NATIONAL CREDIT ACT NATIONAL CREDIT ACT NO. 34 OF 2005NO. 34 OF 2005

Presented by Richard Scott Presented by Richard Scott of Austen Smithof Austen Smith

INTRODUCTIONINTRODUCTION

The National Credit Act provision effective dates:– most provisions on 1 June 2006– National Consumer Tribunal on 1 September

2006– Credit bureau and credit information on 1

September 2006.– Disclosure, limits on interest and fees,

reckless lending etc on 1 June 2007– Debt counseling and debt restructuring on 1

June 2007 The Usury and the Credit Agreements’ Act

repealed 1 June 2007

PURPOSE AND APPLICATIONPURPOSE AND APPLICATION Increase access to credit Fair competitive and stable market Assist and inform consumers Mechanisms for over indebtedness Protection from reckless credit providers Regulate credit information Prohibit unfair practices Credit agreement exceptions:

– juristic person whose asset value =/> R1 million;– State or an organ of State;– a large agreement;– credit provider is SA Reserve Bank; and – credit provider is located outside the Republic

DEFINITIONSDEFINITIONS– Credit agreement is a credit facility / transaction /

guarantee or a combination– Credit facility defers payment or bills for a fee / interest – Credit transaction is:

pawn or discount transaction; incidental credit agreement; instalment agreement; mortgage agreement or secure loan; lease of movable property; and any other agreement, where payment is deferred for a fee

– Incidental credit agreement for late payment– Credit guarantee satisfaction for another consumer – Agreement is not a credit agreement if it is:

a policy of insurance; a lease of immovable property; a transaction between a stokvel and a member of that stokvel

CONSUMER CREDIT CONSUMER CREDIT INSTITUTIONSINSTITUTIONS

Two consumer credit institutions monitor and enforce:– National Credit Regulator (NCR)

Registers providers Educates and creates awareness Researches and monitors Advises on policy and legislation Enforces and takes action

– The National Consumer Tribunal (NCT) adjudicates cases, issues fines and provides redress to

consumers

CONSUMER CREDIT CONSUMER CREDIT INDUSTRY REGULATIONINDUSTRY REGULATION

Credit providers must be registered as a provider with the NCR if:– at least 100 credit agreements– total principal debt exceeds R500,000.00

If provider unregistered, loan is unlawfulNational record of registration by NCR:

– Credit bureaux and debt counsellors– all other persons under the Act

CONSUMER CREDIT CONSUMER CREDIT POLICYPOLICY

Rights for consumers:– application for credit– protection against discrimination– reasons for refusal– information in official language– receive documentation– confidential treatment– information held by a credit bureau

iro rearrangement– access to information

NATIONAL CREDIT NATIONAL CREDIT REGISTERREGISTER

Established to keep a register of credit agreements

Reporting of information to NCR:– provider’s name, address and registration no.– consumer’s name, address and ID or registration no.– information iro credit transactions/guarantees:

principal debt previous credit agreements terminated with new agreement amount and payment schedule date of release once fulfilled

– Provider must report termination of credit agreements concluded by it

CREDIT BUREAUX AND CREDIT BUREAUX AND DEBT COUNSELLORSDEBT COUNSELLORS

Credit Bureaux does business in:– credit applications– credit agreements– payment history or patterns; or– other credit information

Debt counsellors are natural persons who:– determine “over indebtedness”– accepts court referrals or applications to compile reports– recommendations to rearrange debt– investigate repayment circumstances– issue of clearance certificate if fully paid up

Debt counselling is an intermediary step

OVER INDEBTEDNESS OVER INDEBTEDNESS AND RECKLESS CREDITAND RECKLESS CREDIT

This only applies to natural personsOver indebted if unable to satisfy all

obligations in a timely mannerReckless credit if:

– provider failed to conduct assessment– agreement entered despite consumer not

appreciating risks or obligations

OBLIGATIONS OF CREDIT OBLIGATIONS OF CREDIT PROVIDERSPROVIDERS

Assessment of proposed consumer:– understand of risks, costs and obligations– debt repayment history – existing financial means, prospects and

obligations;– reasonable basis to conclude commercial

purpose may be successful– must fully and truthfully answer any requests

for information

UNENFORCEABILITY

Court may declare credit agreement reckless and set aside or suspend obligations

Effect of suspension:– consumer not required to make payment– no interest, fees or other charges– provider’s rights unenforceable

UNLAWFUL CREDIT UNLAWFUL CREDIT AGREEMENTSAGREEMENTS

Unlawful in these circumstances:– consumer an unassisted minor; mentally unfit; subject to

administration order without consent of administrator– supplementary agreement contains provision that make it

unlawful– provider unregistered if required by Act– provider subject to notice by Regulator– offer prohibited in terms of provisions of marketing

requirements Unlawful credit agreement is void as from date of

commencement and provider must refund the consumer

UNLAWFUL PROVISIONSUNLAWFUL PROVISIONS

Following provisions unlawful:– effect defeats purposes or policies of Act– purports to waive or deprive consumer of rights– purports to waive any common law rights– purports to exempt the credit provider from liability for

act, omission or misrepresentation– agreement by consumer to forfeit money when

exercising right of rescission or failure to comply before receiving goods or services

Unlawful provision is void from date provision purported to take effect

CREDIT MARKETING CREDIT MARKETING PRACTICESPRACTICES

Negative option marketing and opting out requirement Marketing and sales of credit at home or work Advertising practices

– provider not registered must not advertise– advertisement must not:

advertise credit that is unlawful; be misleading, fraudulent or deceptive; or contain any statement prohibited by regulation

– may contain a statement of comparative credit costs to extent permitted

– must state rate of interest and other credit costs

CONCLUSION AND CONCLUSION AND ADMINISTRATIONADMINISTRATION

Quote before extending credit must set out:– principal debt– proposed distribution– interest rate and other costs– total cost of the proposed agreement; and– basis of any costs that may be assessed if rescinding

Must state if subject to limited availability Cost of agreement must be clear Copy must be supplied in paper or printable

electronic form

LIABILITY FOR INTEREST, LIABILITY FOR INTEREST, CHARGES AND FEESCHARGES AND FEES

Prices of cash versus credit sale Cost of credit only for principal debt; initiation fee;

service fee and interest in percentage terms at annual rate

Instalment, mortgage, secure loan or lease for initiation fee; extended warranty agreement; delivery, instalment and initial fuelling charges; connection fees, levies or charges; taxes, licence or registration fees and premiums of credit insurance

Interest– may not exceed the value of the principal debt– may provide for interest rate to vary– may not unilaterally increase 30 business days written notice

STATEMENTSSTATEMENTSMonthly statementAdditional statements

TERMINATION AND TERMINATION AND RESCISSIONRESCISSION

Lease or instalment at premises other than registered business - terminate within five business days

terminate by settling amount; surrendering goods; or payment of remaining amount

May propose referral to debt counsellor, alternative dispute resolution agent, consumer court or Ombud

Provide notice before legal proceedings intermediary procedure by debt counsellor Request order if in default for 20 business days

and:– at least 10 business days have elapsed– no response to notice or rejected proposals; and– iro instalment sale agreement, secured loan, or lease,

relevant property not surrendered

DEBT ENFORCEMENTDEBT ENFORCEMENT

DISPUTE DISPUTE SETTLEMENTSETTLEMENT

Any person may initiate complaint to Regulator NCR may initiate complaint in its own name Ombuds, consumer courts and alternative dispute

resolution agents may also hear complaints Regulator power to refer matter to National

Prosecuting Authority where offence committed No complaint may be referred more than three

years after the cause of complaint