undertakes to pay an equal amount to the amount lent in instalments or periodically and the lender is compensated by levying interest. Mathopo J held that the undisputed facts revealed that the money was paid upfront when the agreement was concluded between the applicant and the respondent.”

OVER-INDEBTEDNESS

The overall goal of the National Credit Act is to guard against consumers becoming over-indebted and that is why each credit provider must complete an affordability assessment before credit is granted. Once a consumer becomes over-indebted s/he cannot provide for themselves financially and the burden of doing so will ultimately fall back to the state to do so. The state is already over-burdened in South Africa looking after its population and any additional burden should be avoided. With Bridging Finance over-indebtedness can never happen, since you are selling something that you already have or have a right to.

BRIDGING FINANCE OUTSIDE THE AMBIT OF THE NCR

Bridging Finance companies do not enter into any loan agreements, but make use of a sale agreement similar to that of purchasing a vehicle or anything else for that matter. In simple terms it can merely be seen as receiving money for something sold by you, in this case, future proceeds. The future value of the proceeds is discounted to a value today and there is either a fixed monthly discounting charge or a fixed price payable for the proceeds. The form that is used is usually dependant on both the financier and the client’s risk appetite.

Being registered with the NCR is a necessity for credit providers, but as seen above, Bridging Finance does not constitute a credit agreement and is therefore not subject to the regulations outlined in the NCA.

The Bridging Finance Association of South Africa (https://bfasa.org.za/) is an association that promotes the ethical & socially responsible conduct of its members.

WeBridge is a proud member of BFASA.