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National Credit Act Guide


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NATIONAL CREDIT ACT: GUIDES

1. Overview

2. What is it and why was it introduced?

3. Who does it affect?

4. Interest rates and fees

5. Consumer protection & consumer rights

6. Consumer credit records

7. Credit marketing practices

8. What transactions are covered by the NCA

9. Pre-Agreement Disclosures

10. Debt Councillors

11. The NCA impact on existing customers

12. How will the NCA affects the time taken on the approval of credit?

13. How do banks calculate how much I can borrow?

14. Implications for marriages within Community of Property

15. How does the NCA affect the payment terms on accounts?

16. How can I get more information on the NCA?

A simple overview of the National Credit Act (NCA) prepared by BondBusters

1. Overview

What does it mean?

More work for consumers – in terms of the documentation they have to get together to apply for credit
More work for lenders – in terms of the checks they have to make to ensure the client can borrow the amount requested

Who does it benefit?

Protects consumers from reckless lending (being lent more than they can afford to repay)
Protects consumers from ‘unsolicited’ enticements by lenders – SPAM and junk mail
Consumers will get help from Debt Councillors if they have credit problems
Credit bureaus will be better regulated
Allows debt free consumers to borrow more
Documentation will be easier to understand with a clearer breakdown of costs
Credit providers are required to ensure that customers understand the risks, obligations and costs associated with every loan that they apply for and take up

Who doesn’t it benefit?

Unscrupulous ‘loan sharks’
Consumers who are indebted and manage their debt poorly

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What is it and why was it introduced?

The NCA is a government act designed to protect the consumer and allow them to make more informed choices before buying goods and services on credit. It also places a greater responsibility on the credit providers to refuse to give you credit if the consumer cannot afford it and, for the first time in South African history, it will regulate the way credit providers do business. No other country has brought in such far-reaching legislation because they have allowed market forces to determine initiation fees and interest charges. The SA government has introduced the NCA due to accusations that the sophisticated financial services industry has been taking advantage of relatively unsophisticated consumers in South Africa.

The legislation is designed to:

Ensure credit providers lend in a responsible manner
Prevent consumers from borrowing more than they can repay
Protect the consumer through the creation of a new regulatory body called the National Credit Regulator, a National Consumer Tribunal, and the introduction of ‘Debt Councillors’
Educate consumers and assist them to make informed choices.

The NCA further introduces fundamental Consumer Rights, which include:

The right to be given reasons for credit being refused or discontinued
The right to access information relating to the credit agreement in an official language. The requirement is that Credit Providers must, over a period of three years, make its documents available to consumers in at least two official languages
The right to receive information in plain and understandable language
The right to have access to and to challenge credit records and information held by credit bureau, to have incorrect records of debt adjustments expunged and to be given notification before negative information is reported to the credit bureau

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3. Who does it affect?

The NCA affects all personal banking and certain business banking customers (such as sole proprietors and trusts with less than two members). It also affects all financial institutions that lend money, who, as a result of the Act, now have to register as credit providers. This includes banks and micro–lenders.

The NCA has far-reaching implications for South African financial institutions from micro-loans to home-loans, from overdrafts to furniture finance, and also differentiates between small, intermediate and large agreements depending on monetary thresholds stipulated in the National Credit regulations:

A small agreement of which the credit limit is R15,000 or less
An intermediate agreement is a credit facility of above R15,000 but less than R250,000
A large agreement is a mortgage agreement in excess of R250,000

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4. Interest rates and fees

The NCA will specify maximum interest rates and transaction fees that can be charged on credit agreements or loans that are still being finalised. These maximums will be implemented on 1st July 2007.

If a consumer finds that a lender is flouting the provisions you can complain to the National Credit Regulator.

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5. Consumer protection & consumer rights

The National Consumer Tribunal will hear complaints from consumers about credit agreements and credit providers.

The rights of consumers to access and to challenge information held about them at the credit bureaus.

The new act will give consumers the right to check their records held by the credit bureaus once every year and may not be charged a fee for doing so.

Consumers will be able to challenge any inaccurate information about themselves on the credit bureau’s records, or on the national credit register.

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6. Consumer Credit records

A National database of credit agreements is being set up and will be maintained by the NCR who will receive information about credit agreements from the credit providers and credit bureaus.

The idea behind the National Credit Register is that your entire outstanding loan and other credit obligations will be listed on the register. Prospective credit providers can check this database to assess whether you can afford to take on more debt before giving you a loan or extending credit to you.

The NCA stipulates the periods that adverse or negative customer data may be stored on the bureau. It also provides for older data to be removed under certain circumstances. It does not mean that all negative data will automatically be removed from the bureau. Customers may contact the bureau to get a report on their credit record. One free credit report per year will be provided to consumers. Additional reports requested during a year will be charged for. Customers are required to continue paying instalments to credit providers on all loans that they have. To get a copy of your credit report contact TransUnion at www.mycredit.co.za.

