CREDIT ACT WILL AFFECT LENDING BY EMPLOYERS

To all the SMME's out there with big hearts, who lend employees money all the time, be careful that you don't land yourself in the brown smelly stuff. Rather give them a salary advance.

Credit act will affect lending by employers

May 9, 2007

Johannesburg - Employers who made loans to employees would face penalties if they did not comply with the National Credit Act, a corporate law firm said yesterday. Webber Wentzel Bowens senior associate Helyn Patten said employers who signed credit agreements with 100 or more employees or lent staff more than R500 000 would face a fine or imprisonment if they did not register as credit providers to satisfy the criteria of the new act. Under the act, Patten said, employee loans would be classified as credit agreements if there was a deferral of payment and a fee, charge or interest levied on the deferred amount. "The National Credit Act applies to every credit agreement between parties dealing at arm's length and made within, or having an effect within, South Africa, subject to a number of exclusions," Patten said.

"It could be argued that employee loans are credit agreements between parties not dealing at arm's length." However, she said, the national credit regulator considered employee loans to fall within the ambit of the act. The correct interpretation would have to be determined by the courts in due course. Patten said employers had to register as credit providers if they, alone or in conjunction with any associated person, were credit providers under at least 100 employee loans, or if the total principal debt owed under all outstanding staff loans exceeded R500 000.

Patten said employers who satisfied these two criteria at June 1 last year, the effective date of the National Credit Act, and had failed to register as credit providers by July 28 2006, could still provide loans, but they would run the risk of being issued with a notice by the national credit regulator requiring them to register as credit providers. "In addition, the employer may incur a penalty" imposed by the regulator, Patten said. "It is an offence not to comply with such a notice and an employer may be subject to a fine or to imprisonment not exceeding 12 months, or both." She said staff loans concluded after June 1 2007 might be declared unlawful by the courts if an employer was required to register as a credit provider and had not done so.

Unlawful employee loans were void from the date entered into and the employer must refund any money it had received from the employee, with interest calculated in accordance with the National Credit Act. "Employers who don't fall into either of the above two categories, and therefore don't need to register as credit providers, must still comply with the provisions of the act to the extent that it applies to the employee loans," she said.