Credit agreements in South Africa

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Credit agreement in South Africa is an agreement or contract in South Africa in the event of payment or payment by a party (debtor) to another party (creditor) suspended. This entry addresses the core elements of a credit agreement as defined in the National Credit Law, and the consequences of concluding credit agreements in South Africa.

Video Credit agreements in South Africa

Definisi jenis transaksi kredit

It is important that the meaning of important terms used in the practice of consumer law is clearly understood. Most of the definitions below are derived from the National Credit Act 34 of 2005 (the "Act").

Agreement

"Agreement" means contract.

Credit

"Credit" means the suspension or delay of payment of money to another person, or a promise to pay the money.

The important role of credit in the economy is explained in the policy framework of the Department of Trade and Industry August 2004:

Credit allows people to use the product or service, at a cost represented by the interest rate, before they pay for the product or service or, where the goods can not be given out of one month's salary, to spread the payment through the number of months.

This document goes on to describe credit as a "double-edged sword," due to "a considerable imbalance of power between consumers and credit providers," due to poor consumer education levels and knowledge of consumer rights, and the inability to enforce those rights through negotiation or legal action:

Therefore, credit can not be seen as a universal basic service whose access must be expanded in the same way as access to water, health care and electricity. There is a greater need to balance access to credit with the protection of consumers, especially the vulnerable.

Credit providers

The provider of credit is the party that supplies the goods or services (in the case of an installment sale agreement, for example), or that pays money (in term, for example, from secured or unsecured money loans, overdraft facilities, mortgage deals or mortgage loans). Credit providers are often also referred to as "creditor," especially when steps are taken to recover the amount due from the consumer.

Consumer

A consumer is a party that sells goods or services, or to whom money is lent in one of the above-mentioned examples. When steps are taken to recover the amount to be paid, the consumer is often referred to as "the debtor."

Credit Agreement

An agreement is a credit agreement if the agreement governs the suspension or postponement of the payment, and if any fees or interest are levied on deferred payments. The law does not require that credit agreements be made in writing and signed by both parties, although this is implied throughout the Act. A credit agreement may be a credit facility, credit transaction or credit guarantee (or a combination of both). These three terms are defined in section 8 of the Act.

Credit facility

A credit facility is an agreement in the case of a credit provider that supplies goods or services, or pays a certain amount to the consumer. The consumer's obligation to pay the price or pay back the money is deferred, instead the consumer pays interest and fees. An example of a credit facility is advanced credit

• in the overdraft check account in the overdraft facility; or
• on the credit card account.

Credit transaction

"Credit transactions" may refer to any of a number of different types of transactions. The most important thing for the present purpose is to follow

Installment agreement

In terms of installment agreements, moving goods (such as furniture, clothing or cars) are sold, the price is paid in installments, and the goods are delivered to the consumer. Consumers become owners only after all installments are paid.

Unsecured savings

Unsecured loan is usually a smaller money loan (microcredit) that is repaid in installments, where the lender is not granted a guarantee for debt repayment.

Pawn transaction

In the case of a mortgage transaction, money is lent and the borrower gives the property item as collateral, the resale value is greater than the loan. The creditor is entitled to sell the property if the money is not paid off by an agreed date, and to save the proceeds of the sale.

Mortgage agreement

The mortgage agreement is a money loan that is secured by the registration of mortgage bonds on the land, whose results are usually used to purchase land or housing.

Secured loan

In the case of secured loans, the money is paid, and the credit provider receives a guarantee of any movable property or something of value as a guarantee of loan repayment.

Rental of moving goods

Rent of moving goods - ie, not land or housing - will include, for example, telephones or automobiles, with rent being paid in installments, together with fees and interest. (If interest and fees are not charged, it will not be a credit transaction in terms of the Act). The total number of installments will usually amount to the value of the goods left. After all installments are paid, ownership turns to consumers. This is contrary to general rent law. However, if the agreement states that ownership will always remain with the lessor, it will remain a credit transaction in relation to the Act.

Credit guarantee

In the case of credit guarantees, a third party agrees to pay the creditor the amount to be paid by the consumer, upon request (such as, for example, in the case of suretyship, in the case of personal security provided for the other party's debt.

Incidental credit agreement

Incidental credit agreements occur when a good or service is provided to a customer for a certain period of time and a fee or interest is charged only if the payment is not made on an agreed date. Examples include

• donating city services, such as water or electricity; and
• clothing sales where no interest is charged provided that the account is paid on a certain date.

Incidental credit agreements are not included in the definition of credit agreements in the Act. Section 5 establishes a limited provision of the Act applicable to them.

A number of other agreements are not considered as credit agreements by the Act, including

• transactions between stokvel (voluntary associations involving a rotating financial scheme with entertainment, social or economic functions) and its members;
• the insurance policy; and
• rental of non-removable property.

