Thursday, 3 May 2007

National Credit Act - In a nutshell!


Reckless Credit
Reckless credit is prohibited under the NCA and is defined as lending money to customers without first:

• Ensuring they have enough income to pay it back
• Assessing a customer’s debt repayment history
• Ensuring a customer understands the costs, risks and obligations of the credit agreement



The Contract

• Documents should be written in plain understandable language so all customers can understand them (ahem!! have you ever understood these damn things)
• Customers will receive a preagreement quote that will list all costs when borrowing money. This quote is valid for a minimum of five days


Fee Structure
The NCA specifies that customers may be required to pay the following as part of the principal debt:

• An initiation fee, connection fees, levies or charges
• The cost of any extended warranty agreement
• Service fees, default and collection fees
• Taxes, licence or registration fees
• Credit insurance

The NCA also lays down maximum initiation and service fees and interest rates depending on the type of credit agreement.


Interest Rates and Changes
The NCA states that:

• A credit provider may charge a customer an interest rate that varies during the term of the agreement, but only if the variation is linked to a reference rate
• Customers should be notified in writing five days in advance of any changes to the interest rate or fees



Insurance Matters
Credit providers may require customers to take out credit life insurance for the duration of the credit agreement, however:

• The amount of insurance may not exceed the total outstanding debt owed to the credit provider under the agreement
• Insurance must not exceed the full replacement value of a property or the outstanding amount on a vehicle agreement
• Customers must be informed of their right to waive a proposed policy from the credit provider and provide a policy of their own choice
• Where the credit provider arranges insurance for a customer, the credit provider may not charge any additional amount over and above the actual cost of the insurance

Complaints

The National Consumer Tribunal was launched on 1 September 2006. It acts as an informal court to resolve problems that customers experience with credit transactions, credit bureaus and credit providers

Demographic Reporting
Credit providers will have to report to the National Credit Regulator the volume and type of credit extended. The NCA seeks to inform customers on these major issues:

• Quotations must disclose the full cost of the credit applied for including all fees
• Interest rate payments and the effect of not paying a deposit
• The cost of skipping payments and “free for the first six months” offers
• Penalties, hidden costs and implications of compound interest on long-term loans


Why does SA need the Act?
The NCA will ensure that:

• Credit providers lend money in a responsible manner
• Customers don’t borrow more than they can afford to repay
• If customers are over indebted they can apply for debt counselling
• Customers are protected from unfair discrimination
(Sounds like an addiction to me ;-))

Credit Bureau Information
Credit providers must:

• Ensure that the information submitted is accurate, up to date, relevant, complete, valid and not duplicated
• Give the customer 20 business days’ notice before they submit their name to a Bureau

The Bureau must:

• Ensure that the information they hold is accurate, up to date and remains confidential and secure

Any person may question the validity or accuracy of their credit record


Can customers afford the loan?

• Credit providers are obliged to make sure customers can afford to repay their debt
• Customers will need to provide details on income and expenses when applying for credit


Advertising and marketing
The NCA aims to stop misleading or deceptive advertising:

• Words like “no credit checks required”, “free credit” and “guaranteed loans” cannot be used (ladies and gents best you check your websites)
• Negative option marketing where the credit provider enters into a credit agreement is not allowed without a customer’s express consent


No more Pushy Salesmen
The NCA specifically prohibits credit providers from:

• Harassing customers to apply for credit or to enter into a credit agreement
• Increasing the limits on a customer’s credit card, overdraft or any other
credit facility without their consent


Spousal Consent
Married in community of property?

The NCA requires all customers applying for credit to obtain their spouse’s consent.

Thank you to STANDARD BANK for providing us with this information!

The Department of Trade and Industry have now formed a team of credit regulators to regulate the new Credit Act. For more information go and visit their site at http://www.ncr.org.za.

7 comments:

Anonymous said...

Im a black professional woman who has in the last 2 years stepped into the property market with a fair amount of success. But was quite surprised by my lack of understanding with regards my rights and the new credit act.

I have recently started working with a bond originator Rosetta Perotti from Wizard Midrand who, for the first time, clearly explained the new credit act and i felt quite comfortable signing and giving her my specifics, it just made so much sense. I felt that finally someone was looking after me the buyer, and not trying to mess me around like all the estate agents, who only wanted the sale, no matter what.

I'll be honest that I have worked with a few of these so called professional home loans guys and have not been impressed, until now.

