National Credit Act

Information / The National Credit Act

  • Overview
  • Consumer Rights
  • Enforcement of the Act
  • Maximum Chargeable Interest
  • Reckless Credit

Overview

The National Credit Act (NCA) was signed into law by the President on 15 March 2005, and governs the assessment, application and maintenance of credit granted by a credit provider to a consumer within the Republic of South Africa.

The NCA governs credit providers such as banks and micro lenders, and protects all natural persons and very small businesses where they are party to a credit agreement.

In general terms, the NCA aims to transform the South African credit market and all consumer credit providers are required to comply with the Act. While the Act aims to give effect  to every consumer’s right to access to credit, it guards against over-indebtedness. Over-indebtedness refers to a situation in which the Consumer is unable to pay off all financial obligations on time, as agreed under a credit agreement. This could be due to a change in financial commitments or because they’ve borrowed and spent more money than they earn. Only consumers that can afford credit should be allowed access to credit.

Consumer Rights

The NCA lists a number of Consumer rights. A credit provider that breaches Consumer rights, commits an offence in terms of credit law, which enables Consumer recourse through established dispute channels.

All Consumers have the right to:

  • apply for credit;
  • be protected against discrimination in the granting of credit;
  • be informed why credit has not been granted, should you ask;
  • receive a free copy of your credit agreement;
  • receive a credit agreement in plain and simple language;
  • have your personal and financial information treated confidential;
  • understand all fees, costs, interest rates, the total instalment and any other details;
  • say no to increases on your credit limit;
  • decide whether or not you want to be informed about products or services via telephone, SMS, mail or e-mail campaigns; and
  • apply for debt counselling should you be overwhelmed by debt.

Enforcement of the Act

The National Credit Regulator (link to https://nca.co.za/nca-directory/ncr/) is established as the primary administrative regulator under the Act, to carry out education, research, policy development, registration of credit providers, investigation of serious complaints, and to ensure enforcement of the Act.

The National Consumer Tribunal (link to http://www.thenct.org.za) is a separate institution that is independent of the National Credit Regulator. The Tribunal will adjudicate on a wide variety of applications, and conduct hearings into complaints under the Act.

Maximum Chargeable Interest

It’s also important for Consumers to know the maximum interest you can be charged for various credit agreements. The Minister of Trade and Industry revised the limitations on fees and interest rates (Government Gazette No. 39379, 6 November 2015) to the following:

Type of loan

Regulated Maximum Interest

Current Maximum Interest *

Maximum Fees

Home Loan

(Repo rate + 12%) per year

15.5% per year

R1,100 per credit agreement + 10% of the amount in excess of R10,000 (but never to exceed R2,520)

Unsecured Loan

(Repo rate + 21%) per year

23.5% per year

R165 per credit agreement + 10% of the amount in excess of R1,000 (but never to exceed R1,050)

Short-term Loan

5% per month on the first loan, 3% per month on the second loan

R165 per credit agreement + 10% of the amount in excess of R1,000 (but never to exceed R1,050)

* based on current repo rate of 3.5%

The repo rate, short for repurchase rate, is the official rate at which banks borrow money from the South African Reserve Bank. By raising or lowering the repo rate, the Reserve Bank effectively makes it more or less expensive for commercial banks to borrow money. This, in turn, affects how affordably they can lend money to consumers, and drives what’s known as the prime lending rate.

Things you need to know about the repo rate include:

  • repo rate changes with the prime rate (prime rate = repo + 3.5% = 7%);
  • in the last 20 years the repo rate is adjusted every 5 months on average; and
  • variations can be large, i.e. from 12% in 2008, to 7% in 2016, to 3.5% in 2021 (current).

Reckless Credit

One driver of over-indebtedness can occur due to reckless lending practices of the credit provider. Reckless lending in unethical and in some cases, illegal. The NCA requires credit providers to do due diligence to ensure the Consumer can afford the loan.

The credit provider must conduct an assessment of the person making application for a credit agreement and ensure that:

  • there is a general understanding and appreciation of the risks and costs of the proposed credit, and of the rights and obligations of a consumer under a credit agreement;
  • the consumer has a favourable credit history; and
  • the loan is affordable in terms of the consumer’s existing financial means, prospects and obligations.

Consequences of reckless credit my result in a court suspending the credit agreement or suspending any interest and fees on the agreement.

However, when applying for a credit agreement, the prospective consumer must fully and truthfully answer any requests for information made by the credit provider as part of the assessment. Dishonesty will likely result in the credit provider not being held liable.

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