Maps Credit agreements in South Africa

National Credit Act

The National Credit Act is a complex and lengthy law that tries to strictly regulate every sector of the consumer credit market. The last provisions of the Act became effective on 1 June 2007. The Act revoked the Riba Law and Credit Agreement Act, and has very little resemblance to these Stories. This is a clean break from the past. All consumer credit laws are listed in the Act, which applies to all credit agreements and all credit providers.

The Act has an ambitious and very difficult goal of promoting competitive and efficient, competitive industry and credit markets that are at the same time fair, transparent, accountable and accessible. The main theme of this Act is consumer protection. Section 3 of the Act sets out a number of methods used by the Act to achieve this.

Important consumer credit institution

National Credit Regulator

Much of the responsibility for implementing the objectives of the Act lies with the National Credit Regulator (NCR), which oversees the entire consumer credit industry, including all the functions and responsibilities of the former Microfinance Regulatory Board (in the context of microfinance). ). NCR is an independent organization governed by the Council, with a Chief Executive Officer who can appoint inspectors and investigators.

The NCR has a large number of responsibilities. These are set out in detail in sections 13 to 18 of the Act. It remains to be seen whether he will have the capacity necessary to perform all these functions. His responsibilities include

• the promotion and development of credit markets accessible to all;
• monitor and report each year a certain market trend to the Minister;
• conduct research and propose policy to the Minister about the consumer credit industry;
• organize industry by registering credit providers, credit bureaus and debt counselors, and suspending or canceling registration;
• enacting the Act in the various ways listed in section 15;
• promote public awareness of consumer credit issues in the various ways listed in section 16 (consumer education);
• engaging with provincial regulatory authorities;
• advising the Minister; and
• recommend and report to the Minister on various aspects of consumer credit practices, policies and legislation.

National Consumer Tribunal

The National Consumer Tribunal is an independent body, separate from NCR. It has jurisdiction throughout South Africa, and consists of a chairman and at least ten other members appointed by the President. A court of record, he conducts the process in public in informal and inquisitorial ways. It applies the principles of natural justice, and has a powerful function on every thing brought before it in terms of Law. The law provides rules of practice, procedures, evidence, and a list of possible orders related to the Tribunal.

Tribunal powers are mentioned throughout the Act, the most important being

• to hear cases of alleged violations of the Act, mostly by credit providers;
• to impose fines;
• to create an order reflecting an agreed resolution in another forum; and
• functions as an appeal body. (NCR decisions, for example, can be taken on appeal to the Tribunal.)

Sign up

NCR is required to create and maintain two important registers:

1. a list of specific people; and
2. national list of credit agreements.

List of specific people

Credit providers, credit bureaus and debt counselors are required to register with NCR. Never been a credit provider

• provides at least 100 credit agreements; or
• has outstanding book debt (total debt principal debt) of over R500,000,

it should register with NCR.

There will therefore be many credit providers (micro lenders in particular) who will not be required to register. (The position of an unregistered credit provider is discussed below.) NCR has the power to suspend or cancel registration under certain circumstances.

Anyone can access this list on the NCR website or can obtain a copy of the extract from the list on payment of fees. Each person may also obtain a copy of the registration certificate for payment of fees.

Credit providers and credit bureaus are required to apply to the NCR on July 28, 2006. Debt advisers may register at any time.

List of national credit agreements

NCR may be required by the Minister to make a national list of unpaid credit agreements, but have not done so. Once established, the credit provider must submit the following information in relation to each credit agreement:

• the name and address of credit and consumer providers;
• the credit provider registration number;
• the consumer identity number;
• principal under the credit agreement;
• the credit limit under the credit facility; and
• the amount and schedule of monthly installments to be paid.

Certain information regarding credit agreements entered before the enactment of the Act should also be provided. This list will be accessible to anyone applying within the specified form. It will also provide a way to monitor South Africa's consumer debt levels, which NCR needs to do.

credit bureaus

The credit bureau is the entity involved for payment in the business of receiving reports or investigating apps and credit agreements, payment history or patterns, and other consumer credit information. Credit bureaus are also in the business of organizing and maintaining data and publishing consumer reports based on this data. As indicated above, the credit bureaus were requested to register with the NCR on July 28, 2006. The credit bureau assists credit providers with information that prevents consumer overcrowding and frivolous credit granting.

Debt advisor

A debt advisor is not defined in the Act. "Debt Training Coach" Debt Advisers The NCR outlines debt counselors as "registrants who are required to perform certain tasks set out in the Act - including facilitating, investigating, and recommending solutions for excess loans."

