The National Credit Act ... Borrowing Money or Getting Credit Now Much More Difficult. Debt Counselling

The South African National Credit Act came into force on June 1st 2007 and its introduction has major implications for borrowers and lenders. In essence it will make the availability of credit harder to get. There are a number of components to the act which has been designed to help people from becoming over-indebted.

Debt counselling has become a big business as a result of this act.

Summary of the Act and What It Means to Individuals

The act covers all types of loans and credit arrangements including financing of the following

Credit card applications

Purchase of a vehicle

Buying of a home or property (applying for a bond)

Personal loan applications

Application for an overdraft with a bank

In future when you apply for financing it is up to the lender to ensure that you have the ability to repay the loan. In simple terms this means the potential lender must be provided with detailed information by yourself on your monthly income and expenditure. You will also be required to declare any other existing credit arrangements.

Prior to the introduction of the National Credit Act or NCA for short a home loan for example was based upon the gross salary of the applicant. In future the granting of a homeloan will be based upon whether there is enough disposable income to finance a home bond after all monthly expenses have been met.

By applying this test the consumer is protected from over-extending and one of the key objectives of the NCA is to protect consumers this way.

If a loan is applied for it is incumbent upon the institution to give you reasons for declining the application or if approved then a full statement called a pre-agreement will be provided by the lending institution. This must contain the main features of the credit or loan agreement along with a quotation including a spelling out of all costs associated with the agreement. You have 5 days minimum to consider the proposal.

Other Aspects of the National Credit Act (NCA)

Designed to ensure borrowers get full disclosure on all costs of the financing.

Requires documents to be written in language of choice and in plain non-legalese terms.

Lays down maximum initiation fees, admin fees and interest rates.

It is no longer possible for the credit or lending institution to insist that insurance (eg car or home insurance) against a loan be taken out with the institution providing the credit or loan. This means consumers can shop around for the best insurance deal when buying a car for example. You may want to check out an alternative quote for your car or other type of vehicle by reviewing this Dial Direct website where you can get a quote for car insurance online or by telephone

If insurance is provided by the credit provider then they may not charge more than the actual cost of insurance.

A National Consumer Tribunal has been set up to help consumers resolve problems with credit bureaus, credit institutions and credit transactions in general.

The quotation provided by the proposed lender must disclose the full cost of credit applied for including the following:

Interest rate

All fees

Penalties

Hidden costs

Misleading advertising is prohibited by the National Credit Act. This includes "guaranteed loans". "no credit checks required"  etc

National Credit Act ... Credit Bureau Information

There are important regulations regarding consumer interaction with credit bureaus including the following:

Credit providers must make sure that any information supplied to a credit bureau is accurate and up to date. They must warn borrowers 20 business days before submitting a report to a credit bureau.

The credit bureau must maintain confidential records safely and they are obliged to provide free of charge once a year a credit report upon request by a consumer.