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How the National Credit Act works and protects you

04 Apr 2019

Had it not been for the National Credit Act (NCA), South Africa would have been affected far worse by the global economic turmoil than what it is, but what exactly does the Act entail, and how does it impact on everyday consumers?

If a debt counsellor agrees that you are over-indebted, a debt repayment plan will be drafted. Once all debtors agree, the counsellor will apply to the National Consumer Tribunal for a consent order to implement the plan.

Steve van Wyk, Seeff’s MD in Centurion, says the Act mainly limits the potential for South Africans to borrow too much and prevent credit providers such as banks from engaging in irresponsible lending.

“The NCA was signed into law in 2005. In a nutshell, it establishes rights for consumers, including measures that enable them to make informed decisions. It also places a greater responsibility on credit providers to refuse credit to those who cannot afford it and regulates how credit bureaux - which hold and provide information on your creditworthiness - do business."

Van Wyk says the NCA covers the following issues:

1. Registration

Any organisation that lends money, such as shops, banks, etc., must register with the National Credit Regulator (NCR).

2. Better disclosure to borrowers

Consumers must be informed of the nature of the credit agreement in clear and understandable language. The Act also specifies that consumers must be given a quotation which is valid for five business days before they enter into the agreement.

The quotation must contain the following information: the full cost of the credit, ongoing costs, initiation fees, fixed or variable interest rate, the annual interest rate expressed as a percentage and as a rand amount, any residual or final amounts payable at the end of the period, the number of instalments and the amount of each instalment, delivery and installation charges, connection fees, taxes, license or registration fees and the nature and cost of any additional insurance and the consumer’s right to waive such insurance and replace it with a policy of their choice.

3. Maximum interest rates

These are linked to the South African repo rate, which is the Reserve Bank’s repurchase rate.

- Home loans = repo rate times 2.2 plus 5%.
- Credit cards, store cards, overdrafts, vehicle loans = repo rate times 2.2 plus 10%.

4. Fees

This is with regards to a prescribed maximum initiation fee that may be paid upfront or added to a consumer’s principal debt.

- Home loans = R1 000 plus 10% of the amount of the agreement in excess of R10 000 with an overall maximum of R5 000.
- Unsecured loans = R150 plus 10% of the agreement in excess of R1 000, but capped at R1 million.

5. Consumer information held by bureaux

The NCA requires that all businesses and shops that provide credit bureaux with information, must take all reasonable steps to ensure that the information is accurate, up to date, relevant, complete, valid and not duplicated. Any organisation that intends to list adverse information about a consumer to credit bureaux must give the consumer 20 business days’ notice of its intention to do so. There are also steps listed that consumers can take to challenge or dispute information.

6. Unsolicited selling

This prohibits any credit provider from harassing consumers in an attempt for them to apply for credit. Consumers may not be hassled at home or work unless they have expressly agreed to this. A consumer’s overdraft limit, credit card limit, etc. may also no longer be automatically increased by the credit provider. Even then, there is a limit as to how much it may increase, depending on the consumer’s previous 12 months’ monthly purchases and payments.

7. Misleading advertising

The Act bans misleading advertising and sets out requirements for advertisements such as cost of credit, instalment amounts, number of instalments, total number of instalments, interest rate and any residual or final amounts.

8. Negative option advertising

This selling practice, where an agreement will automatically come into existence unless the consumer declines the offer, is completely outlawed.

9. Reckless credit

The Act prohibits the provision of reckless credit. Examples are where credit is given without the provider assessing the consumer’s ability to repay, where the consumer is over-indebted as a result of new credit and where it can be proved that the consumer did not understand the costs, risks or obligations of what was signed.

10. Over-indebtedness

A consumer is over-indebted if their expenses exceed their income.

- A court may refer such a consumer to a debt counsellor to assess their financial position. The counsellor reports back to the court on the consumer’s situation. The court may order that the debt is restructured and the consumer will not be allowed to enter into any new agreements. Creditors may not enforce any litigation against the consumer whilst they are paying off debts under a debt restructuring agreement.

- Consumers may also apply to a debt counsellor. If the debt counsellor agrees that the consumer is over-indebted, then a debt repayment plan will be drafted. Once all debtors agree, the counsellor will apply to the National Consumer Tribunal for a consent order to implement the plan. Debt counsellors may charge a fee for the service.

You can lodge complaints with the National Credit Regulator at www.ncr.org.za, email info@ncr.org.za or complaints@ncr.org.za or phone 0860 627 627 or 011 554 2600.

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