A debt advisor has a number of functions that appear throughout the Act. The main role of debt counselors is to evaluate consumer debt (on referrals from consumers by court, or after application by consumers directly to debt counselors). The debt advisor can then recommend to the court

• that the consumer is in debt;
• that one credit agreement or more careless (and should be set aside or suspended); and
• that consumer debt will be re-structured.

This procedure is described in more detail below.

The debt advisor must apply to the NCR to be registered as such. This law contains a long list of reasons for disqualification as a debt counselor. In addition, the Regulation provides that debt counselors should

• has Grade-12 or equivalent qualifications;
• complete the NCR approved debt counseling course;
• have at least 2 years work experience in certain fields; and
• demonstrate the ability to manage their own finances, and to provide counseling or transfer skills.

Consumer court

Consumer court is a court established by provincial law. The law allows this court to be used under various circumstances. There is only one instance in which these courts operate at the same level as the National Consumer Tribunal, when NCR refers to the complaint. Most provinces have introduced their own laws, but only Gauteng currently has a well-functioning consumer court.

Ombuds

This law uses the term gender neutral "ombud" (often known as the ombudsman). The law provides that certain disputes between financial institutions (such as banks) and consumers, arising from credit agreements, may be referred to the relevant ombud. The Ombuds will then act as a mediator between the institution and the consumer with a complaint.

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Conclusion of credit agreement

Pre-deal disclosure

Before terminating the credit agreement, the credit provider shall provide to the consumer, free of charge, statement and quotation in the form prescribed by the Regulation (Form 20 for the Regulation, in the case of a small credit agreement). No agreement was made at this stage; consumers do not need to sign anything or pay any fees. This is a new development in law, designed to protect consumers. This document should contain the financial details of the proposed agreement (such as the amount of credit granted, the amount and amount of installments to be paid, interest and other fees, required security and credit insurance). Consumers must accept or reject offers within five days, giving them the opportunity to shop for better or cheaper credit. Once a consumer receives a quote, the credit agreement itself can be inferred.

Forms and contents of credit agreement

The document form that records the credit agreement is determined by the rules, and varies for credit agreements of different sizes. The details required for a small credit agreement (principal debt less than R15 000) are stipulated in Form 20.2 of the Regulations. This is not really a form, but a framework for the minimum content of the agreement. These details include

• the personal details of the parties;
• financial details of the agreement (similar to those required for the pre-agreement disclosure above); and
• some mandatory rights and obligations of consumers (discussed below).

The lender must provide to the consumer, free of charge, a copy of the signed credit agreement (in paper or printable electronic form).

The credit agreement can be changed only in very specific circumstances, most important in relation to the reduction or increase of the credit line.

Consumer rights and liabilities and credit providers

Many consumer rights are contained in the Act, but very few rights to credit providers. (Conversely, credit providers have many tasks.) This law is biased towards consumers, as it tries to correct the imbalances inherent in our common law. This is not unusual for such legislation.

Right to apply for credit and non-discrimination

Every adult has the right to apply for credit, but no one is entitled to credit. The lender may elect to refuse credit for reasonable business reasons, but may not unfairly discriminate against consumers related to other consumers on the basis of race, religion, pregnancy, marital status, ethnic or social origin, sex, sexual orientation, age, disability, culture, language, etc. A consumer may ask for reasons of credit rejection, which the credit provider must provide in writing.

Right for understandable language

The consumer has the right to be given quotes and credit agreements in the official language he reads or understands, as long as this makes sense. Any document where no form is specified should be in plain language (a language that is a regular consumer with average literacy skills and minimal credit experience will understand).

Rights related to information held by credit bureaus

Credit bureaus have an important role. For example, they provide credit providers with information about credit worthiness from consumers. This information can of course damage consumers. Therefore the credit bureau is obliged to check with other sources that the information provided to them by the credit provider is correct. The consumer has the right to have information relating to a canceled review removed (deleted) from the credit bureau record. Likewise, consumers who have fulfilled all their obligations in terms of debt restructuring have the right to have the fact that the existing debt restructuring is removed from these records.

Credit providers should advise the debtor before reporting unfavorable information to the credit bureaus. Everyone can challenge the accuracy of the information reported or stored by the credit bureaus. The credit bureau or NCR is then obliged to investigate at no cost and correct misinformation.

The rules specify the maximum period of time that various categories of consumer credit information can be maintained by the credit bureaus. For example, civil judgments can be maintained for the earliest

• five years;
• until the date of cancellation by the court; or
Non-credit
• by the credit provider.

