National Credit Act

INTRODUCTION TO THE NATIONAL CREDIT ACT

Credit is one of the cornerstones of modern capitalism that lubricates the economy and promotes commercial activity. However, credit enables people to spend money they don’t have, spend more money than they earn, use credit for ordinary purchases, use credit even when they have cash and use debt to pay off debt. The use of credit and poor money management skills often leads people into a situation of over-indebtedness where they are unable to service credit agreements.

The National Credit Act (35 of 2005) is part of a comprehensive legislation overhaul designed to protect the Consumer in the credit market and make credit and banking services more accessible. The National Credit Act (NCA) was introduced “to promote and advance the social and economic welfare of South Africans, promote a fair, transparent, competitive, sustainable, responsible, efficient, effective and accessible credit market and industry, and to protect Consumers.”

Although seemingly complex, the National Credit Act aims to simplify many of the grey areas surrounding the South African credit market. The NCA like other legislation such as the Financial Advisory and Intermediary Services Act (37 of 2002) and the Financial Intelligence Centre Act (38 of 2001) that affect the financial services industry help to enhance control for a better and more responsible credit practices and industry.

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Please note that is only as a brief summary of the main provision of the Code and should not be relied upon as a legal document. There are many other provisions and exemptions under the Code. For more detailed information and the full Code please download the Code of Banking Practice.

National Credit Act (No. 34 of 2005)

BACKGROUND TO THE NATIONAL CREDIT ACT

The South African population consists predominantly of lower income earners who had limited or no access to regular credit channels. The complex nature of credit agreements rendered many Consumers, especially illiterate individuals, vulnerable and often exploited by credit providers. Micro-financiers predominantly provide credit to Consumers unable to access regular credit channels. Micro-finance is characterised by over-priced debt repayments and capitalising on vulnerable markets, which resulted in over-indebtedness and an inability to service monthly repayments. This led to the establishment of the National Credit Act to create an accessible and affordable credit market with mechanisms to protect Consumers against unscrupulous lending and over-indebtedness.

Before June 2006, credit law in South Africa was governed by the Usury Act (73 of 1968) and the Credit Agreements Act (75 of 1980). These two Acts were replaced by the National Credit Act, which codified several basic rights that the Consumer has with regard to the credit market.

National Credit Act (No. 34 of 2005)

STRUCTURE OF THE NATIONAL CREDIT ACT

The National Credit Act consists of 31 sections in 9 chapters:

Chapter 1: Interpretation, Purpose and Application of Act

Chapter 2: Consumer Credit Institutions

Chapter 3: Consumer Credit Industry Regulation

Chapter 4: Consumer Credit Policy

Chapter 5: Consumer Credit Agreements

Chapter 6: Collection, Repayment, Surrender and Debt Enforcement

Chapter 7: Dispute Settlement other than debt enforcement

Chapter 8: Enforcement of Act

Chapter 9: General Provisions

Chapter 10: Disputes and Complaints

The Act also includes 3 schedules:

Schedule 1 – Rules Concerning Conflicting Legislation

Schedule 2 – Amendment of Laws

Schedule 3 – Transitional Provisions

National Credit Act (No. 34 of 2005)

THE PURPOSE AND POLICY OF THE NATIONAL CREDIT ACT?

The Purpose of the National Credit Act is to: promote a fair and non-discriminatory market place for access to Consumer credit; regulate Consumer credit and improve standards of Consumer information; prohibit certain unfair credit and credit marketing practices; promote responsible credit granting and use; prohibit reckless credit granting; provide for debt re-organization in case of over-indebtedness; to regulate credit information; and establish recourse for unfair credit practices.

The NCA does this by simplifying and standardising credit agreements and information disclosure; providing for the use of simple language that is easy to understand for comparing credit agreements from different credit providers; ensures all credit products are handled in the same way by credit providers; assisting over-indebted Consumers to restructure their debt with the help of a Debt Counsellor (DC) and encourage responsible lending; regulates credit bureaux in terms of their Consumer information and records; establishing the National Credit Regulator (NCR) to regulate the entire credit market; and establishing the National Consumer Tribunal (CT) to adjudicate on Consumer complaints and disputes with credit providers, contraventions of The Act and decisions of the Regulator.

National Credit Act (No. 34 of 2005)

WHO DOES THE NATIONAL CREDIT ACT AFFECT?

The National Credit Act affects anyone dealing with the credit industry such as credit grantors, credit grantees and intermediaries. The NCA defines a “credit agreement” broadly as any installment purchase agreement of goods or services, as well as the extension of credit in the form of money i.e. home loans, personal loans, credit cards, store cards and short term loans. Therefore, a credit agreement applies to any party involved in the credit agreement which is classified into three categories namely incidental credit agreements; intermediate agreements; and large credit agreements.

Credit Providers Include:

Banks;
Micro lenders;
Retailers such as furniture and clothing stores;
All businesses, companies, close corporations, partnerships and individuals who do business on credit, provide loans or charge interest on overdue accounts; and
Who offer credit within the prescribed threshold values in terms of the Act.

Consumers Include:

Natural person (individuals)
Certain juristic persons [e.g. companies, close corporations, trusts (with more than three individual trustees), partnerships and an association of persons] whose asset value or annual turnover, together with the combined asset value or annual turnover of all related juristic persons, at the time the agreement is made, equals or exceeds the threshold value of R1 million.

