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NCA and commission earners – What is the impact if credit is extended under lockdown?

Since the outbreak of Covid-19, we as South Africans have been faced with extraordinary circumstances, challenging each one of us to think differently in respect of how we conduct business, how we integrate socially, and very importantly, how we manage our finances.

People only earning commission, based on services and products sold to the public, are especially impacted during the lockdown. Many of these individuals are dependent on face-to-face interactions with clients in order to sell their services and products. They also may not qualify for financial relief through the Unemployment Insurance Fund (UIF) or other relief schemes.

These commission earners, such as insurance brokers, may very likely turn to the Insurers for assistance in the form of credit, until such time as they are able to fully resume work and earn a sustainable commission income again.

Persons who find themselves in this category must take specific note that such loans, or extension of credit, albeit to commission-earning individuals whom they have a working relationship with, may possibly fall under the ambit of the National Credit Act 34 of 2005 (“NCA”). This means that such persons must be registered as a credit provider with the National Credit Regulator (“NCR”) in order to legally provide relief to the commission earners in the form of credit.

In this regard, please take note of the following:

1. No threshold

The NCA provides that a person must apply to be registered as a credit provider if the total principal debt owed to that credit provider under all outstanding credit agreements, exceeds the threshold prescribed by the NCA. The current threshold is R0.00, meaning that if a person provides credit to consumers, such a person must register with the NCR.

2. Credit transactions falling under the ambit of the NCA

A person only needs to register as a credit provider if the transaction entered into falls within the definition of a credit transaction as defined in terms of the NCA. It is important to note that any other agreement (other than a credit facility or credit guarantee) in terms of which payment of an amount owed by one person to another is deferred, and any charge, fee or interest is payable to the credit provider, in respect of the agreement or the amount that has been deferred, is regarded as a credit transaction for purposes of the NCA. There are exceptions, such as large agreements (above R250 000) entered into with juristic consumers.

3. Unlawful credit agreements

If a person enters into a credit transaction with a consumer or employee, which falls under the ambit of the NCA, and such person is not registered as a credit provider, such credit transaction may be deemed unlawful in terms of the NCA. However, the NCA further makes provision that such credit transaction will not be unlawful, if at the time the credit agreement was made, or within 30 days after that time, the credit provider had applied for registration and was awaiting determination of that application.

Should you require any further assistance with your registration as a credit provider, or require any further advisory services in respect of whether you should register, please contact our NCA department on the following details, for further assistance: nca@moonstonecompliance.co.za.

Insurers wishing to offer credit or loans to their financial advisers must ensure that they do so in a way that does not violate the NCA.

The FSCA also recently stated that “to minimise the potential unintended consequences for policyholders who choose to make use of the premium relief as well as the impact of premium relief on commission income of intermediaries, the FSCA is exempting insurers that will be granting premium relief to policyholders from the aforementioned requirements contained in the Regulations under the Acts, subject to certain conditions.”

In response, the FSCA published two general exemptions to provide context to the intention behind the exemptions.

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