Anyone is entitled to a free credit bureau report once per year. After that it will cost R20 per request. Two important credit bureaus, with contact numbers, are: o ITC - 086 148 2482 (Website: www.mycredit.co.za). o Experian - 086 110 5665 (Website: www.creditexpert.co.za)

Protection of marketing practices

The law contains a number of rules in this regard:

• Advertising and marketing of credits must contain specified information about credit costs (interest and all other costs).
• Negative option marketing (in which case the agreement will automatically become available unless the consumer rejects the offer) is not allowed.
• Ads should not be misleading, deceptive or deceptive.
• Credit providers may not harass anyone, or try to force or persuade anyone to apply for credit.
• Credit sales in a person's home are strictly prohibited, except
  • credit sales occur during a pre-arranged visit for that purpose by the consumer; or
  • Credit terms are incidental for the sale of goods or services.
• The lender may require consumers to have credit life insurance during the credit agreement, but has an obligation to ensure that appropriate options for insurance coverage are offered to consumers.

Right to keep privacy and privacy

Credit bureaus are required to protect the confidentiality of consumer credit information they have or report. Credit providers must also provide consumers with the option to be excluded from remote marketing campaigns, marketing lists or customers sold or distributed and mass distribution of emails or SMS messages.

Cooling rights

In certain circumstances, the consumer may terminate the agreement (in writing and delivered correctly) within five business days after signing. This refrigerated right applies only to agreed lease agreements and installments at locations other than the registered place of business of the credit provider. Typically, this right will apply to credit sales by installments (as in the case of automobiles, books, home appliances) concluded at the consumer's home or workplace. The consumer must return the purchased item, and the credit provider must refund the amount paid by the consumer within seven days of termination, minus the following:

• reasonable cost of return and repair damage after sale;
• rent for the use of goods, unless they are still in their original packaging; and
• compensation for the depreciation of the value of goods (with approval or court order only).

Initial completion and payment

Consumers are entitled to pay off their debts in advance at any time, with or without prior notice, upon requesting a statement from the credit provider the amount required to complete the account. There are no settlement fees to be paid for small agreements; interest and other fees are payable only until the settlement date. This means that consumers can request from a credit provider the balance is due, pay the entire amount, and not punished for doing so.

However, this does not apply to major agreements such as mortgage bonds. If a consumer wishes to settle the bond, he must first provide a notice of cancellation for a period of three months to the credit provider. When the mortgage bond is canceled, the consumer will be responsible for the cancellation fee.

Consumers can pay any amount to be paid according to the credit agreement (eg, the installment is due) and the credit provider is obliged to receive the amount, even if it is not due. Such payments are used for interest and unpaid expenses, and then reduce the principal debt.

Submit stuff

A consumer may, at any time, return to the credit provider's goods subject to the credit agreement, whether the consumer is in default or not. The credit provider must then sell the goods and use the proceeds to complete the account. In the case of previous Credit Agreement Act, this procedure is applied only when the consumer is in a default state. This new provision gives consumers extraordinary rights, allowing him to break away from the agreement when he chooses to.

The following procedure should be followed if the consumer chooses to apply this right:

1. The consumer should notify the credit provider in writing about termination of the agreement, and return the goods to the credit provider.
2. If the credit provider already owns the goods, the consumer may ask the credit provider to sell the goods.
3. The lender must notify the consumer within ten days of the estimated value of the goods.
4. Once a consumer receives notice of this value estimate, he may withdraw his termination notice within ten days, and continue the ownership of the goods, unless he is in default under the agreement.
5. If the consumer does not respond to the credit provider's notification of the estimated value within ten days, the credit provider must sell the item as soon as possible for the best price.
6. Once the item is sold, the credit provider must credit or debit the consumer account with the proceeds of sale, minus the reasonable cost of the sale.
7. The lender must provide the consumer with a notice indicating the amount of the deposit before the sale, the amount realized by the sale, and the net proceeds from the sale (after deducting the default fee and the cost of the sale).
8. If the result of a sale is a credit balance on the account, this amount must be returned to the consumer. If there is a debit balance, the credit provider may request and, if necessary, sue the consumer for the outstanding balance.
9. If the consumer is dissatisfied that the goods are sold as soon as possible or at the best price, he may try to resolve the dispute with the credit provider, or through alternative dispute methods, or by referral to the Consumer National Tribunal. The tribunal may provide the consumer with an additional amount if this is deemed necessary.

Account report

This law contains detailed requirements for account reports. The rules prescribe the form and content of the statement in the case of small agreements. The lender must deliver to the customer a periodic account report, usually once a month (but once every two months for an installment sale agreement).

Credit providers are also obligated to provide consumers with account reports on demand, at no cost. Consumers can choose how the statement should be delivered:

• verbally (directly, or by phone); or
• in writing (directly, via SMS, by mail, by fax or by email - provided the credit provider has this facility).

Credit providers do not need to provide written statements on demand more than once every three months.

Right to apply for debt review and debt restructuring

These provisions are described in detail below.

