By Angelique Ruzicka, editor, Justmoney.co.za
The Department of Trade and Industry (Dti) has introduced a range of reforms that are set to improve the lives of indebted consumers in South Africa. Here are 12 ways in which the National Credit Amendment Bill (NCAB) could make a difference for you:
1. More effective debt counselling and debt review
Originally, you could apply to a debt counsellor at any time for a clearance certificate relating to debt review provided you paid off all your short term and long term (mortgage) debt. Under NCAB a slight change applies. Now you can be issued with a clearance certificate if you have paid up all other debt and the only outstanding debt being serviced is a mortgage agreement. So provided that there is no arrears on the mortgage agreement you can apply for a clearance certificate.
2. More stringent affordability assessments
The days of firms giving you loans you can’t afford to repay are numbered thanks to MPs giving the thumbs up to NCAB. This may sound like a negative thing because it will be harder to get a loan if lenders tighten up their lending criteria. But according to the Dti this will only make your life better as it means you won’t be taking out loans that you can’t afford.
"We have over the years seen the increase in the accessibility of the credit market, but we have equally seen the increase in unsecured loans that are expensive to the poor, reckless credit caused by failure to conduct proper affordability tests, as well as levels of over-indebtedness and impaired consumer records," said Rob Davies, Minister of Trade and Industry in an address to the National Assembly last week.
“The NCAB therefore empowers the Minister to prescribe affordability assessment regulations to achieve uniformity and consistency in this area. The affordability assessment regulations will include elements relating to discretionary income as well as determine the buffer in respect of income that should not be taken into account when conducting affordability assessments,” added Davies.
However, if you provide incorrect information to lenders you may lose your protection under the Act.
3. Registration of alternative dispute resolution (ADR) agents
ADRs must now be registered to be monitored by the NCR. This, again, is a good thing because it will stop unscrupulous ‘agents’ from entering the system, offering services to clients and charging exorbitant fees and/or making off with their money.
“These practitioners, if not regulated and monitored closely, add a huge cost on a consumer that is already over indebted. Also, the quality of services offered to the consumer is not monitored by anyone, but worse, some disappear without trace after a consumer has paid for services not offered. This includes lawyers who have entered this space and charging fees that are not regulated by the Act to the detriment of a financially distressed consumer,” said Davies.
4. Regulating payment distribution agencies (PDAs)
Before NCAB was introduced there was always a danger of PDAs (who are responsible for distributing payment to creditors on time and consistently on behalf of consumers under debt counselling) not paying lenders on time or going bust and absconding with clients’ cash.
Under NCAB there will be strict regulation of PDAs’ registration and deregistration as well as the fees that they may charge consumers for their services. It also prohibits lenders from having any interest in the management or business of a PDA.
5. Enhancing powers of the National Credit Tribunal (NCT)
The power of the NCT will be extended to consider and pronounce on reckless agreements as well as confirming arrangements between consumers and credit providers where no disputes exist.
6. Removal of adverse credit information
If you’ve paid up your loans a credit bureaux must remove any adverse information on your credit record indefinitely (unless of course you get into arrears with loans again). This is good news as it means you will no longer have to approach a court to have judgements rescinded.
But experts are warning consumers not to take advantage of this and be reckless with credit. “One has to view credit, and the use of credit, as a long term thing. But unless they [consumers] make a behavioural change and not borrow more than they can afford they are going to be in the same position two or three years down the line, if not sooner. My advice is: be cautious. Put a budget together to understand what you can afford,” advises Benay Sager, chief operations officer of debt counselling firm IDM.
7. Improved co-operation among regulators
Under NCAB the NCR, Financial Services Board (FSB) and the Registrar of Banks will talk to each other more. It means the NCR will notify other regulators of any investigations or action against regulated entities.
8. Reviewing the cost of credit
Costs such as initiation fees, service fees and interest are already regulated in terms of the Act. However, Ministers are still concerned that the cost is too much. Therefore six months into the passing of NCAB government will revise the caps to control the cost of credit.
Credit insurance (the insurance you have to take out to cover your lender’s debt in the event of your retrenchment or death) costs will also be capped. “Consumers are mostly made to take out multiple credit life insurance at additional costs, which is not necessary. This capping will be done in consultation with the Minister of Finance,” said Davies.
Costs associated with he administration and collection of debt will also be reviewed. “This means all persons charging fees from collection of debt arising from a credit agreement or incidental credit must fall within the regulations and that their fees should be capped as well. The NCAB also makes it an offence for credit providers to charge above capped amounts,” explained Davies.
9. Clampdown on deceptive and predatory advertising
The Dti have logged complaints that some companies have contacted consumers in various ways (email, SMS etc.) with offers for short term credit with high interest rates. While the NCR already has powers to deal with these practices it will look to take action against unscrupulous companies through naming and shaming.
10. Dealing with illegal credit providers
The days of illegal lenders who keep your ID documents, SASSA cards and other forms of identification as collateral are numbered. NCAB will require that all credit providers must be registered irrespective of the threshold or number of credit agreements they have.
11. Debt collectors can no longer hassle you when it comes to expired (prescribed) or extinguished debt
Davies pointed out that consumers are still being harassed by companies that they have never had an interaction or credit agreement with claiming that they are owed money because they bought loan books from credit providers. Some of this debt is already prescribed meaning that they date five to ten years back. The NCAB now prohibits the sale of expired (prescribed) debt as part of loan books by credit providers. Credit providers must also notify consumers if they sell their debt books to another company.
12. Revising the governing structure of the NCR
Under NCAB the board of the NCR will be removed, meaning that the NCR will report directly to the Minister and Parliament.