What to look out for when shopping for credit
The noun “credit” is strictly defined in the National Credit Act 34 of 2005 as “a deferral of payment of money owed to a person, or a promise to defer such a payment” or “a promise to advance or pay money to or at the direction of another person”. A credit provider is required to display their registration certificate that confirms that the credit provider is registered with the National Credit Regulator (NCR) to extend credit and this registration certificate also displays the credit provider’s unique registration number. The aforesaid registration certificate is issued annually by the NCR.
When shopping for credit, consumers must note the following:
The NCRCP number (that is, the National Credit Regulator’s registration number that is allocated to a credit provider) and the credit provider’s registration certificate that must be displayed at/or the credit provider’s place of business.
Since the commencement of the National Credit Amendment Act 19 of 2014 on the 13 March 2015, any person who provided credit where the total principal debt owed to that credit provider under all outstanding agreements, other than incidental credit agreements, exceeded the prescribed threshold of R500 000.00, had to apply to be registered to be registered as a credit provider before extending credit to a consumer.
However, on 11 May 2016, the Minister of Trade and Industry, Dr Rob Davies, determined a new threshold of NIL (0) for the purpose of determining whether or not a credit provider is required to be registered with the National Credit Regulator (NCR) in terms of the National Credit Act (NCA). The implication of this new threshold is that as from the 11 May 2016, any person or entity that is involved in the provision of credit is now required to register irrespective of the principal debt that is owed to the credit provider. Whether or not a credit provider is duly registered can be verified with the National Credit Regulator either online, www.ncr.org.za, or telephonically on 0860 627 627.
1.The right to a Pre-agreement Disclosure Statement and Quotation
Before a credit agreement is concluded, the consumer must be given a pre-agreement disclosure statement and a quotation in a paper form or in a printable electronic form. The quotation is valid for 5 business days. During this time the consumer may consider whether or not he should enter into the proposed credit agreement. At any time before the expiry of the 5 day’ period, the consumer can hold the credit provider to the terms and conditions as disclosed in the pre-agreement statement and quotation.
2.Any unlawful provisions and clauses.
When you read the credit agreement, look out for the following clauses, which are unlawful:
– A clause or provision in the credit agreement that has the general purpose or effect of defeating the purposes or polices of the NCA (the purposes and policies of the NCA are set out in section 3 of the NCA);
– A provision that deceives or has the effect of deceiving the consumer;
– A provision that directly or indirectly purports to waive or deprive a consumer of a right set out in the NCA. The rights of consumers are largely set out in Part A of Chapter 4 of the NCA, namely sections 60 – 69. However, sections 60 – 66 are not the only provisions in the NCA that grants consumers certain rights as consumers’ rights are generally speaking spread throughout the NCA. It is unfortunately impracticable to list the entire spectrum of consumer rights as contained in the NCA save to mention a few of the most important ones, over and above those contained in sections 60 – 66 namely:
• the right to be issued with a clearance certificate (section 71);
• the right to rescind (cancel) a lease or an instalment agreement entered into at any location other than the registered business premises of the credit provider within five business days after the agreement was signed by the consumer (Regulation 37);
• the right to apply for debt review Section 86(1) read with regulation 24.;
• the right to terminate or settle a credit agreement without notice to the credit provider by paying the settlement amount Section 122(1) read with section 125.
• the right to prepay any amount owed to a credit provider under a credit agreement Section 126(1);
• the right to surrender the goods (held under an instalment agreement, secured loan or lease) to a credit provider so that the goods can be resold by the credit provider in order to settle the consumer’s account Section 127.;
• the right to participate in a hearing before the National Consumer Tribunal. Section 143 read with section 61.
3.The total “Cost of Credit”.
In terms of section 101 of the NCA, a credit agreement must not require payment by the consumer of any money or other consideration, except –
• the principal debt;
• an initiation fee (the permissible amount is prescribed in the NCA)*
• a service fee (the permissible amount is prescribed in the NCA);
• interest (the applicable maximum interest rates are also prescribed in the NCA)**;
• cost of any credit insurance (the consumer has the right to waive any credit insurance that the credit provider proposes and substitute a policy of the consumer’s own choice);
• default administration charges;
• collection costs.
*The maximum initiation fees that are allowed (Regulation 42)
Type of agreement Maximum initiation fee
Mortgage agreements R1 000 per credit agreement, plus 10% of the amount of the agreement in excess of R10 000. May never exceed R5 000.
Credit facilities R150 per credit agreement, plus 10% of the amount in excess of R1 000. May never exceed R1 000.
Unsecured credit transactions R150 per credit agreement, plus 10% of the amount of the agreement in excess of R1 000. May never exceed R1 000.
Developmental credit agreements for the development of a small business R250 per credit agreement, plus 10% of the amount of the agreement in excess of R1 000. May never exceed R2 500.
For low income housing (unsecured) R500 per credit agreement, plus 10% of the amount of the agreement in excess of R1 000. May never exceed R2 500.
Short-term credit transactions R150 per credit agreement, plus, 10% of the amount of the agreement in excess of R1 000. May never exceed R1 000.
Other credit agreements R150 per credit agreement, plus, 10% of the amount of the agreement in excess of R1 000. May never exceed R1 000.
Incidental credit agreements No initiation fee can be levied.
**The maximum prescribed interest rates are as follows (Regulation 42)
Type of agreement Maximum interest rate
Mortgage agreements RR + 12% per year
Credit facilities RR + 14% per year
Unsecured credit transactions RR + 21% per year
Developmental credit agreements RR + 27% per year
Short-term credit transactions 5% per month on the first loan and 3% per month on subsequent loans within a calendar year
Other credit agreements RR + 17% per year
Incidental credit agreements 2% per month
•Steps that the credit provider can take to assess a consumer’s credit application.
When a consumer applies for credit, the credit provider concerned is obliged to take reasonable steps to assess the following:
The consumer’s general understanding and appreciation of the risks, costs, rights and obligations of the proposed credit under the credit agreement;
the consumer’s debt repayment history, for example, the consumer’s credit profile as held by any of the credit bureaux such as TransUnion (previously ITC) or Experian. However, the credit provider may not require the consumer to obtain or request a credit report in connection with any credit application, as this the credit provider can obtain the said credit report upon receipt of the consumer’s consent to do so;
the consumer’s existing financial means, prospects and obligations; and
where the consumer has a commercial purpose for applying for that credit agreement, whether there is a reasonable basis to conclude that the commercial purpose will be successful.