Assignment to report the location of the item

In the case of certain credit agreements (usually mortgage agreements), the consumer becomes the owner only after the full purchase price has been paid, and the credit provider has the right to repossession for breach of agreement. Until then, credit providers have an interest in the existence of goods.

The consumer has an obligation to notify the credit provider of any of the following changes:

• change of business address or residence;
• change of place where goods are stored; and
• change the name and address of others who have the goods.

The consumer shall also provide to the credit provider or sheriff, upon request, the address of the goods stored, and the name and address of the owner of the premises.

Credit provider rights

The most important rights of credit providers are

• the right to enforce the agreement;
• the right to receive extended credit payments, together with agreed interest and fees; and,
• after breach of contract, right to cancel agreement and recover every item sold.

Credit providers may suspend credit facilities (such as credit cards or checking accounts) at any time if the consumer is in default, or close the facility within ten business days.

Providers of credits that have incurred expenses in appendix items while enforcing debt can ask the court to order consumers to pay for attachment fees. The court will make such an order only if the consumer provides false information about the address or location of the goods.

Provider assignment credit

Every consumer's right requires the task of the credit provider. The task of credit providers is very heavy; they give a lot of administrative burden. Some important tasks from credit providers are

• to register as a credit provider after having 100 credit or book debt agreements totaling R500,000;
• to make credit ratings from consumers;
• to provide a statement and a pre-approval consent to the user;
• gives the consumer a copy of the agreement;
• to be given to the consumer account's periodic report, and further statements on request;
• to protect the confidentiality of information about consumers;
• to report to the NCR, or to the credit bureaus, details of each completed credit agreement, and termination of agreement when the debt is fully paid;
• to propose to consumers to seek advice when consumers are in default;
• to keep records of credit applications, agreements and accounts as specified in the Rules;
• to sell goods subject to a credit agreement as soon as possible, at the best possible price, if the consumer requests it, and gives the consumer a financial statement.

Excessive loans and frivolous loans

Excessive debt is often a catastrophic consequence of the high cost of credit. Levenstein sums up this situation:

Unfortunately, in South Africa, too many people with too little money have been given too much credit. This ultimately leads to excessive debt resulting in an endless cycle of frustration for consumers who can never pay their debts.

The policy framework of the Department of Commerce and Industry of 2004 described credit as a "double-edged sword:"

While credit allows access to products or services that can not be obtained from a month's income, it can also be a dangerous instrument that can lead to high levels of debt and debt.

It is easy to credit to cause financial difficulties and destroy household wealth. Taking an extra loan to pay back an existing loan can lead people to a debt spiral that may be difficult to escape. Excessive loans have a negative impact on families and in some extreme cases even lead to family suicide. Excessive borrowing further impacts on the workplace, can lead to de-motivation, absence, and even the propensity to commit theft.

A survey of the Humanities Research Council on domestic debt in South Africa shows that, by 2000, more than sixty percent of ordinary household income earning less than R5,000 per year was used to repay debts: that is, to pay interest on debt. Debt levels increased by more than 200 percent between 1995 and 2000 in the poorest households, with revenues of less than R25,000 per year. This trend seems to have continued since then.

It has been argued that consumers are often blamed for allowing themselves to become overly owe unwisely to borrow too much money, or by buying too much with credit. This is usually the result of economic desperation and a lack of understanding about the difficulties of paying or serving their debts. Credit providers, however, are often blamed for carelessly giving too much credit to consumers who can not afford to pay their debts. One of the most important goals of the Act is to combat excessive debt and indiscriminate lending. Sections 78 to 88 of the Act contain detailed, far-reaching, and very important provisions in this regard.

Excessive debt

Consumers are too indebted if available information indicates that consumers can not pay the due amount based on a credit agreement on time. When deciding whether consumers are too debt-laden, the court should consider consumers

• financial means (especially income);
• financial prospects (income earning potential);
• other debts; and
• payment history of debt.

In each trial, the court may state that the consumer will be in debt. Alternatively, a debt counselor may have a role in one of two ways:

1. The court may refer the consumer to a debt counselor to recommend whether the consumer is too in debt.
2. A consumer may apply directly to a debt counselor to be exposed to debt (although this is not permitted if the credit provider has taken steps to recover the debt). Consumers must apply by filling in and submitting Form 16 to the Rules. Consumers should provide details of debt and pay R50 fees to debt counselors.

