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The National Credit Act (NCA)
The National Credit Act (NCA) 34 of 2005 becomes fully effective in South Africa on 1 June 2007 and replaces the Usury Act, the Integration of Usury Laws Act 1996 and the Credit Agreements Act 1980, which has been the primary legislation governing the granting of credit within the financial services industry since 1968.
In essence, the NCA is designed to promote and facilitate the creation of a fair and non-discriminatory credit marketplace in South Africa. As such, Nedbank fully supports the act and is doing everything in its power to ensure that the manner in which it grants credit always upholds the intentions and requirements of the legislation, while still meeting the varied lending requirements of all its clients in a responsible manner.
The NCA in brief
The main purposes of the National Credit Act can be summarised as follows:
- To promote a fair, competitive, accessible, equitable and sustainable credit market.
- To educate consumers so that they are empowered to make informed choices, borrow responsibly and within their means.
- To enforce affordability checks and calculations within the lending process to prevent reckless lending and/or borrowing.
- To protect consumers who feel they have been unfairly treated in a credit agreement by giving them access to a National Credit Regulator and the National consumer tribunal.
- To provide a last resort debt counselling process for consumers who are not able to find a solution, in conjunction with credit providers, for their inability to repay a loan.
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Nedbank’s view regarding the Act
Nedbank has always considered itself to be a responsible lender and welcomes the NCA. It supports our credit policy and our strategy to become the most respected bank in southern Africa by, among others, our clients and the communities we work in. We believe we can meet the financial services requirements of our clients and the communities in which we operate and uphold the principles of the NCA.
Despite being largely aligned with the requirements of the act already, Nedbank has invested significant time and resources and, in addition to making the necessary changes to the procedures and charges within its credit processes, Nedbank staff members have undergone robust training in terms of the act and the bank is communicating extensively with it clients regarding the impact of the NCA. All documentation concerning the act has been reviewed to ensure it is compliant.
Committed to educating our clients
As a responsible lender, Nedbank has embarked on an extensive programme of consumer education regarding the Act. Using various communication elements, information and educational messages are being made available to clients through all the major media channels. Consumer education road shows are underway and NCA related information is available at Nedbank branches.
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Nedbank’s approach to credit after the act is implemented on 1 June 2007
Essentially, the way Nedbank grants credit to its clients after the act takes effect will not differ vastly from the way in which the bank has always granted credit. The bank will continue to use a detailed credit scorecard to assess the level of indebtedness of each applicant. This approach takes into account the income and other debt commitments, as well as repayment history, to ensure that the applicant will not be overburdened.
Certain costs that have been standard practice, such as early-settlement or administration fees, cannot be charged within the ambit of the NCA and will fall away. As of 1 June 2007 all Nedbank lending products will be priced according to the new requirements and existing credit clients will be migrated to the new pricing model over a period of time.
In terms of the bank’s approach to new credit-based products, the credit assessment of clients to ensure affordability will change very little, as existing Nedbank credit lending practices are already aligned. The major requirement of the NCA is that clients understand all agreements, their rights and obligations and Nedbank, as a responsible lender, will continue to make sure that all our clients’ rights are protected in this regard. The bank has reviewed and reengineered its processes relating to credit extension and introduced additional material to explain clients’ rights and obligations. New products will also be priced according to the requirements of the NCA.
Note:
The National Credit Act does not apply to juristic persons under certain circumstances, for example those with an annual turnover or assets in excess of R1 million. Nedbank will advise juristic clients, when creating a new relationship or modifying an old relationship, whether they or the product they require, falls under the act.
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Helping Nedbank clients
The inability of a customer to repay a debt is in no way beneficial to Nedbank, nor does it support the bank's objective of being a responsible lender. In an effort to educate credit clients and help them avoid over-indebtedness, a series of tips will be used, which form the basis of an extensive awareness campaign during the period in which the NCA takes effect:
- Avoid making purchases on impulse – the instant gratification may not be so nice when the bills arrive.
- Missing a payment will affect your credit history. Always contact your creditors first to make a payment arrangement.
- Put any spare cash into paying off your debt early and try to contribute monthly to a savings or investment account.
- Reduce the balance owing on the loan with the highest interest rate as a first priority. You will save on interest in the long run.
