CityPress - - Business -

One of the big­gest changes to the Na­tional Credit Act (NCA) is an amend­ment to the max­i­mum in­ter­est and fees that you can be charged on dif­fer­ent types of loans. These caps ap­ply from May 6 2016 and may not be ret­ro­spec­tively ap­plied to loans you took out be­fore then.

The good news is that the max­i­mum in­ter­est rates you can be charged are linked to cal­cu­la­tion for­mu­las us­ing the repo rate (cur­rently 7%). The repo rate is the in­ter­est rate at which the SA Re­serve Bank lends money to com­mer­cial banks such as FNB, Absa, Stan­dard Bank, Ned­bank and Capitec. The re­vised capped in­ter­est rates on loans are: Un­se­cured credit (per­sonal loans etc): Repo rate + 21% per an­num = 28% Mort­gage agree­ments (home loans): Repo rate + 12% per an­num = 19% Credit fa­cil­i­ties (credit cards and store cards): Repo rate + 14% per an­num = 21% De­vel­op­men­tal credit: Repo rate + 27% per an­num = 34% In­ci­den­tal cred­its: For ex­am­ple, if you are late pay­ing your doc­tor’s bill, he can charge you in­ter­est at 2% per month. Other credit agree­ments: Repo rate + 17% per an­num = 24% Short-term trans­ac­tions: 5% per month on the first loan and 3% per month on sub­se­quent loans within a calendar year.

The max­i­mum ser­vice fee that may be charged on credit agree­ments has in­creased from R50 a month to R60 a month (ex­clud­ing VAT).

The max­i­mum ini­ti­a­tion fees on credit agree­ments have also been changed and now stand at:

Ini­ti­a­tion fee on a home loan: R1 100 plus 10% of the amount in ex­cess of R10 000, capped at a max­i­mum fee of R5 250.

Ini­ti­a­tion fee on credit fa­cil­i­ties (credit cards and store cards), per­sonal loans and short-term credit trans­ac­tions: R165 plus 10% of the amount in ex­cess of R1 000, capped at a max­i­mum fee of R1 050.

Ini­ti­a­tion fee on de­vel­op­men­tal credit for small busi­nesses: R275 plus 10% of the amount in ex­cess of R1 000, capped at a max­i­mum fee of R2 600.

Ini­ti­a­tion fee on de­vel­op­men­tal credit for low­in­come hous­ing: R550 plus 10% of the amount in ex­cess of R1 000, capped at a max­i­mum fee of R2 600.

Ian Wa­son, CEO of DebtBusters, says that in the past, lenders had the abil­ity to charge as much as 32.65% for un­se­cured loans.

“Now that they are be­ing forced to re­duce that to 21%, they may get far more se­lec­tive about who they lend money to. This could drive more peo­ple to­wards loan sharks and other un­ac­cred­ited lenders.

“Of­ten, these fringe play­ers don’t ad­here to the NCA and the Debt Coun­selling Rules Sys­tem, so the Na­tional Credit Reg­u­la­tor will need to po­lice this,” he cau­tions.

Af­ford­abil­ity as­sess­ments

The meth­ods used by credit providers to de­ter­mine whether or not you can af­ford a loan are now stricter than be­fore. Credit providers now have to:

En­sure that they ob­tain three months of payslips; or the lat­est three months of bank state­ments re­flect­ing three salary de­posits; or the lat­est three months of doc­u­mented proof of in­come; or lat­est fi­nan­cial state­ments.

Work on av­er­age over not less than three months in cases where there is a ma­te­rial vari­ance in the in­come. This change is im­por­tant for con­sumers to take note of be­cause in the past it was of­ten pos­si­ble to open an ac­count just by pre­sent­ing an iden­tity doc­u­ment. Now you have to ar­rive pre­pared with the nec­es­sary doc­u­men­ta­tion.

The next step is for the credit provider to per­form a spe­cific cal­cu­la­tion to as­cer­tain the fol­low­ing:

Your gross in­come, us­ing the doc­u­men­ta­tion sup­plied by you. All statu­tory de­duc­tions. What your “min­i­mum liv­ing ex­penses” are – ac­cord­ing to the min­i­mum ex­pense norms – to es­tab­lish the net in­come.

All your ex­ist­ing debt obli­ga­tions, as may be re­flected by the credit bu­reaus. The net re­sult is your “dis­cre­tionary in­come”. The “dis­cre­tionary in­come” is the amount avail­able to re­pay new debt. The monthly re­pay­ment on any new credit agree­ment must be less than this amount.

Wendy Monk­ley, head of marketing at DebtBusters, notes that the DebtBusters’ Debtome­ter re­port for the first quar­ter of this year in­di­cates that banks’ share of over­all debt is down 55% (from 72% in 2012), sig­nalling a scal­ing back on lend­ing by credit providers, “which was what DebtBusters pre­dicted in March last year – a down­ward trend in un­se­cured lend­ing”.

Monk­ley says that while the amend­ments to the af­ford­abil­ity as­sess­ment reg­u­la­tions are a step in the right direc­tion, con­sumers with nowhere left to turn may find them­selves tempted to ap­proach loan sharks for as­sis­tance.

“The un­for­tu­nate re­al­ity is that many con­sumers don’t know about debt coun­selling and how it can ben­e­fit them,” she says.

“Debt coun­selling is the best so­lu­tion for con­sumers who are strug­gling to pay their way and who need their debt con­sol­i­dated into a lower monthly re­pay­ment to free up cash for liv­ing ex­penses.”

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