Debt review should be done. A debt advisor must notify all credit providers and credit bureaus listed in the application; they must cooperate fully with the debt counselor. A debt advisor must then evaluate consumer debt. Evaluations can have one of three possible outcomes:

1. Consumers are heavily indebted. A debt advisor may recommend to a court of justice that one or more credit agreements are declared careless, and/or that one or more consumer debt is reset (for example, by extending the contract period and requiring a smaller payment, and/or by delaying the date of payment).
2. Consumers are not tied up in excessive debt, but have trouble paying off debt on time. The counselor may recommend that consumers and credit providers try voluntarily to agree to a debt regulation plan, which may be filed as a court approval order. If no agreement is reached, the debt counselor may make a recommendation to the court, which may make the appropriate order.
3. Consumers are not over-indebted, and applications are denied. Consumers may then submit themselves to a court of justice for a debt review by completing and submitting Form 18 to the Rules.

Credit agreements can be expressed as reckless only if the consumer is known to be in debt. If the debt counselor finds that the consumer is not overstretched, but holds that one or more credit agreements are reckless, this agreement may not be declared reckless. Therefore, credit providers may still enforce frivolous credit agreements, but they may not be officially declared to be reckless.

As this process progresses, consumers can not use their credit facilities (for example, credit cards); he also can not get into another credit agreement. Credit providers that enter into credit agreements with consumers while consumers are under debt review run the risk of credit agreements expressed as frivolous credits.

In addition, if the consumer fails the credit agreement, and the credit provider has started the debt enforcement process, the agreement may not be reviewed. This can encourage credit providers to start the process of recovering debt earlier than they should.

The debt review procedure may be used by an astute consumer to delay or avoid payments under a credit agreement. This is because there are many provisions in the Act that limit the right of credit providers to enforce the debt under review. However, if the consumer fails in the credit agreement to be reviewed, the credit provider may provide notice to consumers, debt counselors, and NCR to end the review. This notice may be given at least sixty days after the date of the debt review request: that is, if the review process is too long. The credit provider can then take steps to enforce the agreement. The court then has the discretion to order a review of the debt if appropriate. Finally, it should be noted that applications for consumer debt review have serious implications for consumers due to their creditworthiness and future agreement conclusions.

Reckless credit

Credit providers may not make arbitrary credit agreements with consumers. Before making a credit agreement, the credit provider must first take reasonable steps to assess the consumer

• general understanding of proposed credit risks and costs;
• payment history of debt; and
• existing financial means, prospects, and liabilities.

The credit agreement is frivolous

• if, at the time it is concluded, the credit provider fails to carry out the required assessment (described above), regardless of what the outcome of the assessment may be; or
• if the credit provider signs the agreement despite the fact that the information is available to the credit provider after the assessment indicates it
  • consumers generally do not understand consumer risk and costs or obligations under the proposed credit agreement; or
  • the conclusion of the agreement will cause consumers to become in debt.

These provisions help prevent credit providers from cutting corners by only accepting debtors who seem to be worth the credit at face value. Credit providers may use their own scoring mechanism, provided it is fair and objective. Consumers, in turn, must be fully and honestly providing the requested information. Failure by consumers to do so can provide credit providers with full defense against frivolous credit allegations.

In any process involving credit agreements, the court may state that the credit agreement is frivolous, in which case the court may make an order

• puts all or part of the rights and duties of the consumer under the contract (so that, for example, the consumer does not necessarily have to pay the loan or pay installments on credit sales at all); or
• suspend the strength and effect of the agreement for a certain period.

If the court declares that a particular credit agreement is careless, it should also decide whether or not the consumer is in debt during the court process. All consumer debt should be considered. If the court finds the consumer in excessive debt, it may make an order

• suspends the strength and effect of the agreement for a certain period; and
• restructure its consumer liabilities under other credit agreements.

While the agreement is suspended (not set aside),

• the consumer is not required to pay anything in the case of a credit agreement;
• no interest or charge may be debited to the consumer; and
• The credit provider's rights in terms of the agreement do not have the force of law.

After the suspension period ends, all rights and obligations of the parties are revived and become reinstated. However, interest or fees that have normally arisen during the period of suspension may not be charged to the consumer. This is a drastic medicine.

Credit-sloppy provisions do not apply to a number of credit agreements, including

• school loan;
• student loan; and
• emergency loan.

Student loans, for example, may be provided to unemployed customers who may not have credit records (so credit providers do not know the payment history). Consumers may not be credit worthy, and there is no security. The nature of this agreement excludes them from careless borrowing.

Negative results for good credit providers

• contracts with debt-laden consumers; or
• concludes a reckless credit agreement

serious. Many provisions are designed to punish credit providers. Credit providers will be very careful to reduce the risk of bad debt. These provisions are likely to reduce excessive loans and lending, at least in the formal sector. However, a negative result for consumers, it may be that lenders will be much more reluctant to give credit in the future, and therefore, fewer people will be able to access credit. Furthermore, this may lead to an increase in the number of unregistered and illegal credit providers.