- Don’t move short-term debt (eg credit card) to long-term debt (eg home loan) to increase your monthly cash flow as you will pay more interest in the long-term.
- Never apply for debt in your name on someone else’s behalf, or stand surety for someone else. That person may not be able to repay the debt, which could leave you with a bad credit history.
- Live within your means to ensure you do not overcommit yourself financially.
- Know your credit rating and update any incorrect information at the credit bureaus.
Nedbank supports the National Credit Act, which is there to ensure clients understand their agreements, rights and obligations. Nedbank, as a responsible lender, will continue to make sure that all our clients' rights are protected in this regard.
If you want to know more about managing your debt and getting finance that you can afford, call the Nedbank Contact Centre on 0860 555 111.
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What is the NCA?
The NCA is legislation that was signed into law by the President on 15 March 2006, and governs the application, assessment and maintenance of credit granted by a credit lender to a consumer within the Republic of South Africa.
It replaces three pieces of existing legislation:
– the Usury Act 1968 (see note on implementation date);
– the Integration of Usury Laws Act 1996; and
– the Credit Agreements Act 1980.
It also makes amendments to many other acts:
- The Usury Act governs leasing, credit and moneylending transactions.
- The Exemption Notice to the Usury Act exempts microloans (loans of less than R10 000) from the Usury Act and allows microloans to operate outside of certain requirements of the Usury Act.
- The Credit Agreements Act applies to all credit agreements.
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What is the purpose of the NCA?
The main purpose of this act is to: - promote and advance the social and economic welfare of South Africans;
- promote a fair, non-discriminatory, controlled, competent, sustainable, responsible, efficient and accessible credit marketplace; and
- protect consumers.
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Which persons fall within the scope of the NCA?
- Credit lenders offering credit in excess of a prescribed threshold/volume.
- Consumers – all individuals, certain juristic persons [eg companies, close corporations, trusts (with more than three individual trustees), partnerships and an association of persons].
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What is the deadline for implementation?
The NCA is to be implemented in three stages: - Most of the NCA's administrative provisions came into effect on 1 June 2006.
- The sections on credit bureaus and credit information came into effect on 1 September 2006. (Note: an amnesty requiring the removal of certain historical credit data is anticipated.)
- The compliance sections on credit providers become effective on 1 June 2007 (at which stage the Usury Act, Integration of Usury Laws Act and Credit Agreement Act finally fall away for new contracts).
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What were the drivers behind the NCA?
The NCA strives to: - improve the transparency of the credit cycle process (ie application, assessment, account maintenance, repayments, debt enforcement and termination of credit agreements).
- give consumers an understanding of the rights and obligations of both the credit grantor and the consumer under a credit agreement.
- prevent unfair contract agreements.
- prevent the reckless granting of credit.
- assist consumers who are heavily in debt through debt counselling.
- regulate the information held by credit bureaus.
- create a central register of debt obligations (at a future date still to be determined).
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What is reckless credit?
Reckless credit refers to the credit provider concluding a credit agreement with a client without, on receipt of a credit application, performing the following steps: - Doing a full affordability assessment.
- Considering the applicant's debt repayment history.
- Determining whether the applicant understands the rights and obligations under the credit agreement.
Should a court declare a credit agreement reckless, it may set aside the rights and obligations of a consumer under the agreement, suspend or restructure that agreement – the result being that the bank would not be able to enforce such an agreement.
A credit agreement cannot be declared reckless if the applicant did not fully and truthfully supply all information required by the bank as part of its credit assessment.
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What is overindebtedness?
- Overindebtedness is when a person can no longer meet his or her financial commitments and obligations. In other words, his or her expenditure, including debt repayments, is larger than his or her income.
- The biggest contribution of the NCA to help clients avoid overindebtedness is consumer education, which will help people manage their finances better and make more informed choices when using debt to facilitate their needs.
- Nedbank believes in a fair and equitable lending environment that will avoid overindebtedness; however, people often become the victim of circumstances. If any of our clients are experiencing financial difficulty, they are encouraged to contact us and we will liaise with them to pay off their debt in a mutually beneficial way.
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What are the most common causes of overindebtedness?
