The National Credit Act (NCA)We’ve heard a lot about the National Credit Act. Lots of what we hear is moaning. Uninformed moaning. For all we know, banks and other lenders are only too happy to quietly encourage people to criticize the NCA, so as to give government the impression that the people do not want it.
And it’s true, some people do not. Some people would like to be able to borrow more than they can afford to repay, in the hope that:
1. the property they buy will rise in value and make it worth their while (negative gearing); or
2. a miracle will happen, a rich uncle they never knew they had will leave them a fortune in his will, or they’ll win the lottery.
People like this are natural prey for credit vultures, and the act protects them from the stupid actions which they would like to take, encouraged and egged on by credit providers.
Governments are supposed to protect their citizens but mostly they are so corrupted by corporate lobbying and campaign contributions that laws that are supposed to protect people are actually laws that further exploit them. The National Credit Act aims to protect people from irresponsible and predatory lending and to some extent it succeeds, by making it harder for people to get credit that they really can’t afford. This aspect is good – it takes us back to the days when getting a loan was not easy. The days when you had to know exactly how much debt you actually had, and how much you could really repay. Which is all a good thing.
On the other hand, even a well-meaning government these days is very much under the influence of the big corporate lenders. So the National Credit Act also has some stuff in there that is designed to make things easier for creditors – which means harder for you.
Let’s take a look at what the Act says, in words that a normal person can understand!
“Easy credit’ harder to get
The best-publicized aspect of the act is that “reckless lending” – banks and other lenders lending money to people who cannot repay, is curbed. We all know by now that any loan application now is much more tedious and lengthy and we need to do much more homework in terms of providing details of our “total indebtedness”, in line with the NCA. That, believe it or not, is good. In the same way that a speed bump is good because while it’s uncomfortable and it slows you down, it also protects you and keeps you safer.
Debt counsellors
We’ve also heard a lot about debt counsellors. For no more than R50 per case, these counsellors are there to help people in debt problems. Especially those who are not sufficiently literate to understand the terms of the loans they have been ensnared by. (My personal comment: Who is sufficiently literate, I wonder? The average well educated person cannot or does not read the terms and conditions which are printed in ant-sized writing and almost impossible for anyone but a lawyer to understand – unless of course you decide to stop allowing it to intimidate you, take a deep breath, start reading – and find that it is not so bad after all! And it sometimes makes for entertaining or hair-raising reading too, once you realize what you’re signing away!)
The role of the debt counsellor is to educate and guide people who do not have much in the way of defences against the wiles and the tactics of the multi-billion profit-making debt industry.
If the debt counsellor thinks that a loan was granted recklessly or that a person is over-indebted, they can ask a court to ‘suspend’ or perhaps even ‘set aside’ the loan in question. So, effectively a lender can be punished for irresponsible lending by the courts.
This is making them more careful about how they lend and to who. (It doesn’t seem to be cramping their style when it comes to direct marketing, however. (Comment: Are you getting more sales calls from your bank? Many people are. I suppose they are trying to make up for lost profits of this kind by targeting better prospects. Maybe. Someone I know got a kind phone call from Standard Bank “noticing that she didn’t have an automatic payment option (APO) on her credit card” they were kindly, for her convenience, recommending she set one up. Why? “For her convenience.” For what amount each month? “The monthly minimum payment.” Sounds innocent, sounds like real service, don’t you think? Except that if she didn’t know about the pitfall of paying only the minimum every month versus paying off the whole amount monthly (i.e. you will pay for years and they will make a lot more interest out of you.) – she might have fallen for it, and Standard Bank would have made more profits out of her, unknowingly. Because I doubt whether the tele-sales person would have mentioned the drawbacks – what do you think?)
What a debt counsellor will do
If you fall into difficulties, the credit provider must tell you that you can ask a debt counsellor to help. The counsellor will review your debts, and you should help by providing all the information you can.
If the counsellor decides that you are over indebted, he or she will draw up a debt re-arrangement plan and this will go to the consumer’s credit providers for their approval.
Hold on, you may say, why do they get to approve it? What about me?
Well, the fact of the matter with debt and much else besides, is that once you show that you are not capable of running your own affairs, in other words, are not acting in a responsible way – you tend to gradually lose responsibility and control over your own life. This is just one example. It applies in many areas in life.
There are advantages to debt counselling, such as the possibility that some debts may be cancelled, but before you go this route you should also consider that you may find decisions about your own finances going out of your hands and more into the hands of your debtors. Because if they have to approve the plan, whose interests do you think that serves?
When your debtors see the plan, of course they want to make sure that their debts are repaid first, and that they get the lion’s share each month. That would be their aim. There will be some competition between them in this regard, perhaps, and I would guess that the ones with the most clout will make sure they are highest on the list. They will push for as much as they can get.
If and when your debtors agree to the plan (it may have to go to court first) then it will become a consent order and then you are stuck with an order to repay certain debts in a certain way until they are paid up. In the meantime the amount of money you have control over is much diminished and times may be tough for you. You will also not be allowed to get any further credit while you are in a debt counselling process.
The debt counsellor will be able to monitor the payments you make and once the debts have been repaid, he or she will be able to issue a certificate that says it’s all over – and the negative listings must be removed from your credit record by the bureau(s). Credit Bureaus – who are they, what are they about, how does the NCA deal with them?
In this country we have two major credit bureaus who are in fact international. They are called Experian and TransUnion. Many people have never heard of them – and yet their details, their personal details, are the property of these bureaus who make their money out of collecting, amending, keeping and selling your information to companies.
