March 31, 2010
By Brude Cameron and Laura Du Preez
5. National credit Act
The National Credit Act (NCA) has been acclaimed as one of the reasons South Africa has not been as badly affected by the global economic turmoil as have some other countries. This is because the Act has limited the potential for South Africans to borrow too much, while it has prevented banks and other credit providers from engaging in the irresponsible lending practices that sparked the sub-prime mortgage crisis in the United States.
In 2004, the Department of Trade of Industry (DTI) published draft legislation under the name of the Consumer Credit Bill. On March 15, 2005, the NCA was signed into law. It replaced three pieces of legislation: the Usury Act, the Exemption Notice (to the Usury Act) and the Credit Agreements Act.
In a nutshell, the NCA:
Establishes rights for consumers, including measures that enable you to make informed decisions before you buy goods and services on credit;
Places a greater responsibility on credit providers to refuse to give you credit if you cannot afford it; and
Regulates how credit bureaus, which hold and provide information on your creditworthiness, do business.
All credit transactions – home loans, car loans, microloans, and clothing and retail accounts – fall under the NCA. It also encompasses things such as preventing prospective employers from rejecting your employment application because you have a poor credit record, unless you are applying for a position that requires you to deal with money.
The NCA does not seek to prevent the granting of credit, but rather to ensure that lending and borrowing is conducted responsibly.
How the Act helps you
The NCA covers a range of issues. They include:
1. Registration. All credit providers, from stores to banks, must register with the National Credit Regulator (NCR) before they can offer credit.
2. Better disclosure to borrowers. Lenders must inform you of the nature of a credit agreement in clear and understandable language.
Importantly, the Act specifies that a credit provider must give you a quotation or pre-agreement disclosure before you enter into a credit agreement. This quotation must be valid for five business days.
All quotations must contain details such as:
The full cost of the credit to you. This must be the total of all costs associated with the debt, not merely the minimum monthly instalment or the principal debt (the original loan amount or the purchase price of an item).
Ongoing credit costs.
Initiation fees.
Whether the interest rate is fixed or variable.
The annual interest rate expressed as a percentage, as well as the interest (calculated in rands), based on the interest rate at the start of the contract, over the full term of the contract.
Any residual or final amounts payable at the end of the contract (residual amounts are often payable in the case of vehicle-financing agreements).
The number of instalments and the amount of each instalment.
You must also be told of:
Any delivery and installation charges;
Any connection fees (in the case of cellphones);
Any taxes, and licence or registration fees;
The nature of any additional insurance contracts you enter into, such as credit life assurance in case you die or are disabled before the loan is paid off, and short-term insurance on the purchase, such as a motor vehicle;
The cost of any such additional insurance; and
Your right to waive an insurance policy proposed by a credit provider and to substitute it with a policy of your choice.
The Act requires that you be given, without charge, a copy of the document that records the agreement, which must be in clear, concise and plain language.
3. Maximum interest rates. The maximum interest rates that credit providers may charge are linked to the South African Reserve Bank’s repurchase (repo) rate (7.5 percent in May this year). This means the ceiling interest rates will change each time the central bank announces a change in the repo rate.
Examples of the maximum annual rates are:
Home loans – the repo rate multiplied by 2.2, plus five percent; and
Credit and store cards, and overdrafts and other credit agreements (including motor vehicle loans) – the repo rate multiplied by 2.2, plus 10 percent.
4. Fees. The NCA specifies the fees you may be charged when you enter into a credit agreement. These fees are:
A prescribed maximum initiation fee, which cannot be charged unless you actually enter into the credit agreement. You must be offered the option of paying this fee upfront rather than adding it to the principal debt.
For example, in the case of home loans, the maximum initiation fee is R1 000 for every credit agreement, plus 10 percent of the amount of the agreement in excess of R10 000, with an overall maxi-mum of R5 000. The maximum fee of R5 000 kicks in at a loan amount of R50 000.
In the case of unsecured loans (credit and store cards, and overdrafts), as well as other credit facilities (including motor vehicle loans), the maximum initiation fee is R150 for every credit agreement, plus 10 percent of the agreement in excess of R1 000, but capped at R1 million.
The cost of any extended warranty agreement.
