The South African population is mostly composed of low-income earners who have little access to regular credit instruments provided by banks. Their limited choice forces them to go to micro-lenders who charge exorbitant rates that will just get you into a deeper debt. Moreover, illiterate individuals are often taken advantage of by lenders who don’t care if their clients suffer from over-indebtedness.
But now, things have changed for the better, thanks to the National Credit Act.
What is the National Credit Act?
The National Credit Act introduced measures that will protect the rights of consumers to avail fairly valued debt instruments. Specific laws have been put in place to help consumers make informed decisions before availing credit instruments.
A greater responsibility has been imposed on credit providers to give more protection to consumers who are often taken advantage of by exploitative lenders. They’re now required to refuse giving credit to people who won’t be able to repay it.
It used to be difficult for people to understand the complexity of loan agreements. This makes them vulnerable to being victimized by obligations and fees carefully hidden in the fine print of contracts. The massive exploitation resulted in the over-indebtedness of a large part of the working population.
These lending problems led to the development of the National Credit Act (35 of 2005), replacing the Credit Agreements Act (75 of 1980) and the Usury Act (73 of 1968). The National Credit Regulator is the administrative body responsible for the enforcement, research, registration, policy development, and investigation of items covered by the Act.
A number of consumer rights were strengthened by the Act, including the following items:
- The right to apply for credit
- Protection against discrimination of lenders in granting credit
- The right to know the reason for being refused to enter a credit transaction
- The right to receive documents and information in a language a consumer is most proficient in
- The right to choose whether to receive documents in electronic form or in hard copy
- Receive a free copy of the credit agreement
- To have your personal and financial information treated with utmost confidentiality
- The right to say no to an upgrade in your credit limit
- To know all about the fees, costs, and interest rates involved in the credit agreement
- The choice to choose whether to receive information about promoted products or not
- The right to apply for debt counseling in case of over-indebtedness
The National Credit Act applies to all credit transactions that transpire between family members, friends, partners, and businesses. Agreements that involve credit cards, credit lines, overdrafts, leases, installments, credit guarantees, and sub types of secured and unsecured loans are all subject to the rules imposed under the Act.
With the enforcement of the National Credit Act, South African citizens gained more accessibility to credit instruments and received additional protection against fraudulent lenders.
The biggest impact that the Act brought to the table was its ratification regarding information disclosure and credit assessment conducted by lending companies. Below is a summary of what changed under the new rules.
A lot of loopholes in the old regulation gave way for unscrupulous credit agreements to take place. Credit providers used to disclose only selected information that gave the upper hand over unknowing clients. From hidden fees, dubious discounts, and interest-free promos to compounding interest, penalties in the form of higher interest rates, and confusing special offers, you’ll see how consumers are led into danger like lambs to the slaughter.
The lack of comprehensive disclosure of term agreements left many borrowers clueless on how their loans bloated into a huge amount after only a few months of repaying it. They felt cheated and powerless since these creditors are operating under a legal framework.
The regulation imposed under the National Credit Act resolved this issue. Lenders are now required to give a free, full, and transparent quotation to consumers before enticing them to enter a legal credit agreement. The quotation should also remain valid for 5 business days. This gives consumers more time to think things through before signing the contract. Credit providers can’t threaten consumers to revoke the quotation if they don’t sign the agreement within the day.
In the fine print you should also be able to find details about the following regarding your loan:
- Installation, reconnection, delivery, and registration fees, if applicable
- The nature, cost, fees, and remuneration of additional insurance policies you may sign together with your loan contract
- The administrative fees you may have to pay if you default on the loan
- The circumstances that you have to satisfy for your loan to be tagged as a default
All these information should be given to you free of charge. You can request a copy of the contract, complete with all the details listed above.
Loan quotations should also include the principal debt, initiation fees, the ongoing credit cost, and the annual interest rate. The type of interest rate, whether it’s fixed or variable, should also be discussed with clients.
Over-indebtedness stems from the inability of a borrower to handle all repayment obligations on time. This happens when the amount of money flowing out of the household due to loan repayments has exceeded the monthly income of the client.
The National Credit Act requires credit providers to review the financial capability of loan applicants. Those who don’t have the capability to repay the loan are not allowed to take further loan contracts until they free up some space in their financial income or find other income streams that will increase the amount they earn annually.
Reckless lenders may be subjected to penalties and even have the loan they gave forfeited from being recovered. On the other hand, clients who provide the wrong information just to get the loan are left unprotected by the National Credit Act as punishment for being irresponsible borrowers.
Under the Act, consumers are given the right to get financial management assistance and undergo debt counselling programs. Loan restructuring is one of the most viable option for debtors to solve over-indebtedness. Individuals undergoing debt counselling are barred from getting into another credit agreement until they’re cleared by their debt counsellors.
The National Credit Act introduced a lot of provisions that help protect the citizens of South Africa in obtaining credit instruments. Stricter regulations are imposed on credit providers to make sure they don’t recklessly lend money to people who they can take advantage of.
As a consumer, you should always be aware of what you’re getting into and the rights you can exercise when touching credit instruments. Always read the fine print to make sure that even the tiniest details don’t escape your eyes.