The National Credit Act (NCA) was signed into law 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 must be read in conjunction with the Regulations passed in terms of the Act.
The NCA has updated areas of the law that were contained in the Credit Agreements Act, the Usury Act and other legislation that were cumbersome, ineffective, and subject to abuse or obsolete.
It replaced three pieces of legislation:
- the Usury Act, 1968
- the Integration of Usury Laws Act, 1996 (i.e. the Exemption Notice to the Usury Act exempts microloans (loans of less than R10,000) from the Usury Act and allows microloans to operate outside of certain requirements of the Usury Act)3.
- the Credit Agreements Act 1980.
The Usury Act governed leasing, credit, and money lending transactions.
The NCA also makes amendments to other legislation.
Purpose of the Act?
Some of the main purposes of this Act are to:
- Promote and advance the social and economic welfare of South Africans,
- Promote a fair, non-discriminatory, controlled, competent, sustainable, responsible, efficient and accessible credit marketplace,
- Simplify and standardise the manner in which information is disclosed in credit agreements,
- To regulate credit bureaux and the information they keep on record about consumers,
- To ensure that all credit products are handled in the same way by different credit providers,
- To assist over-indebted consumers to restrict their debt,
- To have a regulator to regulate the entire credit market, being the National Credit Regulator,
- To establish the National Consumer Tribunal to adjudicate matters relating to the Act.
Who within the scope of the NCA?
- Credit providers offering credit in excess of a prescribed threshold/volume,
- Consumers – all individuals, trust, juristic persons [e.g. companies, close corporations, partnerships, and an association of persons, however not all sections apply to juristic persons.
Credit providers include:
- Retailers such as furniture and clothing stores.
- All businesses, companies, close corporations, partnerships and individuals who do business on credit, provide loans or charge interest on overdue accounts, and
- Who offers credit within the prescribed threshold values in terms of the Act.
- The natural person (individuals).
- Certain juristic persons [e.g. companies, close corporations, trusts (with more than three individual trustees), partnerships and an association of persons] whose asset value or annual turnover, together with the combined asset value or annual turnover of all related juristic persons, at the time the agreement is made, equals or exceeds the threshold as determined by the Minister in terms of section 7(1) of the Act, which threshold value is currently R1 million.
- Debt Counsellors.
- Credit Bureaux.
What were the drivers behind the NCA?
The NCA was introduced to:
- Promote and advance the economic and social welfare of all South Africans,
- Promote a fair and transparent credit market,
- Promote consumers and their rights in the credit market,
- Regulate all credit providers, debt counsellors and credit bureau,
- Limit the cost of credit,
- Create a standard in the way in which credit is granted by credit providers in order for consumers to compare what is being offered.
What is reckless credit?
Reckless credit means credit granted to a consumer under a credit agreement where the credit provider:
- Failed to carry out a proper credit risk assessment to ensure that the consumer can afford the loan,
- Proceeds to grant a loan to the consumer despite the consumer not being able to afford the loan based on the assessment conducted; and
- The consumer does not understand his/her rights and obligations in a credit agreement as well as the costs involved in taking the loan.
Only a court can declare an agreement reckless on the request of either the debt counsellor or the consumer. The Court can suspend the credit agreement that has been declared reckless or change the terms and conditions of the agreement.
If a credit agreement is found to be reckless, the credit provider cannot enforce the agreement and the obligations of the consumer are set aside.
The reckless credit provisions in the NCA are dealt with in Chapter 3 – Part D and are only applicable to consumers who are not juristic persons.
What is over-indebtedness?
A consumer is over-indebted when he/she does not have the means to meet all his/her debt repayments and his/her expenditure exceeds his/her income.
Consumer education to make informed choices and be able to manage their debt will assist consumers to avoid over-indebtedness.
What are the most common causes of over-indebtedness?
There are various reasons for over-indebtedness, including the following:
- Over-committing oneself financially,
- Poor monthly budgeting,
- Purchasing on impulse when he/she has already incurred other debt,
- Change in personal circumstances or life stages such as having a child or going through a divorce,
- Purchasing essentials such as food on one’s credit card,
- Conversion of short-term debt (e.g. credit card debt) to long-term debt (e.g. home loan) to increase your monthly cash flow, but increases your interest debt in the long term,
- Making an application for credit in your name on behalf of a third party,
- Standing surety for a third party who may default on his/her repayments resulting in you being responsible for the third party’s debt.
If you need to apply for credit, ensure you approach a registered and reputable credit provider.
What is a credit agreement?
A credit agreement is an agreement entered into between a credit provider and a consumer in which the credit provider supplies goods or services or lends money to the consumers.
The NCA requires that, before a credit agreement is entered into, the bank must provide the consumer with a pre-agreement statement and quotation.