Other Organisations Include:

Debt Counsellors
Credit bureaux

National Credit Act (No. 34 of 2005)

WHAT ARE THE CONSUMER RIGHTS IN TERMS OF THE NATIONAL CREDIT ACT?

The NCA lists a number of Consumer rights, which are protected by the Act. A party who breaches Consumer rights protected by the Act, commits an offence in terms of credit law which enables Consumer recourse through the established dispute channels.

The following are Consumer rights protected in the NCA:

To apply for credit
To be protected against discrimination in the granting of credit
To be informed why credit has not been granted, should you ask
To receive a free copy of your credit agreement
To receive a credit agreement in plain and simple language
To have your personal and financial information treated confidential
To understand all fees, costs, interest rates, the total instalment and any other details
To say no to increases on your credit limit
To decide whether or not you want to be informed about products or services via telephone, SMS, mail or e-mail campaigns
To apply for debt counselling should you be overwhelmed by debt

National Credit Act (No. 34 of 2005)

KEY POINTS OF THE NATIONAL CREDIT ACT

MARKETING TO CONSUMERS
The National Credit Act restricts and outlaws certain practices of loan canvassing such as door to door selling, uninvited canvassing at workplaces or homes. The NCA also increased control over marketing practices and advertisements such as automatic credit limit increases and negative option marketing i.e. if you do not decline, we will assume you agree. In addition, the National Credit Act provides for clear and understandable marketing communication. Consumers must receive a detailed written quote, which is valid for 5 business days, to enable quote comparisons from different credit providers.

Capped Interest Rates And Other Fees And Charges

The National Credit Act effectively caps the interest rates, fees and other charges which credit providers can charge, depending on the type of credit and when the credit was granted. The maximum interest rate, in most cases, is based on a formula which is dependent on the SA Reserve Bank Repurchase (Repo) rate at the time that the credit was granted. Essentially, there are seven rate categories namely mortgage agreements; credit cards/facilities; unsecured credit transactions; short-term credit transactions; developmental credit agreements; other credit agreements and incidental credit agreements.

The NCA places a cap on the maximum amount that a credit provider can charge for other fees such as initiation fees, monthly service, and default and collection costs. While a loan protection policy is permitted, the charges must “be reasonable” and the Consumer may use/cede an existing insurance cover.
LOAN APPLICATION
The National Credit Act requires credit providers to supply simple contracts that are easy to understand, in two official languages and the Consumer must receive a free copy. Consumers are also entitled to a reason, on request, when credit is denied by the credit provider. The NCA requires credit providers to do due diligence to ensure the Consumer can afford the loan and all loans must be recorded on a register to prevent Consumers becoming over-indebted.
RECKLESS LENDING
Credit providers are in contravention of the NCA and may be judged guilty of reckless lending if the Consumers ability to afford loan repayments is not assessed before granting credit. Credit providers may be subject to severe penalties and may even forfeit their right to recover the debt if they are judged guilty of reckless lending. However, Consumers who failed to fill in the loan application fully and honestly are not protected by the NCA.
THE DEBT COUNSELLOR & COUNSELLING
The National Credit Act gives Consumers the right to apply for financial management and debt counselling assistance if he or she is unable to pay their debts. The Debt Counsellor (DC) is registered by the NCR after successful course and exam completion. Debt counsellors will help over-indebted Consumers restructure/rearrange their debt repayments, this process can be voluntary or made an order of the court.

All DCs must be registered with the National Credit Regulator and fees are prescribed in terms of the NCA. Consumers must understand and accept the process, charges and payments before undergoing debt counselling. Once the Consumer has signed for debt counselling, the credit bureaux are notified and the Consumer will be unable to obtain further credit for the duration of debt counselling until the process is finalised/withdrawn.
CREDIT BUREAUX
The National Credit Act requires all credit bureaux to be registered with and submit reports to the National Credit Regulator. Credit bureaux are required to ensure data is accurate at all times and that inaccurate information is immediately removed without cost to the Consumer after the Consumer has lodged a complaint. The NCA regulations stipulate how Credit bureau information is obtained, used, and for how long it should remain on a Consumer’s profile.

In addition, Consumers are eligible for one free credit report from each credit bureau each year in order to effectively manage their credit profiles.
THE NATIONAL CREDIT REGULATOR (“NCR”) AND THE CONSUMER TRIBUNAL (“CT”)
The National Credit Act established the National Credit Regulator (NCR) to regulate the credit industry and ensure that credit providers comply with the NCA. In addition, the NCR is responsible for investigating and evaluating Consumer complaints about alleged contraventions of the NCA by credit providers. All credit providers, credit bureaux and debt counsellors must register and report to the NCR.

In addition to the NCR, the National Credit Act established the Consumer Tribunal with equal status to a court of law to hear and adjudicate on: Applications made in terms of the National Credit Act (34 of 2005) by Consumers; credit providers and credit bureaux; debt counsellors and the National Credit Regulator including applications for interim relief and a review of the National Credit Regulator’s decisions; matters referred to by the National Credit Regulator or complaints related to allegations of prohibited conduct, and consent orders.

National Credit Act (No. 34 of 2005)

MECHANISMS OF THE NATIONAL CREDIT ACT

The Act encourages Consumers to resolve their complaints directly with the credit provider, and failing that to use “alternative dispute resolution” mechanisms such as ombuds offices. Failing a satisfactory resolution to the complaint with the credit provider and ombud, the Consumer can escalate the complaint to the NCR for investigation.

Here are the contact details for complaints related to breaches of the NCA:

National Credit Act (No. 34 of 2005)