More attempts to curb reckless lending
The recent credit amnesty for South African consumers, passed in March, has received so much publicity that many people think that this is all that changed in the National Credit Act (NCA). However, several other measures to curb reckless lending were also added when the president signed the amendments into law in May.
The Minister of Trade and Industry (DTI) Dr Rob Davies has now published the new National Credit Regulations and regulations for the amendment of existing regulations. The other amendments include the requirement that all credit providers must now register with the National Credit Regulator, a compulsory affordability assessment must be used when granting credit, consumers who default must be given the opportunity to remedy the default and certain charges are now prohibited.
The NCA Amendment Act addresses the concern that credit providers are still involved in irresponsible and reckless lending practices as well as providing clarity on some of the provisions in the NCA.
Zodwa Ntuli, deputy director-general of Consumer and Corporate Regulation at the DTI, said in a statement that credit providers inconsistently determined the models for affordability assessments. This resulted in credit in excess of billions being granted to consumers, increasing the level of household indebtedness.
Over-indebtedness is caused by reck-
less lending by marketing unsolicited loans, provision of pre-approved credit facilities, including credit cards and failure by some credit providers to conduct affordability assessments, Ntuli said.
EVERYBODY MUST REGISTER
The NCA currently only requires lenders with more than 100 credit agreements or principal debt exceeding R500 000 to register with the NCR. The amendment now requires all credit providers, including smaller credit providers to register.
Affordability assessments, which will now become compulsory, represent the most important change because they will protect consumers from becoming the victims of reckless lending, which has been at the core of credit problems in the industry and communities where consumers are often in so much debt that they are unable to afford food. This kind of lending was said to have contributed to labour unrest among workers.
The current provisions in the NCA allow credit providers to develop their own affordability assessments, but with the amendment, the minister can prescribe affordability assessment regulations about discretionary income and the portion that must be left out when affordability assessments are done to prevent credit providers from providing credit to the maximum of a consumer’s income. Ntuli explained that the introduction of the affordability assessment regulations is necessary and urgent in order to stop reckless lending and, because it is legally binding, credit providers are compelled to use it. Credit providers must, before providing credit, determine consumers’ financial means and prospects, existing financial obligations and debt repayment history.
This involves calculating consumers’ income that has been earmarked for certain regular payments as well as income that can be used for any other spending. All debts, including monthly debt repayment obligations, as ref lected on the consumer’s credit profile held by a registered credit bureau, must be includ- ed. An important factor here is that maintenance obligations must also be included.
In addition, the affordability assessment in the new regulations makes provision for a ‘ buffer’, an amount that will ensure that households can put essentials on the table after repaying their debts. “The success of the affordability assessment to protect consumers depends on the honesty and responsibility of consumers and credit providers,” Ntuli said.
Credit agreements such as developmental credit agreements, school or student loans, public interest loans, pawn transactions, incidental credit agreements, emergency loans, temporary increases in credit facilities, unilateral credit increase, certain pre-existing credit agreements, changes to credit agreements and certain mortgage credit agreements are excluded.
GIVING CONSUMER A CHANCE
While the current provisions in section 129 of the NCA list the procedures a credit provider must follow before starting with the process of debt enforcement, the amendment will offer consumers the opportunity to pay all overdue amounts, administration charges and reasonable costs before the credit providers cancel the agreement.
According to the amendment, consumers will also be able to specify in writing how notif ication of a default must be delivered and how this delivery must be proven to ensure that there are no misunderstandings, such as written confirmation by the postal service or its authorised agent or by “signature or identifying mark of the recipient”.
CHANGING THE CHARGES
The NCA prescribes a list of fees, charges, interest and items a credit provider can charge the consumer, but the amendment makes any contravention an offence. It also gives the minister the power to cap the cost of credit insurance in consultation with the Minister of Finance.
CRITERIA FOR PAYMENT AGENTS
Criteria for payment distribution agents that include training, experience, competence, capital investment, duties and obligations and criminal record have also been added.
THE CREDIT AMNESTY
The credit amnesty came into effect on
1 April when all 15 credit bureaus in South Africa were given two months until 1 June to remove any adverse consumer classification from the records of consumers who have settled their debts. This included all judgments for debts that were paid up after judgment was granted as well as adverse classifications or information that included comments such as ‘default’, ‘not contactable’, ‘handed over for collection, ‘legal action’ and ‘write-off’.
Until now, consumers who have paid up their bad debts had to approach a court to remove the judgment from their records and usually pay an attorney to help. The credit amnesty opened the door to employment and obtaining small business finance for many consumers who could not get jobs or credit because they had a bad credit record in spite of paying off their bad debt. ■
Dr Rob Davies COMMENTS ON THESE CHANGES People have until 31 August to submit comments on these changes.