What constitutes a sufficient trigger for the National Credit Regulator to initiate complaints into alleged contraventions of the National Credit Act?

November 1st, 2022
National Credit Regulator v Dacqup Finances CC t/a ABC Financial Services – Pinetown and Another (SCA) (unreported case no 382/21, 24-6-2022) (Nicholls JA (Makgoka and Gorven JJA and Phatshoane and Savage AJJA concurring))

By Marcus Zulu

The National Credit Regulator (the Regulator) was established in terms of s 12 of the National Credit Act 34 of 2005 (the Act) as an impartial and independent juristic person, which bears the responsibility to promote and support a fair and accessible credit market that caters for the needs of the most vulnerable people in society. The Regulator also plays a fundamental role in investigating and evaluating alleged contraventions of the Act (ss 13 and 15).

In terms of s 136 of the Act, any person, alternatively the Regulator, may submit a complaint of reckless credit. Sections 80 and 81 of the Act deals with reckless credit and its prevention, where a credit provider is prohibited from entering into a reckless credit agreement without taking reasonable steps to assess the customer’s understanding of the risk and costs associated with the granting of the proposed credit. In doing so, the expectation is for the credit provider to take into account the customer’s debt repayment history along with the consumer’s existing financial means, prospects and obligations. The credit agreement will be deemed reckless in instances where the credit provider has not conducted the necessary assessments required by s 81(2). The Regulator may also appoint an inspector to investigate a complaint, summon a person to appear before it or subpoena a document (s 139(3)).

One of the challenges the Regulator may face is identifying a possible contravention of the Act and upon identifying such contravention, there may be no prima facie proof that any contravention has taken place. This issue was addressed in Dacqup Finances CC t/a ABC Financial Services, where the court was tasked with determining what constitutes a sufficient trigger for the Regulator to initiate a complaint into alleged contraventions of the Act. A complaint was received by the National Consumer Tribunal (the Tribunal) against Dacqup, a micro-lender, on alleged contraventions of the Act and alleged engagements in prohibited conduct. The Tribunal found against Dacqup and ordered it to pay a fine and for the independent audit of all its credit agreements entered into within a specified period. Dacqup appealed against the decision of the Tribunal to the High Court, which subsequently ruled in favour of Dacqup, based on a point in limine and without consideration being given to the merits of the appeal (para 2).

The Regulator appointed an inspector that noticed a sign outside Dacqup’s property advertising ‘instant loans’, which raised suspicion as to how such loans would be in compliance with the Act and if they were not instant, how such an advert could be deemed as misleading and deceptive advertising of credit. When enquiring of the interest rate charged on these loans, the inspector was advised that a 30% per month interest rate was charge on the short-term loans, which was in excess of the permissible statutory maximum. This led to an investigation by the Regulator, which concluded that there was contravention of the provisions of the Act. An application was made to the Tribunal, where the relief sought was for the deregistration of Dacqup as a credit provider among other requests. The Tribunal found against Dacqup and ordered an administrative fine as opposed to the cancellation of Dacqup’s registration (paras 6, 7 and 9).

On appeal to the High Court, a ruling was made in favour of Dacqup and no consideration was given to the merits of the matter. The issue dealt with before the Supreme Court of Appeal was weather the High Court correctly upheld the appeal by Dacqup, where the basis of the appeal was that there was no reasonable suspicion to initiate an investigation. The court confirmed that hearsay evidence, in the form of a memorandum by the investigator, is accepted as sufficient evidence to create reasonable suspicion and whether the evidence is later found to be inadmissible is irrelevant. ‘Reasonable suspicion’ was defined as a suspicion that cannot be immediately proved, where such suspicion is the starting point of an investigation and obtaining prima facie proof is at the end. The court confirmed that when suspicion lacks actual proof, such suspicion should have a factual basis, the standard for reasonable suspicion is relatively low and that the complaint being initiated occurs before the commencement of an investigation. The court reiterated that a complaint triggers an investigation which may or may not lead to a referral and the rights of a respondent are uneffaced at this point since the purpose of the compliant, followed by possible investigation, is not to afford the suspected party an opportunity to state its case. The principals of administrative justice ought to be observed once a matter has been referred to and is being heard before the Tribunal. In addressing the possibility of the infringement of constitutional rights in the event of such investigations taking place, the court accepted the position that highly regulated institutions that are more likely to pose a potential hazard to the public. Due to this, such institutions ought to accept that their activities will be monitored and that there will be an occurrence of regular inspections. It was found to be irrelevant whether the investigator’s suspicions were factually incorrect or not. However, what was of importance was the existence of a reasonable suspicion of a contravention by Dacqup. The investigators interpretation of ‘instant’ was held to be probable and reasonable within the micro-lending context (paras 18 – 21, 24 and 26).

It is evident that reasonable suspicion, whether proven to be true or not at a later stage, constitutes a sufficient trigger for the Regulator to institute an investigation into alleged contraventions of the Act. The slightest indication of non-compliance with any of the above-stated statutory provisions might result in a credit provider finding itself caught in the crossfire with the Regulator.

Marcus Zulu LLB (UKZN) is Legal Counsel (Credit and Pricing) at Absa Group Ltd in Johannesburg.

This article was first published in De Rebus in 2022 (Nov) DR 31.