The National Credit Act came into effect on 1 June 2006, and has had a far-reaching impact on how credit is marketed, granted, and administered.
Many people have received an unsolicited letter from some or other institution, informing them that they have been granted a “pre-approved” line of credit. In some cases the institution concerned has actually opened an account in the name of the recipient, with a flash of the ID book being sufficient to unlock a whole world of credit.
Most such solicitations end up in ‘File 13’, whilst for those people who take up such offers, it is hoped that the majority will spend within their repayment capabilities. However, many people, through such offers, simply spiral even deeper into debt.
The National Credit Act, which has recently come into effect, will change the way people interact with credit. This Act applies to all forms of credit agreement granted at arms’ length between two or more parties, and includes mortgages, lease agreements, and secured loans. In fact, any agreement whereby there is a deferral of payment and the imposition of a charge, fee, or interest will fall under this Act.
However, loans between friends and family, stokvel syndicates, and loans to Government are not covered by this Act.
The following changes were introduced by this Act:
- The establishment of a National Credit Regulator, which will monitor all credit providers, including banks, micro-enders, and other institutions that provide credit.
- Consumer rights will be greatly enhanced as follows:
- All persons are entitled to apply for credit facilities, and credit providers may not arbitrarily discriminate against applications based on race, gender, marital status, etc.
- If an application for credit is declined, the applicant is entitled to be provided reasons for such credit being refused
- Before a credit provider may report information to any credit bureau, the person with whom such credit agreement has been concluded is entitled to be informed prior to the reporting of such information to the credit bureau.
- Consumers are entitled to receive documentation relating to the credit agreement in at least two official languages. Such documentation is to be provided free of charge.
- A person may not be penalised in any way for exercising their rights under this legislation.
In addition, the Act specifically outlaws so-called “negative marketing”. In other words, no credit provider can unilaterally bring an agreement into force under the condition that the credit grantee must specifically decline such facility.
The same would apply to any changes to an existing agreement. This means that a credit provider may not unilaterally increase your credit limit – a common practice in the case of store and credit cards. You must specifically request such credit facility to be increased.
A credit provider may only visit your home or place of business with the express purpose of entering into a credit agreement, and then at your request. No credit provider may pay you an unsolicited visit.
The Act also provides for the application of a “financial means test”. This means that the provider is obliged to do sufficient background checks for it to determine that you are in fact able to afford the repayment of the proposed facility. This is aimed at preventing the kind of reckless granting of credit to people who are already heavily indebted.
In the case of credit facilities accessed electronically, such as by means of a card and PIN number using an ATM, the credit agreement must set out reporting procedures to be followed in the event of a card being lost. The legislation also indicates that should a consumer follow such procedures, the consumer may not be held liable for any fraudulent charges that may arise subsequent to such card being reported lost.
The legislation is aimed at preventing already heavily-indebted South Africans from sliding even deeper into debt. Given that it is estimated that the economic impact of debt problems amounts to some R12-billion annually, any legislation that will reduce this impact must surely be welcomed.