Connection fees, levies or charges.
Taxes, licence or registration fees.
Credit insurance.
A monthly service fee up to R50.
5. Consumer information held by credit bureaus. The NCA requires businesses and shops that provide credit bureaus with information about your payment habits to take reasonable steps to ensure that such information is accurate, up to date, relevant, complete, valid and not duplicated to make it appear that your financial situation is far worse than it is.
A business or shop that plans to list adverse information about you at a credit bureau must give you at least 20 business days’ notice of its intention to do so.
Adverse information includes information that you are a delinquent or slow payer, that you are in default on your accounts or that you cannot be contacted. It also includes enforcement actions taken by a credit provider, such as if the provider has handed over your loan to attorneys for legal action.
Credit bureaus must ensure that the information they hold about you is accurate and up to date. If you believe you have been blacklisted unfairly, you have the right to challenge or dispute the information that appears on your records at the credit bureaus.
All credit bureaus must register with the NCR, which monitors their compliance with the NCA. There are eight credit bureaus, and you can find their contact details on the website of the Credit Information Ombud, www.creditombud.org.za.
These are the steps you should follow to challenge or dispute information on your credit profile:
Contact the credit bureau and obtain a copy of your full credit record (you are entitled to request one free report from each credit bureau each year).
Once you have a copy of your record, you should notify the credit bureau of the information on the report you wish to dispute and lodge a formal complaint. Make sure the credit bureau gives you a reference number when you lodge your complaint.
The credit bureau has 20 working days to resolve the dispute.
If you are not satisfied with the answer from the credit bureau or if there is no outcome after the prescribed 20 working days, you can refer your complaint to the Credit Information Ombud. To do this, you will need the reference number the credit bureau should have given you when you lodged your complaint with it.
6. Unsolicited selling. The NCA specifically prohibits any credit provider from harassing you in an attempt to persuade you to apply for credit or to enter into a credit agreement. The Act:
Bans credit providers from entering into agreements at a private dwelling, except when you have arranged for a credit provider’s representative to visit your home.
Curbs the sale of credit at your place of employment, unless the visit is by way of invitation from you or through a formal arrangement between a credit provider and your employer or a trade union. But neither the employer nor the union may receive a fee for such an arrangement.
Prevents a credit provider from automatically increasing the limits on your credit card, overdraft or any other credit facility. With your consent, a credit provider may increase your credit facility, such as on your credit card, only once a year and then by the lesser of:
* The average monthly purchases or cash advances you charged to the credit facility during the 12 months immediately preceding the date on which the credit limit is increased; or
* Your average monthly payments during the 12 months immediately preceding the date on which the credit limit is increased.
7. Misleading advertising. The Act bans misleading advertising, such as not informing you of the negative consequences of taking up a credit offer.
The Act sets out requirements for advertisements, including that where an advertisement refers, in any way, to the cost of credit, the advertisement must disclose the instalment amount, the number of instalments, the total amount of all instalments (including interest, fees and compulsory insurance), the interest rate, and the residual or final amount payable should there be such an amount.
In print advertisements, the required information must not be hidden away in print that is so small that it cannot be read.
8. Negative option marketing. The Act bans any selling practice that requires you to provide a negative response to any offer of credit that requires you to enter into a credit contract. Any such contract requires your express consent.
9. Reckless credit. The Act prohibits the provision of reckless credit. Credit is regarded as having been granted recklessly when:
A credit provider gives you credit without first assessing your ability to take on further credit;
It can be proved that you generally did not understand the costs, risks or obligations of the credit agreement you signed; or
You are over-indebted as a result of taking on new credit.
The Act places an onus on you to be truthful about your debt obligations and your ability to take on new debts when you apply for credit.
If a court finds that credit was granted to you recklessly, it may make an order that sets aside all or part of your rights and obligations under the agreement.
10. Over-indebtedness. You are considered to be over-indebted if your total monthly debt repayments exceed your net income (take-home pay) after deducting the cost of your minimum living expenses. If you are over your head in debt, a court can place your financial affairs under the care of a debt counsellor or you can seek debt counselling voluntarily.
