The NCA’s prime objectives are to avoid reckless lending and to prevent the over-indebtedness of consumers. The NCA also establishes a framework to regulate credit bureaux, credit providers and debt counsellors.
The NCA replaced the Credit Agreements Act, Usury Act and any other legislation that allows for micro lending. The act makes sure that all credit providers and credit consumers are treated equally. It came into effect on 1 June 2007.
Credit providers now have to perform an affordability assessment before granting credit and consumers have to prove their financial standings. An example is that financial institutions may no longer use the “affordability = 30% of gross income” rule that they used to apply to assess affordability for a home loan. The banks will be obliged by law to assess your financial situation in more depth, in terms of your total credit exposure, domestic expenditure and asset value. This also applies to lending for vehicle finance, and other credit applications.
The Act requires that the credit provider (bank) or its agent (estate agent, mortgage originator or car dealer) or the seller in an instalment sale of land agreement has taken the necessary steps to make sure that the consumer understands and appreciates the risk and cost of the proposed credit, as well as the consumer’s rights and obligations under the credit agreement.
The NCA has an impact on all credit providers, who have to be registered in terms of the act as recognised lenders. The NCA also 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).
The Act is aimed at:
Regulating credit information;
Regulating credit lending practices and promoting responsible lending;
Prohibiting unfair credit-marketing, where people are lured into taking credit products just because they didn’t say “No!”;
Improving consumer rights in terms of credit lending;
Providing for re-organisation of consumer debts;
Improving accessibility of credit to previously disadvantaged consumers.
The National Credit Regulator (NCR). The National Credit Regulator (NCR) is the administrative regulator dealing with issues such as research and policy development, registration of industry participants and investigation of serious complaints. The NCR is responsible for the enforcement of the NCA.
If you are unable to pay your debt, you may approach the NCR to assess the procedures under which your loan was granted. If it can be proven that improper steps were taken:
- your debts could be cancelled;
- the payment of your debt could be restructured.
If no infringements can be found or proved, your assets will be repossessed. The National Consumer Tribunal (NCT) conducts hearings into complaints relating to the NCA.
Some of the benefits offered by the NCA are:
A credit bureau can no longer blacklist an individual without following the proper steps;
The NCA regulates lending pricing by standardising price regulations and implementing pricing caps;
Improved pricing transparency;
Simplified pricing disclosures for comparative research (due to standardisation);
Improved cooling off periods to assist clients to make an informed decision.
Fundamental consumer rights implemented by the NCA:
The right to be given reasons (in writing) for credit being refused or discontinued;
The right to documentation that is required under the NCA in the official languages that will be prescribed by the Regulator. In this regard, credit providers must choose two official languages, which will then be assessed and approved by the NCR;
The right to information in plain and understandable language;
The right to have access to- and to challenge credit records and information held by credit bureaus, to have incorrect records corrected and to be given notification before negative information is reported to the credit bureaus.
Applying for credit under the NCA has changed in the following aspects:
Credit providers must provide consumers with a quotation and a pre-agreement statement, before entering into a credit agreement with a consumer. These documents must contain the main features of the proposed agreement and must disclose the full cost of the credit applied for including all fees. Quotations are binding on the credit provider for 5 days.
The consumer is required to provide detailed information to the credit provider. This includes a detailed statement and proof of the consumer’s income and expenditure, a household budget and details of other credit commitments in order to enable the credit provider to assess the consumer’s affordability and level of indebtedness.
Credit providers are required, upon entering or amending or terminating a credit agreement, to report the transaction to a credit bureau, or to the National Loans Register when it is operational.
Credit providers need to keep records of all credit applications, credit agreements and credit accounts for a prescribed period.
A consumer may pre-pay any amount owing at any time, and fully pay up the account at any time. In the case of agreements in excess of R250 000.00 this is subject to a termination charge by the provider of not more than three months’ interest, if the consumer has failed to give notice of its intention to settle the agreement.
The spouse of a person married in community of property must consent in writing to the undertaking of a loan agreement. Previously, this only applied to credit agreements such as instalment agreements and leases.
The NCA specifies the maximum interest rate that you can be charged.
Fees such as Initiation, Processing and Service Fees are also governed by the NCA.
National Credit Regulator (NCR)
Complaints regarding abusive credit practices can be referred to the National Credit Regulator which is empowered under the National Credit Act to act.
Call Centre : 0860 NCR NCR (0860 627 627)
Web Site : www.ncr.org.za
This article originally appeared in Property Power 11th Edition Magazine. To order your copy at the discounted price of R120 click here