- There are different reasons for overindebtedness. It mainly has to do with overcommitting oneself financially. It is important to be responsible with monthly budgeting and only become indebted for what is really necessary (eg a home loan or vehicle finance). Sometimes people make purchases on impulse that cost them dearly when they have to pay them off, especially when they have other debts.
- Other causes are often a change in circumstance or life stage such as having a child or going through divorce.
- It is never a good idea to buy essentials such as food and pay these off on your credit card
- If you need to apply for credit, make sure it is with a registered and reputable credit provider such as Nedbank. The NCA will help to make the credit application process fair with due consideration to overindebtedness.
- Also, don’t move short-term debt (eg credit card) to long-term debt (eg home loan) to increase your monthly cash flow, as you will pay more interest in the long term.
- And never apply for debt in your name on someone else’s behalf, or stand surety for someone else. If that person experiences difficulty in repaying the debt, you become responsible for the repayment. What’s more, it could leave you with a bad credit history.
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What is a credit agreement?
A credit agreement is an agreement that sets out the extension of credit by the bank to a consumer. The NCA requires that, before a credit agreement is entered into, the bank must provide the consumer with a preagreement statement and quotation, which sets out all the costs and the terms and conditions of the proposed credit agreement.
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Which of Nedbank’s products fall under the NCA?
- Personal loans
- Mortgages (Home loans)
- Overdrafts
- Credit cards
- Asset-based finance [instalment agreements, lease (other than rental) agreements]
- Business loans
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Does the NCA, in any way, have an impact on commercial property lending and the insurance on these properties being done by Nedbank?
If the borrower is subject to the NCA (ie all natural persons or juristic persons whose annual turnover monetary asset value is less than R1m), then the commercial property lending falls under the NCA. If the lending falls under the NCA then the credit insurance on the property falls under the NCA.
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What steps will Nedbank take to ensure that clients are able to repay their loans and avoid overindebtedness?
Nedbank is deeply committed to the objectives of the NCA. By using a credit scorecard we assess the level of indebtedness of the applicant. We consider his or her income and other debt commitments, as well as his or her repayment history, to ensure that he or she will not be overburdened.
Clients do, however, fall on hard times (eg loss of employment, death of a breadwinner, medical bills, etc).
- Nedbank will offer an informal counselling process with its clients to try and rearrange the debt, where possible. Where there is seen to be no resolution, the client will be referred to an independent debt counsellor.
- Independent debt counsellors are appointed by the National Credit Regulator and are required to follow a regulated process to help those who are overindebted find a solution. They will assist in a rebudgeting exercise with clients in establishing how much debt repayment the client can afford. The counsellor will negotiate with the respective creditors to achieve a rescheduling or consolidation of debt. If this is unsuccessful, the legal processes of debt enforcement will follow.
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What is an affordability assessment and how will Nedbank determine affordability for credit?
Affordability assessment is a check done on a client (and spouse, if married in community of property and if it is a joint application) to determine if they will be able to repay the credit. This is determined by assessing the income, expenses and debt repayments, which the client must now provide on the application form as prescribed by the NCA.
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What additional information must a client provide on his or her credit application form?
It is important that clients provide complete and accurate information regarding their income and expenditure when completing their application forms. The following additional information must be provided: - Monthly income.
- Monthly spending (such as groceries, rent, travel costs and school fees).
- Monthly financial responsibilities (home loan payments, study loans, vehicle finance, etc).
- Age of applicant.
- Solvency status.
- Whether applicant is under, or has applied for, debt review/judicial management/curatorship.
- Whether applicant is party to any other credit agreements.
- Whether applicant has a commercial purpose for applying for the loan.
- Whether applicant wants annual limit increases (where applicable).
- Marketing options.
- Completion of specific declarations regarding the information supplied (eg client warrants that all questions are answered truthfully and honestly, as required for Nedbank's assessment, and gives consent in respect of bureau records) for purposes of preventing reckless credit lending.
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How will existing credit limits be affected?
Existing Nedbank clients will mostly be affected through interest/fees. Certain fees that were standard practice (such as early-settlement or administration fees) cannot be charged within the ambit of the NCA. Where an existing client changes a contract or wishes to purchase a new product, these will be priced according to the new pricing model as prescribed by the NCA.