A court may refer you to a debt counsellor to assess your financial circumstances. The counsellor will have to report back to the court on your situation. If the court finds that you have too much debt, it can order that your debt be restructured. If this happens, you will not be allowed to enter into any further credit agreements, other than an agreement in which all your debts will be consolidated, until you have met your obligations under the restructured or consolidated agreement.
Your creditors may not enforce any litigation process against you while you are paying off your debts under a debt-restructuring arrangement.
You can apply to a debt counsellor. If the counsellor concludes that you are indeed over-indebted, he or she will draft a debt repayment plan. Once all your creditors agree to the plan, the counsellor will apply to the National Consumer Tribunal for a consent order to implement the plan.
Debt counsellors may charge you fees for restructuring your debt. The NCR and the Debt Counsellors’ Association have proposed the maximum fees that can be charged pending the finalisation of fee regulations by the DTI. Currently, the fee for applying to a debt counsellor for debt restructuring may not be more than R50.
11. Complaints. You can complain to the NCR about any credit-related matters that are governed by the NCA.
6. Consumer Protection Act
Less than a year after the NCA became law, the Consumer Protection Bill was tabled in Parliament. The Consumer Protection Act was signed into law in April this year but will only become fully operational in September 2010. The intervening period will allow for regulations to be drafted and various structures to be established in terms of the Act. It will also give businesses time to align their practices with the Act.
In effect, the Consumer Protection Act is the third of three legislative legs designed to protect consumers. The first leg is the FAIS Act, which aims to ensure that you are provided with appropriate financial services products by "fit and proper" FSPs. The second leg is the NCA, which aims to ensure that you do not become over-indebted.
Many businesses are affected by all three Acts – for example, motor vehicle companies and furniture stores that sell goods on credit and require buyers to take out various types of insurance.
The purpose of the Consumer Protection Act is to protect you from exploitation and unfair practices by unscrupulous businesses, including scam investment schemes, and to empower you to make wise and secure purchasing decisions. It aims to achieve this by introducing, among other things, a system of product liability and improved redress if goods and services do not meet your expectations.
The Consumer Protection Act replaces, in a new and simplified format, the provisions of five, now repealed Acts, including the Consumer Affairs (Unfair Business Practices) Act, the Trade Practices Act, the Sales and Service Matters Act, the Price Control Act and the Merchandise Marks Act.
The Act confers certain rights on consumers. You have the right to:
Privacy. The Act gives you the right to refuse to accept direct marketing, to ask a company not to contact you with marketing offers and to pre-emptively block marketing offers that are not made in person. Marketing offers not made in person include all those made by post, phone or email.
Direct marketing is defined as an approach (in person, by mail or electronically) to you by someone who wants to sell you something or ask you for a donation. It could also include the sale of products where you are given a limited period in which to accept the sales offer. The Act gives you the right to:
Demand that the company concerned removes you from its contact list.
* Enter, on a register to be provided by the National Consumer Commission, a pre-emptive block, either generally or specifically, against any communication primarily intended for direct marketing. Companies that engage in direct marketing will be required to check the register and will not be allowed to direct any unsolicited offers to you.
* Report to the National Consumer Commission direct marketers that attempt to contact you at your home during certain hours, unless you have specifically agreed that they may do so.
* A cooling-off period of five business days in which you may cancel, without penalty or cost, a direct marketing transaction, provided you send the seller written notice of cancellation. The period starts from the moment you conclude the transaction or the date on which you receive the goods.
Choice. This wide-reaching section of the Act gives you the right to:
* Cancel, with 20 days’ notice, a contract after its term has expired (this will prevent fitness clubs and cellphone companies rolling over contracts for lengthy periods);
* Cooling-off periods in which you can cancel orders or return goods to direct marketers; and
* Return unsafe or defective products within 10 days of purchase and have your money refunded.
Disclosure and information. You must be told about any service or product in plain and understandable language. This provision extends to the cost and, in the case of a product, the labelling.
Fair and responsible marketing. This section of the Act bans practices such as:
* Bait marketing, where a supplier advertises goods or service that are in very limited supply without warning you of the shortage;
* Negative option marketing, where goods or ser-vices are provided, unless you specifically tell a supplier that you do not want them; and
* Referral selling, where you receive a rebate or commission for providing a supplier with the names of other consumers.
