Johannesburg - A lot of companies could be breaking one of South Africa's newest laws - the National Credit Act.
This is according to Shepstone & Wylie Attorneys, a Durban-based law firm.
A number of lawyers and credit providers have taken the view that loans given to workers by their employers did not fall within the scope of the new credit law, but the national credit regulator has refuted this view.
Peter Setou, the senior general manager for education and strategy at the regulator, said all forms of interest-bearing credit, whether granted by banks, other institutions or employers, came within the ambit of the act.
In fact, where an employer granted 100 or more loans or gave out credit worth at least R500 000, the company would have to register with the regulator.
Setou said the inclusion of employers was taken into consideration because it had been observed in the past that some firms were charging exorbitant interest rates.
Cabby Esat, a partner at Shepstone & Wylie, said the practice of providing interest-bearing loans to staff was widespread.
"A lot of companies could be breaking the law," he said.
Many firms offered employees loans at low interest rates. These loans were mostly amounts of less than R15 000, repayable within six months, which put them in the small credit agreements category.
The credit act, which came into effect in June, is meant to contain reckless lending. Under the law, credit providers must assess the creditworthiness of borrowers before issuing a loan.
Esat said affected companies would have to assess employees who applied for loans, and give them quotations as required by the credit law. Firms would have to compile returns for the regulator and issue periodic statements to employees with outstanding loans.
Large listed companies were likely to fall within the threshold requiring registration, given the relatively low cut-off point of R500 000 in total loans granted.
Compliance with the credit law was likely to lead to extra administration work for firms, Esat said.
Firms might therefore decide to outsource loan issuance to banks, which could in some instances worsen the terms of loans granted.