NATIONAL CREDIT ACT
The National Credit Act (hereinafter referred to as "the NCA") was passed by Parliament on the 10th of March 2006. The main provisions of the Act come into effect on the 1st of June 2007.
The purpose of the Act is to:
- promote a fair and non-discriminatory market place for access to the consumer credit;
- regulation of consumer credit and improved standards of consumer information;
- prohibit certain unfair credit and credit marketing practices;
- promote responsible credit granting and use;
- prohibit reckless credit granting;
- provide for debt re-organization in case of over-indebtedness;
- to regulate credit information; and
- establish the National Credit Regulator and the National Consumer Tribunal.
Who is affected?
Anyone dealing in the credit industry be it a credit grantor, a credit grantee or any intermediatery. The Act has a wide definition for the term "credit agreement" and the Act therefore applies to any party involved in the credit agreement. A credit agreement is defined in the Act as any agreement where goods or services are purchased and repayable on installments and not on delivery, as well as any extension of money i.e. home loans, personal loans, credit cards, store cards and short term loans.
The Act further classifies the credit agreements into three categories:-
- Incidental credit agreements;
- Intermediate agreements; and
- Large credit agreements.
A loan over immovable property is considered a large credit agreement, which is our focus in the real estate industry. The act is applicable to all natural persons, and for the purposes of large credit agreements, juristic persons are excluded. It must be noted that a lease of immovable property has specifically been excluded in terms of this act and this act will therefore not apply to any rental properties.
The Effect of NCA
In terms of this act the onus has been shifted from the consumer, who should not borrow more than they can repay, to the Banks and other credit extenders to fully asses the ability of a person applying for credit to reasonably be able to repay such credit, as the debt falls due. Should the financial institutions fail to do the necessary checks to ensure that credit is not being extended to persons who would be unable to repay such credit, a magistrate may declare it reckless lending.
The magistrate may then either:
- declare the agreement unenforceable, meaning the financial institution can not recover the money;
- suspend the debt for a determined period, during which period no finance charges nor interest may be charged; or
- restructure the debt i.e. the interest rates and the repayment terms so that the consumer will be in a position to repay same.
The act further prohibits negative marketing which may mean that no consumer may be pre-approved for any bond subject to valuation of a property. The banks will probably have to send out assessors and establish value in the property prior to granting the mortgage loan. This will result in a delay in the turnaround-time for bond grants. Agents are therefore advised to extend the period available in their suspensive conditions for the bond grant. This will prevent the deal from expiring due to delays from the banks in performing all the necessary checks on an applicant.
In terms of the NCA, financial institutions have to establish if the consumer, based on the preponderance of available information at the time a determination is made, is or will be able to satisfy in a timely manner all the obligations under the credit agreements to which the consumer is a party, having regard to the consumer's financial means and prospects as indicated by the consumers history of debt repayment. As there is no specific definition of what percentage of the consumer's monthly income may be utilized towards debt repayment the banks may initially be hesitant to extend credit as freely as in the past. The result will be more frequent declines on bond applications. However on the bonds that are approved, one should be assured that the consumer will have sufficient financial means to pay the necessary transfer and bond costs to ensure that the transfer will be successfully concluded
The banks may have an initial delayed turnaround-time on approval of bonds. The bond instructions may therefore enter the conveyancing/transfer process later than usual and may result in a delay of the transfer process.
The National Credit Regulator
The act has established the National Credit Regulator (hereinafter referred to as “the NCR”). In terms of the NCA the NCR has supervisory functions over the financial institutions. All credit providers, credit bureaus and debt counselors have to register with the National Credit Regulator.
The National Credit Regulator will enforce the NCA through:
- promoting informal resolution of disputes;
- receiving complaints concerning alleged contraventions of the NCA;
- monitoring the consumer credit market and industry to ensure that prohibited conduct is prevented or detected and prosecuted and evaluate and reprimand alleged contraventions of the act;
- overseeing and ensure the correctness of the contents of the National Credit Register.
In terms of the NCA, all consumer information will now be contained in the National Credit Register. The information drawn on by the financial institutions and relevant financial bureaus will have to be drawn from this credit record. The credit record will contain information on all credit agreements, suretyships and judgments, past and current, of the consumer. The consumer has a right to petition the NCR to correct any incorrect information based on his or her credit record. The consumer further has a right of access to his/her credit record at no charge once a year in the month of his/her birth.
The National Consumer Tribunal
The act has established a National Consumer Tribunal. The tribunal will adjudicate a matter in relation to relief sought as provided for in the NCA and any allegations of prohibited conduct and if appropriate, impose a remedy provided for in the NCA.
Consumer Credit Policy
In terms of the NCA the consumer now has certain rights against credit grantors. The consumer has a right to:
- apply for credit;
- not be discriminated against in granting credit;
- written reasons from a credit grantor for refusing any credit that was applied for; and
- receive all necessary documentation when applying for credit, in their official language.
The NCA has specific provisions regulating the advertising practices of financial institutions wishing to extend credit. The emphasis is on full disclosure of all financial charges that would be incurred by such consumer upfront before the consumer enters into such credit agreements. The consumer is therefore entitled to a statement setting out any and all finance charges that will be incurred by such a consumer on extension of the credit as well as the terms of re-payment.
In terms of the National Credit Act amnesty will be granted in respect of all defaults (that is bad payment records) listed before the 1st of September 2006 which are for an amount of R499.99 or less. These amounts will be removed by the 1st of June 2007. In respect of judgments granted against a person by a Court the following amnesty has been granted:-
- Judgments listed before 1 September 2006 which are for an amount of R499,99 or less where a person has less than 3 unpaid judgments will be removed by 1 June 2007.
- Judgments listed before 1 March 2005 which are for an amount of R4 999,99 or less where a person has less than 2 unpaid judgments will be removed by 1 June 2007.
- Judgments less than R50 000,00 which were paid in full by 1 September 2006 will be removed by 1 June 2007.
We wish to point out that this is a very brief discussion regarding the National Credit Act. This should not be deemed to be an extensive and fully detailed discussion, and should only be utilized as a guideline.