4.72.00 -Regulation 39(2) Compliance

August 2024

As part of our commitment to you and your business, we believe it prudent to share with you any legislative or regulatory changes or potential compliance issues as we become of them.

It is with the above in mind that we would like to urge all our clients to review the configuration of their short term transaction products.

Regulation 39(2) of the NCA defines a “short term credit transaction” to refer to a “… deferred amount at the inception of the agreement not exceeding R8 000

With the recent 2020 judgment in the matter of the Micro Finance South Africa & One Other vs National Credit Regulator & Others (“MFSA judgment”) clarity was provided that where the consumer cannot pay the initiation fee upfront, it may form part of the deferred amount upon which interest is calculated.

Therefore, in light of the above, credit providers who enter into short-term credit transactions, should ensure that the total of the principal debt and the initiation fee deferred at the inception of the credit agreement, does not exceed R8 000. If a credit provider is registered for VAT and the initiation fees accrues VAT, this should also be taken into consideration.

We therefore, recommend that short-term credit providers who are not registered of VAT do not enter into loan agreements where the principal debt exceeds R7 213.64, in which case the initiation fee will be R786,36 (VAT excluded) (total deferred amount is R8 000) and for short-term credit providers that are registered for VAT do not enter into loan agreements where the principal debt exceeds R7 107.85, in which the initiation fee will be R892.15 (VAT inclusive) (total deferred amount is R8 000).

For more information, read the article below :

Two important issues on short-term credit transactions clarified by the courtsMoonstone Information Refinery