The NCA’s prime objectives are to avoid reckless lending and over-indebtedness of consumers. The NCA will also establish a framework to regulate credit bureaus, credit providers and debt counselors.

The NCA will replace the Credit Agreements Act, Usury Act and any other legislation that allows for micro lending. The act will make sure all credit providers and credit consumers are treated equally. It comes into effect on 1 June 2007.

Credit providers are going to have to perform an affordability assessment before granting credit and consumers are going to have to prove there financial standings. An example is that, no longer will the basic concept of affordability of a home loan be that you can afford to pay a loan installment of 30% of your monthly gross income.

The banks will be obliged by law to assess your financial situation in more depth, in terms of your total credit exposure, domestic expenditure and asset value. The NCA will have an impact on everyone applying for credit, whether its a home loan, vehicle finance, an overdraft, and so on.

The act is aimed at:

  • Regulating credit information;
  • Regulating credit lending practices and promoting responsible lending;
  • Prohibiting unfair credit-marketing, were people are lured into taking credit products;
  • Improving consumer rights in terms of credit lending;
  • Providing for re-organisation of consumer debts;
  • Improving accessibility of credit to previously disadvantaged consumers.

The 7 most important aspects you should know about the NCA

1) Who does the Act apply to?

The NCA applies to credit agreements with all consumers entered into after 0I June 2007, and to entities such as close corporations, companies, partnerships and trusts, whose asset value or annual turnover is below R1 million. This new legislation will affect you if you are applying for any of the following types of products:

  • Overdrafts
  • Credit cards
  • Instalment agreements
  • Mortgages
  • Financial leases

2) Consumer rights:

Credit bureaus: The Act gives consumers the right to access and challenge their credit record and information held by credit bureaus. In addition, all information that credit bureaus keep about consumers is regulated.

Language: Consumers have the right to receive documents in plain and understandable language and they may also request a document in any one of two official languages.

3) Marketing practices:

The Act aims to put a stop to misleading advertising around credit, credit products and facilities, and the cost of credit.

  • Negative option marketing (whereby an agreement will automatically come into existence unless an offer is specifically declined) is not allowed
  • Phrases like “no credit checks”, “free credit”, and “guaranteed loans” cannot be used. Marketing of credit at the consumer’s home or workplace is prohibited without the consumer’s consent.
  • Consumer choices must be obtained and kept as a record.

4) Pricing:

All new credit agreements need to disclose interest rates, fees and additional charges and also subjects interest rates charged to a maximum rate of interest that may be charged. These cost controls prohibit interest or other costs in excess of those prescribed rates.
Add-on costs for insurance are prohibited.

All costs must be advised in advance and the consumer has the right to arrange insurance directly, rather than pay the credit provider to do so, and to choose to arrange his or her own insurance policies.

5) Applying for credit under the NCA:

Pre-agreement: The credit provider must provide the consumer with a pre-agreement, containing the main features of the proposed agreement and a quotation of the costs. This pre-agreement is valid for 5 days and gives consumers an opportunity to shop around for the best deal.

Credit assessment: The consumer will be required to provide certain information in order for the lender to assess affordability. This may include a detailed statement of income and costs, a household budget and details of other credit commitments.

Credit bureaus: The Act requires the credit provider upon entering or amending or terminating a credit agreement to report the transaction to a credit bureau.
Records of application: Credit providers will be required to keep records of all applications for credit, credit agreements and credit accounts for a prescribed time.

Payment of accounts: A consumer may pre-pay any amount owing at any time, and fully pay out the account at any time without penalty, except in the case of mortgage bonds or agreements in excess of R250 000, which are subject to a termination charge of not more than three months interest.

Spouse’s written consent: For marriages in community of property, the Matrimonial Property Act, following from a consequential amendment made by the NCA, requires the written consent of the spouse, when one spouse applies for credit.

6) Over-indebtedness and reckless lending:

The Act aims to promote responsible credit granting and use. To achieve this, when a customer applies for credit, a credit provider would need to check whether the consumer can afford the credit because if no check is done or if it can be shown that the consumer clearly could not afford to repay the credit agreement, it could be alleged that the credit provider has granted the credit recklessly, with severe consequences to that credit provider.

During this affordability assessment, the onus is on the consumer to fully and truthfully answer any request by the credit provider for information. In the case where a consumer gets into too much debt, a debt counselling service is offered.

7) Complaints:

The National Credit Regulator will monitor credit providers and their compliance with the Act and regulations. A National Consumer Tribunal is established to adjudicate in a wide variety of applications, and to conduct hearings into complaints.