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What is the national credit act?

The government has stepped in with far-reaching new legislation to protect the unwary from unscrupulous moneylenders, shops and banks. We highlight 10 things you need to know about the new National Credit Act.

 

Consumers snap up credit contracts – from microloans to hire purchase agreements – every day, but on the whole they are ill prepared to sign on the dotted line. If it were not for the ability to obtain credit, you would have to pay cash upfront for your home, your car and your lounge suite, and it is highly likely that you would live in a much cheaper property, probably drive a very dated second-hand car and make do with a cast-off lounge suite from your parents until you accumulated enough money for a new one.

For many South Africans, access to credit is even more vital and determines whether they can put food on the table and send their children to school.

The important role of credit in the life of consumers is undisputed. However, few consumers make informed decisions when entering into a credit agreement and many credit providers have cashed in on this lack of knowledge. Many consumers are so excited about their purchases that they sign anything, anywhere, just to have access to the credit, vehicle or home they want, the report states. The National Credit Act introduces new rights for consumers, as well as measures that allow consumers to make informed decisions before buying goods and services on credit.

It also places a greater responsibility on credit providers to refuse to give you credit if you cannot afford it and, for the first time in South African history, it will regulate the way credit bureaus do business.

All credit transactions – home loans, car loans, microloans, and clothing and retail accounts – fall under the new legislation.

The National Credit Act covers a range of issues. These include:

Better disclosure

Tthe National Credit 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. This means that the credit provider will not be able to push you into signing up for the credit at your first meeting with a threat that it will cost you more if you come back on another day.

For agreements classed as small credit agreements – where the amount of credit is below R15 000 – the quotation must be given to you in a form prescribed by the National Credit Regulator.

Quotations on intermediate (from R15 000 to R250 000) and large (above R250 000) credit agreements, such as home loans, may be either on a prescribed form or in another form, as long as all the required information is disclosed to you.

All quotations must disclose the full cost of the credit to you and not only the minimum monthly instalment. This includes details such as:

Consumer information held by credit bureaus

The information that credit bureaus keep about consumers is regulated for the first time. The National Credit Act places obligations on credit bureaus regarding the accuracy and retention periods of credit information. It also places obligations on credit providers, who forward information on your payment and credit habits to the bureaus.

Unsolicited selling

In the past, many consumers have found themselves bound to contracts after unannounced visits to their homes by pushy door-to-door salespeople. The Act specifically prohibits any credit provider from harassing you to persuade you to apply for credit or to enter into a credit agreement. It prohibits credit agreements from being entered into at a private dwelling except when you have arranged for a credit provider’s representative to visit your home.

The Act also 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.

Interest rates

Whilst consumers are generally aware that buying on credit involves interest, which increases the cost of the items being bought, they do not work out the final cost of buying most things on credit. The National Credit Act considerably beefs up the disclosure of interest rates, fees and ancillary charges, and lays down a maximum rate of interest that you may be charged. Under the new legislation a credit provider may charge you an interest rate that varies during the term of the agreement, but only if the variation is linked to a reference rate – for instance, the prime lending rate or base home loan rate.

Complaints

Under the National Credit Act, a new regulator came into being on June 1 this year. The duty of the National Credit Regulator is to monitor credit providers and their compliance with the new law.

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