The lender was not registered as a credit provider and was charging interest at 20% per month.
Here’s a case of a loan that ballooned from R500 000 to R1.93 million in just seven months, with interest on arrears charged at 20% monthly.
Great business if you can get away with it. Fortunately for the borrower, Phek Engineering and Suppliers, the Mafikeng High Court in North West Province was having none of it.
The court dismissed the lender Baletsema of Johannesburg’s application to recover the loan after finding that it was not registered as a credit provider under the National Credit Act (NCA).
The loan agreement was signed on 16 January 2023, with Phek’s sole member, Motlhopesi Phekola, signing as surety and offering seven vehicles and a farm as collateral.
The loan was for R500 000, with R100 000 repayable a month later and R600 000 less than two months later.
On this basis, Baletsema would make a R200 000 return on the loan in less than two months.
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The respondents missed the repayment deadlines, resulting in Phekola signing a R1.2 million acknowledgement of debt in early April 2023. The debt had to be paid on or before 31 May 2023. Failure to pay meant the outstanding loan amount would thereafter attract interest at 20% a month.
When the payment deadlines were missed, lawyers were brought in, dispatching letters of demand on 6 April 2023 and again on 6 August, by which time the certificate of balance reflected an amount of R1.93 million.
In October 2023, Baletsema took the matter to court. Phekola filed an answering affidavit arguing that the acknowledgement of debt was a credit agreement under the NCA and that the size of the loan amount meant the lender should have registered as a credit provider. On this basis, the acknowledgement of debt was unlawful.
Phekola further argued that the lender failed to conduct an affordability assessment, as required by the NCA.
The borrower also raised the in duplum (‘double’) rule, a common law principle that says the interest on a loan stops running when the unpaid interest equals the outstanding capital.
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Baletsema argued that it did not have to register as a credit provider under the NCA because the borrower was a juristic person (an organisation rather than a natural person) with a turnover and assets in excess of R1 million.
Acting Judge Winnie Malane of the Mafikeng High Court disagreed, ruling that the acknowledgement of debt established a credit agreement between the lender and borrower.
“In terms of the NCA, a credit agreement is unlawful if, when it was concluded, the credit provider was unregistered. The requirement to register as a credit provider is applicable to all credit agreements once the prescribed threshold is reached,” reads the judgment.
The court found that the acknowledgement of debt signed by Phekola fell under the NCA and was therefore unlawful and must be treated as void.
It thus dismissed the lender’s attempts to use the court to compel its debt payment.
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It remains to be seen if this ruling is appealed because the original acknowledgement of debt was (arguably) not subject to the NCA, and whether the lender was obliged to register as a credit provider. Consumer legal advisor Leonard Benjamin says there might also be grounds to appeal on the basis that the NCA does not apply in this case as it is a ‘large agreement’ – more than R250 000, even when the borrower is a juristic person with a turnover of less than R1 million.
“However, the in duplum defence certainly seems to be viable,” says Benjamin. “I also think that the interest being levied is so usurious that it offends against public policy.”
This article was republished from Moneyweb. Read the original here.