Don’t get the wrong idea. These bureaus aren’t interested in YOU. Even though your information is their bread and butter. No - their clients are companies. They have no interest in whether the information they hold on you is correct or not. They have no interest in letting you see it at all – except that now, by law, they have to give you your credit record once a year (it’s free now –the Act says it must be – but they used to charge if you wanted to see what they were saying about you!).
Yet every time you apply for any new service or loan, hidden in the small print is a clause that says you give the company permission to look at your credit record, and to contribute details on how well you pay to the bureau or bureaus of their choice.
How does YOUR information get onto THEIR databases?
The first time you open an account or apply for any interest-attracting loan, whether it’s a fashion account, a student loan or anything else, your record begins. (This is one of the dubious privileges of adulthood.)
How important is your credit record?
Very. Even though it may be 20 years out of date and full of inaccuracies, your credit record is one of the main things on which the decision to grant you a home loan or any other form of credit is based. Perhaps even more importantly, it determines whether or not you are likely to be able to get the very best deal on an interest rate. And this means that credit is much more expensive in the long run for people whose credit records are not ideal.
What goes into your credit record?
Theoretically every missed payment is recorded. And then if you have a judgement against you, it is recorded there. Even if you settle the debt, the black mark stays there for a specified number of years.
It’s a one-sided thing, though, because the bank or other lender may have made a mistake and firstly, you would never know it. Secondly, there’s not much you can do about it, as your record is not your property and you do not have the right to look at it, except, as discussed, once a year in line with the new Act.
How are they affected by the NCA?
The credit bureaus will have to comply with new regulations. They will have to remove information about some smaller debts and paid-up judgements. In other words, when you have a judgement against you but you then go on to settle that debt, it may be removed from your credit record, which is good – otherwise you still look like a bad credit risk.
You see, you need to understand the reason the bureaus exist – to track all possible information about you as a debtor. The companies who lend to you would like to know as much as possible about you. They would like any negative information about you to stay there for life so that they are in a position of power over you. The new law is trying to help you reclaim your good name once you have cleared the debt. So that old problems, long gone, do not continue to work against you.
The Act does attempt to give people more information about what is being said about them on their credit record, so they then have the option to do something about it if necessary. So now people have the right to be told if a credit provider is going to report adverse information about them to a credit bureau.
Remember, all information has potential value to companies, and as long as they and the bureaus could get together and agree to find and keep as much as they could, without sharing it with the people concerned, those people were in the dark.
The Act says that information about a person’s race, politics, health, religion and sexual orientation may not be shared by credit bureaus. (Makes you wonder how much about you they do know, and used to share when they could!)
People now have the right to see their record and to challenge it. They can approach the bureau about this, or they can go to the credit information ombudsman, or to the National Credit Regulator.
Credit bureaus are now regulated by the National Credit Regulator. For the first time, they must remove negative information which has been there for longer than certain time periods specified by the Act, which could be between one and ten years. (It used to be that they would just keep it there anyway a lot of the time.) The time periods are set out in the Act.
Credit bureaus are now also supposed to make sure their information is correct (question: who’s going to know?) . Another improvement is that people can challenge the information and even get it investigated
What about getting a loan under the new NCA? What are the facts?
Much has been said about getting a loan, and a lot of it is misleading or emotional. What does the Act say?
The National Credit Act applies to all kinds of loan agreements, including mortgages, vehicle finance and other personal finance; overdrafts, credit cards, furniture, clothing accounts; all retail credit; micro-loans; pawnbrokers; and any other type of credit or loan.
1. Affordability testing is required! This is the bit that people are most aware of! Before a loan is granted the lender has to make sure you can afford it, which means looking at details of your total indebtedness, otherwise they could see the loan nullified by a court if it is decided that they have been lending recklessly to people who shouldn’t take on more debt.
2. You must be given a quote, and five days before it becomes binding. The information about the fees and interest must be clear so that you can easily compare it to another quote.
3. There is a maximum interest rate set out that cannot be exceeded.
4. Advertising and marketing must be clearer about how much the loan is costing you.
5. They must use easier and more understandable language!
6. They no longer have free rein to approach you about a loan at home or at work.
7. If the loan is not granted you must be given the reason why not.
8. Credit limits cannot continue to go up and up as high and as fast as they used to
9. You are not allowed to lend money recklessly.
10. Interest and fees are regulated on all loans including micro-loans
11. Credit bureaus are now also regulated and you have a right to demand your credit record, free.
12. The Act introduces debt counselling, as discussed earlier.
Sounds good. And it is good. One thing to watch out for: some fees have already gone up since the Act came into force. There may be limits but it seems that the lenders can still get away with offsetting some of the loss of interest by increasing fees. Watch out for fees of all kinds, new ones, old ones that are bigger – don’t assume that things are much the same and that a credit card for example still costs what it did some years back, last time you checked.
More about affordability
It used to be that you could take out a debt so long as the monthly bond repayment was not more than 30% of your income – irrespective of what other loans you might have that might be impacting on your ability to repay. This led to people taking on too much debt.
Reckless lending
If you do not understand what you are getting into, then the bank or other lender should not lend you the money. A court may cancel the agreement if it feels the lender did not understand and was not properly informed. I doubt whether many of the people reading this now would be able to benefit from a ruling like this, as it would be more likely to apply to people with little education.
What about the National Credit Regulator? The National Credit Regulator:
· Registers credit providers, credit bureaus and debt counselors, and checks up on their behavior
· Investigates complaints about consumer rights with regard to credit
· Educates people about the NCA
· Keeps an eye on the credit market to make sure it stays fair
· Advises government on credit for legislation and policy
· Enforces the NCA and takes action
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