A pre-agreement statement is a document that details the terms and conditions of the credit agreement that the credit provider intends to enter into with the consumer.
A quotation is a document that discloses the principal debt, the interest rate, the total amount payable under the agreement, the instalments and all fees, charges and interest i.e. the costs of credit.
Which products fall under the NCA?
- Personal loans.
- Home loans.
- Business loans depending on threshold values applicable to the consumer, i.e. juristic persons.
- Credit cards.
- Asset-based finance.
- Instalment sale agreements (terms deed of sale).
- Lease agreements.
Does the NCA, in any way, have an impact on commercial property lending and the insurance on these properties being done by banks?
The NCA does not apply to a large agreement entered into between the bank and a consumer that is a juristic person whose asset value or annual turnover at the time of the agreement equals or exceeds a threshold value of R1m.
For the purposes of this question, a credit agreement is a large agreement if it is a mortgage agreement.
Therefore, the NCA will not apply to commercial property lending, unless the consumer is a natural person.
If the lending is not subject to the NCA, the credit insurance on the property will also not be subject to the NCA.
What is an affordability assessment and how will a credit provider determine affordability for credit?
An affordability assessment is an evaluation process conducted by a credit provider on a consumer to determine whether or not credit will be granted to the consumer. The affordability assessment will determine whether or not the consumer will be able to afford his/her obligations under a credit agreement.
The consumer must answer any requests for information made by the credit provider as part of the credit assessment fully and truthfully.
If the consumer is married in a community of property, the affordability assessment will be conducted on both the consumer and his/her spouse.
The affordability assessment includes an assessment of the consumer’s income, expenses, debt repayments, history of debt repayment and credit information via access to the credit bureau record of the consumer.
Credit information retained by the Credit Bureau in terms of the Act includes the following:
- Credit history of the consumer, including details of:
- Credit agreements signed,
- Repayment history; and
- If the consumer is/was under debt review
- A consumer’s financial history
- Past and current income
- Assets and liabilities
- Payment information regarding continuous services
- Any information that is needed to identify credit fraud
- Information on payments made by a consumer whether the debt was ceded
- Any other information provided the consumer has given his permission for this information to be sent to the credit bureau and provided the credit provider has informed the consumer what
- the information will be used for.
What additional information must a client provide on his or her credit application form?
It is important that the client provides complete and accurate information regarding his/her income and expenditure when completing his/her application form.
The following information must be provided:
- Monthly income with proof thereof
- Monthly expenses (such as groceries, rent, travel costs and school fees)
- Monthly financial responsibilities (home loan payments, study loans, vehicle finance, etc)
The following additional information must be provided:
- Age of applicant
- Solvency status
- Whether an applicant is under or has applied for, debt review, judicial management, curatorship
- Whether an applicant is a party to any other credit agreements
- Whether the applicant has a commercial purpose for applying for the loan
- Whether the applicant requests an annual limit increase (where applicable)
- Completion of specific declarations regarding the information supplied (e.g. client warrants that all questions are answered truthfully and honestly), and consent to the provider to access the consumer’s credit bureau records for purposes where such consent is required in terms of the Act.
How will existing credit limits be affected?
Existing clients, who entered into credit agreements prior to the enactment of the NCA will be impacted by the NCA by a change in service fees. Certain fees that were standard practice (such as early settlement or administration fees) cannot be charged within the ambit of the NCA. Where an existing client amends a contract or requests further credit, he/she will be subject to the NCA and an affordability assessment will be conducted in respect of the further credit application.
Can a client still request a temporary limit increase?
Yes, subject to the requirements as contained in section 119(2) the NCA.
What is debt counselling and how can I apply for it?
Debt counselling is a process intended for those who are over-indebted to find a solution.
If you think you are financially overcommitted, please contact your credit provider and request an informal debt review.
Clients who are unable to meet their financial commitments may apply to a registered debt counsellor for a proposed resolution. A debt counsellor must be registered with the National Credit Regulator.
The debt counsellor will assist the client to re-arrange/restructure his debt obligations in negotiation with his/her credit providers, based on how much the consumer can afford to pay towards his/her debt each month.
If the debt counselling process is unsuccessful, the credit provider will have no alternative but to institute debt enforcement proceedings in terms of the NCA.
If a debt counsellor finds that a client is indeed over-indebted, a proposal can be recommended to the client and his or her credit providers for repayment of the debt. If there is any disagreement with the proposal, the matter will be heard by the magistrate’s court, which in turn may restructure the client’s debt by:
- extending the term of any agreement,
- postponing payments,
- extending the period of the agreement and postponing during a specific period the dates on which payments are due under the agreement,
- recalculating the consumer’s obligations as a result of unlawful provisions in the credit agreements or unlawful fees and charges debited to the consumer’s account.