• Replaces the Usury and Credit Agreements Acts
  • Is consumer focused (initially entitled the Consumer Credit Bill)
  • Increases the availability of credit and reduces the cost of credit
  • Improves regulation of the credit environment (more inclusive)
  • Creates transparent credit processed with a focus on client education and understanding
  • Creates a healthier credit market through the introduction of reckless credit and over-indebtedness
  • Improves the collection and recovery process
  • Promulgated: 1 April 2006
  • Effective date: 1 June 2007

Purpose Of The Act

The Act aims to promote a fair and non-discriminatory marketplace for access to consumer credit through…

  • General regulation of consumer credit
    • Establish norms and standards relating to consumer credit
    • Regulate credit information
    • Promote responsible credit granting
      • Prohibit reckless credit granting
      • Provide for debt re-organisation in cases of over-indebtedness
    • Promote a consistent enforcement framework relating to consumer credit
    • Provide for registration of credit bureaus, credit providers and debt counselling services
  • Improved standards of consumer information
    • Prevent certain unfair credit and credit marketing practices
  • Promotion of black economic empowerment and ownership in the credit industry
  • Establishing the National Credit Regulator and National Consumer Tribunal
  • The creation of a framework where competition and transparency is promoted
  • Equal rights and protection of rights to consumers
  • Measures to avoid over-indebtedness
  • Avoidance of reckless lending
  • Regulatory framework for credit bureaus, credit providers and debt counselors
  • Regulatory formal complaint procedures for protection and compensation

Credit Agreements

The following are examples of the three types of credit agreements:

Credit Facility Credit Transaction Credit Guarantee
Small
Up to R15,000
    • Overdrafts
    • Credit cards
    • Retail store cards
    • Pawn transaction
    • Classic loan
    • 3rd party surety
Intermediate
R15,001 to R249,999
    • Gold and platinum cards
    • Premier loan
    • Vehicle finance
    • 3rd party surety
Large
R250,000 and above
    • Business overdraft
    • Mortgages always considered large irrespective of amount
  • 3rd party surety (Limited)

The National Credit Act applies to all credit agreements where:

  • Parties are dealing at arm’s length
  • The agreement will be effective in South Africa

It does not apply if:

1. One of the contracting parties is:

  • The State
  • An organ of the State
  • A juristic person:
    • Company/cc/Trust
    • With an asset value or annual turnover in excess of R1 million
    • The credit provider is:
    • The Reserve Bank
    • Located outside of the Republic

2. The credit provider is:

  • The Reserve Bank
  • Located outside of the Republic

Credit Life Cycle

The various stages that clients may go though when they require some form of credit:

  1. Desire Credit
  2. Apply for credit
  3. Verification of credit worthiness
  4. Approval/Decline of credit extension
  5. Settlement or default of credit obligations

he National Credit Act stipulates that there should be freedom of choice for consumers.

1. Credit providers may require a consumer:
• To maintain life assurance for the period of the agreement
• To maintain home-owners insurance on the value of the property
• Mortgage agreements
2. Credit Provider may not offer/demand consumers pay or maintain insurance which is unreasonable or at an unreasonable cost.
3. The consumer must be given the option to take out insurance of his/her choice
4. If the client elects his/her own insurance:
• The credit provider may debit the consumers account with the premium
5. Quotation
Before entering into a credit agreement, credit providers must:
• Deliver a written quote that contains all of the financial details of the transactions instalment, interest rates, insurance premiums and all costs and fees.
• The quote is valid for five days

Consumers have the right to:

  • Apply for credit
  • Request reasons for credit being refused
    • Credit providers may refuse credit:
      • The refusal must be based on reasonable commercial grounds
      • Consumer has the right to request reasons for the decline
        • Credit provider must provide the dominant reason for the decline in writing (with credit bureau details if decline was a result of a failed score)

Consumers have the right to:

  • Protection against discrimination
    • Credit providers may not discriminate against any applicant on the grounds set out in Section 9(3) of the Constitution including:
      • Race, colour, ethnic or social origin, culture, language or birth
      • Gender or sexual orientation
      • Marital status, age or disability
      • Religion or beliefs

Consumers right to receive documents:

  • All required documents must be delivered to the consumer
    • In the prescribed manner
    • Via more than one of the following mechanisms:
      • In person at the credit provider’s business premises
      • At any location chosen by the consumer
      • Ordinary mail
      • Fax
      • Email
      • Printable web page

Consumers right to receive documents:

  • Original copy of documents
    • At no charge
  • On written request:
    • Within 1 year; single replacement copy without charge
    • Any other replacement copy, subject to regulated search and production fees

To confidentiality:

  • Consumers have a right to the confidentiality of their information being protected by anyone who:
    • Receives, complies, retains or reports on it
  • Information can only be used
    • For purposes as permitted or required by the Act
  • Information can only be released
    • To the consumer
    • To another person (3rd party); if directed by the consumer, Tribunal and if permitted by the Act.

To promote transparency the following must happen before entering into a credit agreement:

  • Credit providers must:
  • Deliver to the consumer a pre-agreement statement containing relevant terms and conditions of the credit – this will be presented at the attorney’s offices

Cancellation Of Mortgage Agreements

Penalty fees have been prohibited by the Act, but cancellation fees are still allowed.

Calculation of the fee has remained similar to the current calculation:

  • The charge/fee may not exceed the interest that would have been levied on the account for the period equaling a 3 months notice period, i.e.
    • If the client gives 3 months notice
      • The fee will be R30 (3-3)
    • If the client gives 2 months notice
      • The fee will be equal to 1 month’s interest (3-2)

In order to prevent over-indebtedness and reckless credit :

  • Credit Providers must conduct an extensive financial means test before entering into a credit agreement with a consumer
  • Ascertain if the prospective consumer has the financial capacity for additional credit
  • Severe penalties (including setting aside the initial agreement) can result if the Credit Provider fails to do this
  • Credit Providers can determine their own scoring models, provided the results are fair and objective

 

Consumers must fully and truthfully answer requests for information when they are being assessed:

  • The Credit Provider is protected against allegations of reckless credit where there was:
    • Dishonesty and/or part-disclosure by a consumer at the application stage

The concepts of over-indebtedness and reckless credit* do not apply to the following agreements and persons:

Juristic persons Pawn transactions*
Incidental credit agreements* School loans*
Public interest agreements* Emergency loans**
Temporary increases in credit limit*

What is over-indebtedness and reckless credit?

  • A consumer is over-indebted if it’s assessed that they will be unable to meet all their financial obligations in a timely manner
    • Based on the majority of information available at the time of the assessment including their:
      • Financial means
      • History of debt repayment
      Credit is reckless if:
  • The credit provider failed to conduct a proper assessment
  • The credit provider entered into an agreement that put the client in an over-indebted position
  • The consumer did not understand the risks, costs or obligations under the agreement
    • Client education plays a vital role in safe guarding against reckless credit by taking steps to ensure a client understands the contract and the consequences

Reckless credit agreements can:

  • Be set aside
  • Be restructured
  • Be suspended
    • Client need not make further payments
    • No interest, fee or charge may be levied against the account
    • Credit providers rights are unforeseeable
      • When suspension ends, the rights and obligations are revived and become fully enforceable