The new National Credit Act [‘NCA’] came into operation on 1 June 2006. It protects consumers from reckless lending, high interest rates and places greater responsibility on credit providers. The NCA may have some important implications for practitioners as service providers sending out regular accounts to patients for payment. It is not possible to discuss all the implications of the Act in this contribution; some important aspects are highlighted.

The NCA replaces the Usury Act (governing moneylending transactions) including Exemption Notice in terms of which microlenders operate and the Credit Agreements Act (governing instalment sale or "hire purchase" agreements). Some provisions of the old acts will still apply until all the sections of the new National Credit Act come into effect.

The NCA will be implemented in three stages:-

NCA provides for various transactions

The NCA will apply to all credit agreements entered into if goods or services are delivered or rendered and payment is deferred, a charge is levied on such deferred payment, then the agreement is a credit agreement and the NCA applies.

The NCA applies to an incidental credit agreement, where goods are provided on an open account and interest is payable on default or where low prices are quoted with this price applicable on early settlement.

If goods are provided on account and the seller provides ownership of the goods will be retained until full payment is received, and default is subject to interest payment, the NCA applies as a secured loan. It is clear that the NCA applies to a wide ranger of transactions.

The new NCA applies to every type of credit agreement which includes:-

Credit Facility

These include:-

Practitioners who offer long term treatment and fees are payable in instalments together with interest or some other type of administration charge, the NCA would apply.

If no charge or any interest or other costs for late payment is levied, then no credit facility is provided.

Credit Transaction

These include:-

Pawn or discount transaction;

Incidental credit agreement [an agreement where charge is levied for payment of an invoice after a specified date, or where two prices are quoted to the consumer , the lesser applying if payment is made before a certain date and the higher payment if made thereafter i.o.w. an extra charge is levied for ‘late payment’;

Credit Guarantee

This is an agreement in terms of which a person other than the consumer or patient treated by practitioners undertake or promises to satisfy the patient’s obligation under a credit facility or transaction offered by practitioners.

All credit agreements must be in writing.

What is excluded from definition of credit agreements?

National Credit Regulator

The NCA creates a regulatory body which will control all credit providers in the Republic.

All credit providers will have to be registered with the regulator which is compulsory if they have:-

Failure to register can result in the credit agreement being declared unlawful and unenforceable. All credit bureaus and debt counselor must be registered. A credit providers and credit bureau must register within 40 days of 1 June 2006.

The Regulator will establish a National Credit Registry on which all credit agreements will be recorded. Any lender must enter their credit agreement on the register and before lending money they must look on it to find if out if as consumer you are tied into other credit agreements.

Consumer rights

The Act deals extensively with consumer rights. These are:-

credit providers cannot discriminate against consumers when deciding whether to grant credit or not;

A credit provider must provide a quotation valid for 5 days to the consumer before a credit agreement is entered into. It must spell out the interest rates and other costs that will apply. A copy of the agreement must be delivered in paper or in electronic format.

Credit providers are required to ensure that customers understand the nature of the credit agreement and they can afford to repay the loan.

There can be no differentiation between the costs of goods or services purchased/rendered on credit versus cash. In other words credit providers may not offer goods at a lower price if they are paid for in cash than goods purchased on credit. This must be confused with allowing a discount which is permissible.

A credit provider is required to provide monthly statements of account and on request provide the consumer free of charge, a statement showing:-

Such statements may be provided orally by telephone, via e-mail, sms or fax. Statements must be furnished at least within 3 months of the last statement.

A consumer is entitled to terminate any credit agreement by:-

A consumer may settle an amount due under a credit agreement without advance notice to the credit provider by paying the unpaid balance, interest, charges and other fees payable.

The new Act gives all consumers the right to check their records held by a credit bureau once every year and they may not be charged a fee for doing so. Consumers are entitled to receive credit information in at least two official languages and such documents must be provided free of charge. Consumers will be entitled to challenge the information and credit bureau is required to investigate the challenge. This personal information may only be used for a legal purpose and may only be released or reported to other under specific conditions such as if there is a court order or the National Consumer Tribunal orders it.

A credit provider may not harass consumers into a credit agreement, nor may a credit provider enter into a credit agreement with you after cold calling on you at your home.

The new Act also requires that interest rates and other costs must be spelt out in any advertisements in a format that is prescribed by the National Credit Regulator.

The Act aims to stamp out reckless lending and predatory practices. You are considered as having too much debt (being over indebted) if it is unlikely that you will be able to meet all your debit obligations timeously. The reckless granting of credit is prohibited under the Act.

Reckless credit is when a credit provider gives you a loan or other credit without assessing whether you can repay the loan and even if you do not understand or appreciate the risks, costs or obligations under the credit agreement or if the granting of the credit leads to you becoming overindebted.

The new Act also allows consumers to apply to a debt counsellor to have their debts restructured if they have taken on too much debt.

If the debt counsellor finds that you are over-indebted then he or she can recommend to a Magistrate's Court that your debts be restructured to suit you and then your creditors.

New regulations

From 1 June 2007, if you cannot repay your debts and are taken to court, it will be the lender’s responsibility to provide information that they did not lend money knowing that consumers could not replay their debts. If the lender is guilty of reckless lending, court can force the lender to restructure the loan so customers can repay the debt.

The NCA will make it more difficult for credit provider s to blacklist you if you default on your payments. New regulations will force the credit provider to raise arrear problems first and refer you to a debt counselor.

Regulations under the NCA which will specify maximum interest rates and transaction fees that can be charged on credit agreements or loans are still being finalised. These maximums will only be implemented from 1 June 2007.

The draft regulations propose an interest rate ceiling of 48% per annum or 4% per month for small loan up to R5000.00 and repayable over 4 months.

Regulations also place a cap on the initiation fee that may charged and spells out conditions when levying maximum initiation fee which range between R150.00 plus 5% of the loan of more than R1000.00 up to a maximum of R350.00 depending on the type of credit.

The maximum monthly service charge is also capped at R50.00 per month or R600.00 per year. Presently, the Usury Act limits interest rate on loans of R10 000.00 and under to 20% a year and loans over R10 000.00 to 17% per year.

If interest charged is pegged to a variable rate such as the prime rate, they every time this rate changes, a notice must be supplied to the consumer recalculating the total interest payable, monthly interest and the date change took effect.

Sureties

People who stand surety for others' debt will be protected against over-indebtedness and reckless credit by the new Act. It gives credit guarantors the same status and protection as it does credit consumers.

These were the people who stood surety for the debt or obligations of others, often through "emotionally-transmitted debt" or "sexually-transmitted debt”. The former referred to parents assisting their children with student loans while sexually-transmitted debt to one spouse acting as surety for the other.

Company directors who, sometimes unwittingly, accepted liability for debts run up on the company credit card, and small business owners who made themselves personally liable for the credit facilities of the business, would also be protected under the new Act.

Chief of these was the use by banks of universal (unlimited) suretyship agreements. Often signed by a consumer as a matter of routine, these agreements entitled the bank to hold the surety liable for any of the debts of the person for whom they stand as surety in the event of that person's default, no matter how or when the debts were incurred. The types of unlimited suretyships will draw to a close.

Another problem area of suretyships the Act would address was requiring customers to waive their common law defences and remedies. The Act would prohibit this practice.