Amendments to the National Credit Act now effective

Unsecured lending will dry up, says debt-counselling firm.

JOHANNESBURG – Amendments to the National Credit Act (NCA) have finally come into operation, according to the government’s Green Gazette, significantly increasing requirements for the affordability assessments done by unsecured lenders before granting loans to consumers. 

Signed into law by President Jacob Zuma in May 2014 – a few months before the collapse of unsecured lender African Bank – the National Credit Amendment Act has been a long time coming and it’s not quite clear what has taken so long to get to this point.

When the proposed amendments were first announced last year, Ian Wason – CEO of the Intelligent Debt Management (IDM) Group, which owns one of South Africa’s largest debt counselling companies, DebtBusters – said at the time that the Department of Trade and Industry (dti) had waited so long to introduce these amendments that the consumer debt crisis in South Africa was far worse than it could have been.

According to DebtBusters, the NCR has reported growth in unsecured lending from R40 billion in 2008 to R172 billion in 2014. 

As a means to tackle over-indebtedness, amendments made to the National Credit Act and effective on March 13 include stricter affordability assessments. For instance, lenders must request three months of pay slips and three months bank statements (or similar credible income and expense verification) before granting a loan. 

Credit providers are also required to calculate discretionary income, as well as all existing debts and maintenance obligations, in order to make a call on whether the consumer can afford a loan.

“Government is concerned about the high level of over-indebtedness which results from failure to do proper affordability tests on consumers, hidden costs of credit, as well as continued unfair lending practices by some credit providers,” comments the dti in a recent statement on its website.

According to the dti, the amendments also require “open and honest disclosure by consumers when applying for credit so that they don’t find themselves over-extended”.

Unsecured lending drought

DebtBusters, meanwhile, has warned of an “unsecured lending drought for South African consumers”. 

“As credit providers start tightening their lending criteria in response to the new affordability guidelines, it will become more difficult for cash strapped consumers to take out debt,” comments DebtBusters marketing manager, Kelli Knutsen.

“Many South Africans that are already at the end of their credit line won’t meet the new affordability requirements and their loan applications will be declined. Consumers who have a habit of borrowing from ‘Peter to pay Paul’ and [using] revolving credit will no longer be able to do so,” she says.

Together with the NCR, the dti is hosting a conference on Thursday to discuss these amendments, aimed at preventing over-indebtedness. “The conference will also talk to the rising concerns regarding the abuse of emolument attachment orders (EAO), which hold many consumers hostage as they find themselves trapped in debt situations that seem impossible to escape,” the dti says.

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Until the South African government accepts the FACT that 2% monthly minimum credit card payments are nothing more than a credit card crack addictive drug that creates more and more debt as time goes on, any proposed solution will fall short.

A solution that I believe will work requires a plan of 60% – 70% credit card debt forgiveness while simultaneously raising the monthly minimum credit card payment from 2% to 5% of the total due.
This would do THREE very important things, it would keep monthly minimum payments the same, but now all debtors would be paying 5% monthly minimum of the total due instead of only 2% of the monthly minimum.
The 5% monthly minimum payments means MORE respend money and LESS money going towards interest rate payments that are gone forever.
Secondly, the 5% monthly minimum payment would CREATE a debt ceiling at a much lower total debt balance so that a debtor does not keep going further and further into debt.
Thirdly, debtors would find it easier to pay down their debt totals.

(1 July 2016) The NCR has proposed a few new sub committees to manage debt review processes better
Here are the new proposed committees and their proposed functions
National Credit Amendment Act

The sub-committee was established to address
operational difficulties that come with the following
sections of the Act:
• Section 71 (i.e. end balance disputes, classification of
long-term agreements, whether court orders must be
rescinded or not and others).
• Section 86(10) (i.e. what should happen if the matter is
in court and the consumer is not making payments).
• Section 126B (i.e. process on how to indicate whether
the credit agreement has prescribed or not. This is a
requirement by various magistrates).
• Any other matter you would like to raise, which poses
operational difficulties since implementation of the Act.
Reckless lending

The sub-committee was established to clarify and review
the process to be followed in terms of Section 136(1)
of the Act when lodging complaints alleging reckless
lending with the National Credit Regulator (“the NCR”).
Joint bonds

The sub-committee was established to address
operational difficulties that comes with joint bonds in debt
review applications, considering the following:
• The inclusion or exclusion of joint bonds in an
application for debt review with reference to the
applicable marital regime governing the consumers.
• The effect of inclusion or exclusion on consumers who
are not married.
• The effect of inclusion or exclusion on the signatory
who has not applied for debt counselling.
• The effect of inclusion or exclusion on a Debt
Counselling Rules System (DCRS) proposal.
• Any other matter you would like to raise, which poses
operational difficulties on joint bonds.
Court order template

The sub-committee was established to develop a
standard and uniform debt review court order template
for the industry.
Data

The sub-committee was established to:
• Deal with data challenges relating to the
Debt Help System (DHS).
• Develop the credit reporting framework
for credit providers in line with Regulation 19(13).

End of comments.

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