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7. Credit marketing practices

As from 1^st June 2007 negative option marketing has been outlawed. Negative option marketing is where the consumer is sold a product or service they have specifically contacted the provider to say they do not want.

This means that credit providers may not call or contact you to canvass you at your home or place of work to sell your products and services, unless you specifically request it.

The new Act also requires that interest rates and other costs must be spelt out in any advertisements in a format that is prescribed by the National Credit Regulator.

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8. What transactions are covered by the NCA?

The NCA covers most credit products where payment is deferred and a charge, interest or fee is payable. These include instalment sale agreements, leases, overdrafts, credit cards, mortgages, secured loans and credit guarantees.

The NCA applies to credit agreements with all consumers, and to entities such as close corporations, companies, partnerships and trusts, whose asset value or annual turnover is below a prescribed threshold (currently R1 million).

Other exceptions: It will not apply to lending to the State or where an entity which falls within the NCA enters into a large transaction. Large transactions are defined as mortgage agreements and credit agreements above a prescribed threshold (currently R250 000).

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9. Pre-Agreement disclosures

The Act requires that you are given quotation documents on any proposed credit transaction that are valid for five working days. This document must be set out in a format prescribed by the NCR and must spell out the interest rates and other costs that will apply should you enter into that particular agreement.

A ‘cooling off period’ of five working days is to be implemented, therefore the banks cannot force clients to accept their offer immediately.

The agreement must make it very clear what it will cost you and will lay out the following:

Principal debt
Proposed distribution
Interest rate and credit costs
Total cost of agreement
Costs payable on rescission

The act aims to stamp out reckless lending. The reckless granting of credit is prohibited under the Act.

All information relating to the agreement and the account must be reported to a credit bureau. Credit providers also need to keep records of all credit applications and credit agreements for a prescribed period.

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10. Debt Councillors

The new act introduces Debt Councillors as an intermediary between the lender and the borrower. Therefore, consumers can apply to a Debt Councillor to have their debts restructured if they have taken on too much debt, and Lenders must advise consumers to approach a Debt Councillor when they first encounter repayment difficulties.

If the debt councillors find that you are over-indebted then he or she can recommend to a Magistrates Court that your debts be restructured to suit you and then your creditors.

Consumers must be warned that if they have ever been referred to a debt councillor it will have a serious negative effect of their future ability to borrow money. The NCA does also recognise that the consumer must take responsibility for their finances. Contact the National Credit Regulator for more information about debt councillors.

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11. The National Credit Act impact on existing customers

The NCA will bring about some changes to existing customers. From 1 June 2007, your finance statement will look substantially different to what you have been used to, bringing the following new benefits:

It offers more detailed and transparent information on your account status
It may be used as a VAT invoice

Important Note – the new statement provides an amount called “Outstanding Balance”, which reflects the outstanding capital amount only, without any interest charge added, as at the date of statement. The interest charge to your account is mentioned separately, together with all other account transactions (such as payments) over the review period.

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12. How will the NCA affect the time taken for the approval of credit?

Due to the additional documentation required and the additional calculations and checks that lenders have to perform since the introduction of the NCA the process will take longer than before. However, the major banks have spent huge amounts of time and money to make their systems and processes as smooth as possible so the delays should be limited. The areas that will take longer will be credit cards and short term loans, products for which such checks were previously not required.

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13. How do banks now calculate how much I can borrow?

The banks will calculate consumers ‘Net surplus income’ after all deductions. The basic calculations will look as follows:

Net income (after tax and other deductions)	- Rx
Less:
Monthly expenses (such as groceries)	- Rx
Monthly instalments such as Life / motor insurance premiums	- Rx
Monthly credit commitments (credit cards, loans, vehicle finance etc)	- Rx

Net surplus Income	- Rx

This is the amount left over at the end of every month that you can afford to spend on the new credit agreement. Check out the Justmoney.co.za home loans calculators to work out your net surplus income.

Banks will now have to give us good reasons as to why they have declined deals!

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14. Implications for marriages in Community of property

The NCA has amended the Matrimonial Property Act. The effect of this is that in the case of a loan agreement the spouse of the consumer must consent to this in writing and this consent must be signed by two witnesses. Formerly this applied to credit agreements such as instalment agreements and leases.

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15. How does the NCA affect the payment terms of accounts?

A consumer may pre-pay any amount owing at any time, and fully pay out the account at any time. In the case of agreements in excess of R250 000.00 this is subject to a termination charge of not more than three months’ interest, if the consumer has failed to give notice of its intention to settle the agreement.

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16. How can I get more information on the NCA?

For more information on the NCA log onto www.ncr.org.za.

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