Twice, they have lied to the banks on my behalf, and even though I received my loans, it was not s true reflection and in hindsight, I could have got into big trouble.

With Rosetta, she refused to send my stuff in, took the flack from the agents on my behalf and when she finally went to the bank, with all my correct documents it was granted quickly.

So in my opinion, the credit act will stop these fly by night guys from messing the banks and us clients around and the professional people will correctly look after us ignorant buyers, THANK HEAVENS!!!!

By the way thanks for your great info, keep it up

Mrs NKUNA

Anonymous said...

Hey wizard man.
Very informative thank you. This is the type of info the average man in the street needs to know as most of us have no idea what the NCA is never mind understand it.
Thanks

Andy Hey said...

Thanks for some great articles regarding NCA.I have a non-property question if you or fellow bloggers could help.We bought a license from a company in Cape Town
(2Talk2 Pty Ltd who offer phone and airtime packages from the major network providers. We bought this on 11 June. They claimed to be aiming at the low income black market. Unlike the big guys, a customer only had to earn R1200 per month ,provide bank ststements and a, no credit checks are done and they claimed-acceptance guaranteed. Now they have introduced an affordability criteria which applies to every customer.They deduct 25% of net income to cover bond/rent costs, then 38% to cover living costs and then take 10% of the balance as to what a customer can afford. There is no individual assessment,they do not look at indebtedness,no individual expenses are requested,they do not disclose interest costs etc. These all seem to be in contradiction to the act although they say catagorically that they have introduced this as they are compelled to do by the act. Vodacom are also only requesting payslip and bank ststements although they do credit checks ? Do they fall under the act ? Do they have to register ?
How does one determine the amount of credit involved as the monthly payments for the two year contract include the cost of the phone plus airtime which they are paying for each month ???
Any help will be gratefully received

Andy Hey

NoTiTo said...

Hey Andy,

I wish there was a simple answer to your question. Let me start by saying you will have to get legal opinion on this one. Post back and I can refer you if you are interested.

Now, my 2cents worth...
The last I checked, cellphone contract, service type and rent where classified as incidental credit. Because it is an ongoing service this basically means it is not credit until the consumer (1) skips a payment AND (2) you then add interest. Then it falls within the act.

What is tricky with your contracts is the fact that you don't know how much someone will pay as it is based on usage. Theoretically you need that figure to do a proper affordability study. I'm not sure how vodacom et. al. do theirs but let us apply some logic here…

To be responsible you need to do some sort of affordability check which is why your guys do it. However I would advice they get the actual values from the consumer rather than estimate (25 % of this and 38% of the other is just risky).
After deducting this from the income, you should get to a disposable income figure of X. If the disposable income is R0 then do not give the contract!
Let’s take a scenario where the disposable income is R500. My logic tells me that you can’t give the guy a contract that cost R500 a month, since he might use more than that. I think the telcos take a percentage of the R500 and give you a cellphone contract that costs say R200 p/m. I would suggest capping the calls too, so the consumer never exceeds a total bill of R500 because he won’t have the money to pay you.

Now you should seek legal opinion based on this!

NoTiTo
http://www.liberatingconcepts.co.za

Andy said...

Many thanks Notito for you comments.To me, these guys are trying to play it both ways.They say they have introduced thier affordability scale to comply with the act.On the other hand they contravene it all over the place.The act is designed to assess (amongst other things) an individuals ability to afford something.You cannot surely have a generic formula that applies to everyone.Neither do they look at all at indebtedness-which seems to make a mockery of thier approach.Secondly the contract is for a fixed monthly amount for the phone and a specified amount of airtime.If they want more airtime they would buy a pre-paid card in the normal way-but they get the contract rate. I find it hard to believe that the big 3 network providers would disregard the act if they were supposed to comply ??
Andy

NoTiTo said...

Hey Andy,
The telcos fall outside of the act. So arguably they are not required by law to do an affordability study. I think they should and they do it anyway though.

With your guys, I agree that it isn’t a sufficient affordability study. It’s the same as what banks used to do, take 30% of your earnings and say that’s what we’ll give you for a bond. Maybe it’s still fine for them when looking at the odds but my issue is this is someone’s life and why have any bad debt at all if you can help it?
If you have a fixed contract then you have all the information to do an affordability study assuming you obtain actual expenses from the consumer…

Debt said...

Hey. Read an article the other day about lodging complaints with regards to cellphone contracts etc... Try ICASA. http://www.icasa.org.za

Let me know if you come right.