Chapter 12 - Consumer Law
The National Credit Act (No 34 of 2005) (NCA)
The NCA came into effect on 1 June 2007 and it sets out what the law is when consumers take loans or buy goods on credit. It also provides for the establishment of the National Credit Regulator (NCR), which monitors activities in the credit market and ensures that credit providers, for example, banks, microlenders or companies selling goods on credit, comply with the NCA.
The National Credit Act (“NCA”), 2005 has had a major impact on protecting the rights of South African consumers who have entered into credit agreements since this time. Many also agree that it protected South Africa from the most damaging effects of the global economic crisis, which was caused by reckless credit granting in the USA and elsewhere. The NCA put controls in place which restrict credit marketing practices, ensure that assessments regarding a consumer‘s ability to afford buying goods on credit, are undertaken when they apply for credit, penalize companies who grant credit recklessly, limit interest rates and the total amount that credit providers can charge for other fees including when an account goes into arrears, and regulate credit bureaus and debt counselors.
The National Credit Regulator (NCR) and the Consumer Tribunal (CT)
The Act provides for the establishment of the NCR to regulate the credit industry and ensure that credit grantors comply with the NCA. The NCR has a complaints division where consumers can complain, and they have an investigation unit which investigates alleged contraventions of the Act. The NCR refers cases which have merit to the Consumer Tribunal. All credit providers, credit bureaus and debt counselors must register and report to the NCR.
The Consumer Tribunal has also been established with the same status as a high court, to hear cases where companies have allegedly not complied with the NCA. They can also grant consent orders.
Certain practices of agents canvassing for loans are now unlawful or restricted, for example, door to door selling, canvassing at workplaces and homes without an invitation.
Marketing practices and advertisements are also more controlled to protect consumers, for example, credit facility limits may not be automatically increased, and negative option marketing is unlawful (”if you do not refuse the offer, we will assume you agree”).
Consumers must also be given a quote, valid for 5 days, with all the details about the loan, so that consumers can shop around and compare prices.
Putting a ceiling on interest rates and fees and charges
There is now a maximum interest rate which credit providers can charge, depending on the type of credit and when the credit was granted. The rate in most cases is based on a formula which is dependent on the South African Reserve Bank Repurchase (Repo) (“RR” below) at the time that the credit was granted. The repo-rate has been adjusted a number of times during the past 18 months so check with the Reserve Bank for the repo-rate at the time that the agreement was signed.
The table below sets out the rates per category
The NCA also places a maximum amount that can be charged on other fees, for example, initiation, service and default fees and collection costs.
Insurance cover on loans is allowed but the charge must “be reasonable” and the consumer has the right to use or cede an existing policy instead of taking a new policy.
Protection when making a loan application
Contracts must be in simple language, available in at least two languages and consumers must receive a copy.
Consumers are entitled to a reason when credit is refused.
All credit providers must assess whether a consumer can afford the loan, and all loans must be recorded on a register so that a consumer will not become overindebted.
Any credit provider that gives credit without considering whether a client can afford to repay the loan, may be guilty of reckless lending. There could be severe penalties and the credit provider may even lose the right to recover the debt.
A consumer will not be protected if they did not answer questions fully and honestly in the loan application process, for example, about existing debts and expenses. In such cases the credit grantor will not be guilty of reckless lending.
When a consumer cannot pay their debts, they will have the right to approach a debt counselor for assistance. The counselor will help the consumer to restructure or rearrange their debt repayments if the consumer is deemed to be over-indebted – this arrangement can be made an order of court.
Debt counselors must be registered with the National Credit Regulator and do charge for their services (there are guidelines as to what these fees are). Interest continues to be charged on the debt.
Once a consumer has signed for debt counseling, this is noted on the credit bureau’s consumer profile and s/he is not allowed to obtain further credit until the counseling process is finalized or withdrawn.
All credit bureaus must be registered with and submit reports to the National Credit Regulator. They must ensure that data is accurate, and that inaccurate information is immediately removed without cost to the consumer after the consumer has lodged a complaint.
The NCA regulations determine how long information should remain on a consumer’s profile, as follows:
Every person is entitled to receive one free copy of their credit record each year.
Where can consumers lodge a complaint?
The Act encourages consumers to resolve their complaints directly with the company, and failing that to use “alternative dispute resolution” mechanisms such as ombuds offices.
If the consumer has tried to resolve the complaint with the company and they do not give him/her the required response, then you can help the consumer to contact the following offices:
For any complaint about a bank:
For any non-bank credit, credit bureau or debt counseling complaint:
For any complaints about debt counselors/debt counselling
The National Debt Mediators Association
Before contacting the credit ombud about a credit bureau complaint, contact the credit bureaus first:
If you are unhappy with the outcome from the above, go to the NCR
National Credit Regulator
Tel: 0860 627 627