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Can a client still request a temporary limit increase?
Yes – this process stays the same. No credit agreement will be required from the client in order to process a temporary limit increase instruction.
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What is debt counselling and how can I apply for it?
If you, as a Nedbank client, think you are financially overcommitted, please contact your branch or the Nedbank Contact Centre on 0860 555 111 for an informal debt review.
Clients who are unable to meet their financial commitments may apply to a registered debt counsellor for a proposed resolution. If a debt counsellor finds that a client is indeed overindebted, a proposal can be recommended to the client and his or her credit providers for repayment of the debt. If there is any disagreement with the proposal, the matter will be heard by the magistrate’s court, who in turn may restructure the client’s debt by: - extending the term of any agreement;
- postponing payments;
- recalculating unlawful fees or interest; or
- recalculating the consumer’s debts in terms of the agreement.
A list of registered debt councellors is available from the National Credit Regulator’s office on 0860 627 627 or www.ncr.org.za.
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Can you give me more information on the credit bureau amnesty for adverse records and the free credit bureau check in terms of which I can get information on my own credit record?
Regulations made in terms of section 73 of the NCA have been published by the Department of Trade and Industry. These regulations prescribe the nature, timeframe, form and manner in which credit information held by credit bureaus must be reviewed, removed, verified and corrected in terms of the above section.
According to these regulations, the following consumer credit information must be removed: - Adverse consumer credit information in respect of a debt of less than R500;
- All consumer credit information relating to accounts, excluding credit facilities and any accounts where there was no contractual requirement for monthly payment to be made, that have been dormant for a period of at least 24 months on 1 September 2006;
- Consumer credit information related to a civil court judgment of up to R500, except if a consumer has more than two unpaid judgments;
- Consumer credit information related to a civil court judgment of up to R5 000 if the judgment is older than 18 months, provided the consumer does not have more than two unpaid judgments on his or her records;
- Consumer credit information related to a civil judgment of up to R50 000 if the full amount in respect of the judgment was paid by the consumer by 1 September 2006;
- Consumer credit information related to a civil court judgment of up to R50 000 reflected on a consumer’s records on 1 September 2006 if the full amount in respect of the judgment is paid by 1 September 2007.
Please note that credit bureaus must remove or correct this information by 1 June 2007. Consumers are however entitled to a free record that may only be obtained from their birth month onward in accordance with the table below. Alternatively, consumers can request the credit bureau record, which will cost approximately R20.
| Period |
Consumers |
| January 2007 |
Only consumers born during months from September to January |
| February 2007 |
Only consumers born during months from September to February |
| March 2007 |
Only consumers born during months from September to March |
| April 2007 |
Only consumers born during months from September to April |
| May 2007 |
Only consumers born during months from September to May |
| June 2007 |
Only consumers born during months from September to June |
| July 2007 |
Only consumers born during months from September to July |
| August 2007 |
Only consumers born during months from September to August |
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In terms of the act, will consumers be cleared of all debt and start over or are only judgments and adverse reports removed?
Under the section of the act dealing with credit bureaus (73) the Minister has powers to request the removal of data from the credit bureaus. An amnesty is proposed (Government Gazette 29246) that will have the effect, once approved, of removing civil court judgments as follows: - They must have existed prior to 1 June 2006.
- Only one judgment of less than R500 will be removed.
- Only one judgment of up to R5 000, which have existed more than 18 months prior to 1 June 2006, will be removed.
- Up to R50 000, if the outstanding amount was repaid in full between 1 June 2006 and 1 June 2007, will be removed.
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What is Nedbank doing to become compliant?
A project team has been tasked to focus on the implementation of the act into the Nedbank Retail, Business Banking and Property Finance Divisions to ensure we are compliant by the due date.
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Debt is not a bad thing if managed wisely and if one does not overcommit oneself financially.
Nedbank supports the National Credit Act, which is there to ensure clients understand their agreements, rights and obligations. Nedbank, as a responsible lender, will continue to make sure that all our clients' rights are protected in this regard.
If you want to know more about managing your debt and getting finance that you can afford, call us on 0860 555 111.
If you have a question about the NCA, please email Grouprisk@nedbank.co.za to submit it.
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Forex
