The National Credit Act – and how it protects you

The National Credit Act
In our series on property we touched briefly on the National Credit Act (NCA) and its implications for bond approval. In this issue of Money Matters we take a closer look at the NCA and highlight some of its key elements.

South Africa's debt problem
As you know, our focus in Money Matters is on helping you to make the most of your money. With that in mind, we must say at the outset that we are in favour of the NCA. Until now, it has been far too easy to obtain credit in South Africa. Before the Act was introduced, debt in South Africa had reached epic proportions, with 73 per cent of South African's disposable income being used to pay off debts. This leaves little space to save, invest and build up income for retirement.

To explain it in its simplest form, the NCA places a greater responsibility on credit providers to ensure that you can afford the credit before you commit to it. On applying for credit, you will be required to give the credit provider a detailed statement of your income (monthly net take-home pay) and a thorough list of all your monthly expenses.

You will also need to provide details of other credit agreements. This information is necessary for the credit provider to conduct a thorough assessment of your ability to repay the requested loan amount.

Should the assessment indicate that you cannot afford to repay the requested loan amount, the credit provider is obliged to decline the application, in order to prevent you from becoming over-indebted. Bear in mind though that the Act will offer no protection unless you are completely open and truthful about your financial and debt situation, as your creditworthiness cannot be accurately assessed without full details.

Protecting consumers
Until the Act came into force on 1 June 2007, the credit industry in South Africa was pretty much unregulated – and unregulated industries tend to become unscrupulous. So from 1 June onwards, the NCA will apply to all credit agreements, with credit providers now required by law to comply with all the provisions of the NCA or they will not be allowed to offer credit.

The NCA applies to every single kind of credit available, from the hire-purchase agreement used to pay for a fridge right up to your biggest debt ever – your home loan.

The Act introduces new rights for consumers, as well as measures that allow consumers to make informed decisions before buying goods and services on credit. Here are some of the measures:

• The Act requires that you are given a quotation document, valid for five days, on any proposed credit transaction. The document must be set out in a prescribed format and must spell out the interest rates and other costs that will apply should you enter into that particular agreement. The form must make very clear what the credit agreement will cost you. The purpose of the document is to allow you to a.) be fully informed of exactly what the credit will cost you, and b.) give you time to shop around for other quotes on the same credit.
• Advertising will have to be transparent. Hidden terms and conditions are no longer allowed. Interest rates and other costs must be spelt out according to a prescribed format.
• Negative option marketing (in which you are sold a product or service unless you specifically contact the provider to say you don't want the goods or services) is no longer allowed.
• A credit provider may not harass you into entering a credit agreement, nor may a credit provider enter into a credit agreement with you after cold calling on you at your home.
• Credit limits may no longer be increased automatically. Written permission is required from the client to review and increase these limits once a year.
• Additional limit increases may be applied for at any time.

The National Credit Act brings South Africa in line with similar consumer legislation in the UK, USA, Australia, Ireland, Singapore and Switzerland. While consumers may find it frustrating initially to be denied credit to buy their dream car, for example, they will be grateful in the long run to be protected from the nightmare of over-indebtedness.

For a full copy of the National Credit Act, visit www.info.gov.za/gazette/acts/2005/a34-05.pdf.

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