Credit charges

It is important that one understands the full implications of the new credit cost provisions in the National Credit Law and Regulations.

Interest rate until June 1, 2007

As of June 1, 2007, the Riba Law (which has now been revoked by the National Credit Act) imposes limits on the interest rate that credit providers may charge. As of this date, the maximum interest rate is twenty percent per annum for all credit agreements up to R10,000 and seventeen percent per annum in the above credit agreement of R10,000. However, registered micro lenders were excluded from the Violence Act of 1992, meaning that they were entitled to charge whatever interest rates they liked. This results in exorbitant interest rates, with micro lenders charging typically thirty percent per month (or 360 percent per year) - eighteen times more than the twenty per cent limit per annum for other credits. Because of the tremendous benefits that microcrediters can make, the industry is out of control, growing rapidly from year to year. In the three years between September 2003 and August 2006, for example, industrial liquefaction more than doubled. The industry grows on average more than thirty percent per year. For the twelve months ended in August 2006, the total value of Rand lending disbursed in the registered microfinance sector was over R30,000,000,000.

The socio-economic impact of excessive interest rates

Excessive interest rates have caused severe socio-economic hardships and suffering for individuals and low-income communities. A high percentage of personal income is used to serve micro-loan debt, leaving little of the borrower's personal income to pay for other household expenses. Borrowers of thirty day loans in particular will soon be caught in a debt trap so they can not escape. Tens of billions are lost to low-income communities in the form of micro loan interest every year, contributing to the blurring of poverty.

Debt rates are high and appear to increase. The problem of excessive debt is exacerbated by high levels of consumer financing and consumer ignorance and illiteracy. (32 percent of the adult population in South Africa was functionally illiterate in 2001). By allowing the microfinance industry to function without the established interest rate limits and enforced since 1992, the Government effectively enables the exploitation of lesser ignorance. - invites the community, which is arguably a legitimate economic abuse.

Credit charges in the form of the National Credit Act

The National Credit Law sets the interest rate limits for all forms of credit, including micro-loans. However, the Act introduces other fees (initiation fees and service fees) that cause the total cost of credit to remain very high. No longer enough just consider the interest rate. Interest rates, initiation fees, and service fees should be carefully calculated in order to calculate the total cost of credit for the borrower. The new fee terms entered into force on 1 June 2007.

Flowers

Different interest rates apply to different types of credit agreements:

Short-term credit transactions

"Short-term credit transaction" is an agreement up to R8,000 which can be paid within six months; usually this is a micro loan. The maximum allowable interest rate is five percent per month, or sixty percent per year.

Unsecured credit transaction

"Unsecured credit transaction" is a totally no guarantee of debt (such as loans or credit sales). There is no limit to the amount or term of payment. Unsecured agreements for more than R8,000 and/or may be paid more than six months fall into this category. The maximum interest rate is associated with the South African Reserve Repurchase Rate (SARB) ((Repurchase Rate x 2.2) 20% per annum), and is currently 39.8% per annum (based on the current repo rate of nine per cent). This maximum rate is almost twice the maximum allowable level in the case of the Violent Act applicable until May 31, 2007 (20 per cent per annum). Furniture sales, for example, can now cost twice as much for service.

Credit facility

Secured bank loans, credit cards or checking accounts fall into the category of "credit facilities." The maximum interest rate is also related to SARB Bank Buyback Rate, and is currently 29.8 percent per annum.

Developmental credit agreement

"Development credit agreement" is a credit agreement made for developing small businesses, educational loans, or loans for the purpose of building cheap housing. The maximum interest rate is 38.8% per annum.

Mortgage bond agreement

For the mortgage bond agreement, the maximum interest rate is 24.9 percent per annum.

Initiation fees

The initiation fee is intended to cover the cost of starting a credit agreement, although it is not clear what the costs are meant to cover costs. This is a disposable payment made by the consumer on the conclusion of a credit or debt agreement in installments (as a separate loan with interest interest).

The maximum initiation fee under Regulation is R150 per credit agreement, plus ten percent of the total agreement exceeds R1,000, but never exceeds R1,000. Also, the cost of initiation should not exceed fifteen percent of the principal debt.

It would be very difficult for consumers to find the cash needed to pay for the upfront initiation fee when they take the right loan because they need cash. Most lenders will not be able to afford the initiation fee to take out a loan, especially in the case of very bad loans for consumption purposes. These people will thus be forced to allow the initiation fee to be capitalized and repaid, possibly in the same installment amount as the initial loan, and bears the same interest rate as the initial loan. The result is an effective monthly credit cost will increase.