Fair and honest dealing. This section bans everything from aggressive and threatening sales tactics to scam investment schemes.
The section has been framed quite widely to deal with scamsters who sidestep financial sector laws and regulations. The Act states that any scheme that promotes unlawful activity or that intends to disguise the nature, location, source of ownership or control of the proceeds of an unlawful activity will be regarded as fraudulent.
The schemes that the Act outlaws include:
* Schemes to gain possession or control of your property fraudulently. A fraudulent property scheme includes one where a person tries to obtain a property from you by false pretences or with the intention to defraud you. This could include getting you to hand over or surrender your property on that person’s instructions. That person is not allowed to pretend to own your property, or to try to transfer your property. A person cannot invite a third person to participate, for a fee, in the transfer of any property he or she is not authorised to transfer, and cannot demand or accept any money from another person in connection with any of these activities.
* Membership of and recruitment to a multiplication scheme, a pyramid scheme and a chain-letter scheme involving the payment of money.
A multiplication scheme is where someone offers, promises or guarantees you an effective annual interest rate that is "at least 20 percent above the repo rate" at the date of your investment, irrespective of whether or not you become a member of the lending institution.
An arrangement is a pyramid scheme if:
- You receive money or compensation primarily as a result of recruiting new participants, rather than from selling goods or services;
- The emphasis in the scheme is on recruiting new participants, and each new participant is required to pay money, which is distributed to one, some or all of the existing participants, irrespective of whether the new participant receives any goods or services;
- You are automatically assigned to the lowest level of the scheme and move to a higher level only once you have recruited new participants; and
- Once you have recruited new participants, you are able to receive some of the money that is paid over by the new participants in the scheme.
Fair, just and reasonable terms and conditions. Businesses are banned from supplying, or from entering into an agreement with you to supply, any goods or services at a price or on terms that are manifestly unfair or unreasonable. Businesses are also banned from placing any requirement on you to waive any right or any liability of the supplier on terms that are unfair or unreasonable.
Fair value, good quality and safety. This section includes the right to safe, good-quality services and goods, and introduces an implied warranty.
In terms of the implied warranty, you have up to six months after purchasing an item to return it to the store from which you bought it if the product is found to have a defect or a fault.
If you return your purchase because it is unsafe or of inferior quality, the store will have to repair or replace your purchase, or refund you. If the store chooses to repair your purchase and the item fails within three months of the repair, the store will be obliged to replace your purchase or refund you.
The implied warranty is in addition to any express warranty or condition stipulated by the store that sold you the item.
Complaints and recourse
If your rights are infringed or threatened, or if a practice banned in terms of the Act takes place, the Act provides procedures and structures to deal with your complaints and any contravention of the Act.
You will be able to complain directly to the National Consumer Tribunal, which was established in terms of the NCA, or to the relevant ombudsman, such as the Ombudsman for Banking Services.
If the company about which you are complaining does not fall under the jurisdiction of an ombudsman, you can complain to the consumer court in your province (if one has been established by provincial legislation). These courts will be run by the DTI.
Alternatively, you can complain to the National Consumer Commission, which is being established in terms of the Act as an enforcement/investigative body on consumer protection issues.
The commission is scheduled to be established by May next year and is expected to start implementing the Act by September next year.
The National Consumer Commission may:
Issue a notice of non-referral if your complaint appears to be frivolous or does not fall within the ambit of the Consumer Protection Act;
Refer your complaint to a consumer court or a relevant ombudsman; or
Initiate its own investigation. On receiving an investigation report, the commission may issue you with a notice of non-referral, refer the matter to the National Prosecuting Authority, propose a draft consent order or issue a compliance notice.
If the person or company to which your complaint refers agrees with the commission’s finding, the National Consumer Tribunal or any court with jurisdiction can confirm the agreement as a consent order. With your agreement, the consent order could include an award of damages to you.
If the commission issues a non-referral notice, you may take the matter to a consumer court or the National Consumer Tribunal.
The tribunal can impose administrative fines of up to 10 percent of a company’s annual turnover in the previous financial year, or R1 million.
For the third and final part of this story see here.
This article was first published in Personal Finance magazine, 3rd Quarter 2009.See what’s in our latest issue
  
 
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