Service charges

The service fee is defined as fees that may be charged periodically (usually monthly) by the credit provider in connection with the routine administrative costs of maintaining the credit agreement. Maximum service charges in the Rules are R50 per month, or R600 per year. The same flat-rate R50 service fee applies to all categories and sizes of credit agreements. It appears that the cost of services is standardized to simplify the implementation of the Act, which can be justified on the grounds that any loan, regardless of size, needs to be managed.

The smaller the loan, the more expensive the service charge on the loan. When these costs are shown as a percentage, it is clear that the cost of services adds to the cost of borrowing significantly, increasing rapidly with smaller and smaller loan amounts. R50 flat-rate "service fee per month is too high in case of small loans less than R1,000 and still too high in terms of loans up to R5,000.

This result is so unfair that borrowers with very small loans (which almost always come from the poorest communities) will be discriminated against. The law itself stipulates that the cost of services should vary relative to the principal debt: that is, that it should be higher for larger loans, and lower for smaller loans. This is not true. Rules should be changed to set service fees on a percentage of the loan amount, subject to the minimum and maximum rand amount (as is the case for initiation fees). Alternatively, the service charge should be written off on a smaller credit agreement, and the maximum interest rate increases if necessary. If the service fee is not changed or removed, then it should be challenged in court.

Maximum limit and possible market costs

The interest rate and the specified fee are the maximum amount. The Commerce and Industry Ministry hopes that the credit industry will not "jump to the maximum level", and says they have the power to adjust these rates quickly if needed.

The microfinance industry is particularly born and grows over the overly high interest rate, and many micro lenders will struggle to keep doing business with new applicable restrictions. It is therefore very likely that most lenders will charge interest and maximum fees to keep their profits as high as possible. Larger lenders such as banks, on the other hand, are able to compete, and tend to charge lower rates.

Danger hides total cost of credit

The drastic decline in interest rates has the effect of covering up or obscuring the total true cost of credit when initiation and service costs are added. It is possible that these costs can remain largely hidden, with an emphasis on interest rates (which are more familiar to consumers) when the product is marketed. The cost helps to keep interest rates lower, which makes credit look cheaper, when in reality credit may not be cheaper. Bending the cost of credit from interest and cost (which is not familiar to the consumer) will increase the chances of misleading consumers like the true cost of credit. Many will be lured to borrow money that will be much more expensive than they originally expected. It is important that the paralegals understand the dangers of covering the true cost of credit, in order to warn their clients of this danger.

The combined impact of interest, initiation fees and service charges

New credit limits have a negative impact on smaller loans. The smaller the loan, the more expensive it is. A one-month R500 loan will cost almost as typical as thirty percent per month charged before the Act. Smaller loans will be more expensive than that. The R200 loan will cost 46 percent per month (552 percent per year), which is more than nine times the maximum interest of five percent per month.

The positive impact of the constrained interest rate, furthermore, is negated by the high initiation and maximum service costs.

The impact of initiation and service fees on smaller loans amounts to a slant of credit costs away from interest and on these costs, so interest decreases relative to these costs. This skewing has a harmful effect of covering the true cost of credit from consumers, and misleading consumers.

Fairer results can be achieved by eliminating or reducing initiation and service costs, reducing the maximum allowable rate of interest, and reducing the maximum number of short-term credit transactions. This will require amendments to the Rules.

The socio-economic consequences of new credit costs

The new structure for costing credit will work best for the greatest credit advancement, more than R8,000. The cost of credit for agreements of less than R1,000 is proportional to thirty percent per month charged indefinitely for small loans, Most microfinance borrowers come from low-income groups. The poorest households bear the burden of the largest debt payments. Low-income individuals and people who borrow in small numbers are likely to continue to suffer the same socio-economic difficulties as mentioned above, contributing to the eradication of poverty.

Borrower of one month loan is most vulnerable, because this loan is much more expensive than other short-term loan. Low-income borrowers are usually unable to repay these loans at the end of the month; Repeated loans should often be taken to fund the full repayment of the previous loan. The borrower is caught in the spiral of debt and the subsequent debt trap, with the catastrophic consequences that the borrower applies permanently owed permanently.

Conclusion

The National Credit Act has made great strides toward consumer protection, and new limits on interest rates will provide the assistance it receives to many borrowers. The combined effect of interest, initiation fees and service fees will, however, cause the cost of credit on small loans to remain too high. This will have a devastating negative impact on the poorer individuals and communities.

Legal restoration provided by Act

The law only provides a relatively short list of violations that appeal to criminal penalties. Riba Law, on the other hand, stipulates that any person who violates any provision of the Act is in breach. So, for example, it is a criminal offense to impose higher interest rates than the Maximum Law, which is no longer a problem.

However, the Act provides a number of civil legal solutions to consumers, some of which are drastic deviations from previous legislation. The most important of these solutions is described below.

Unlawful credit agreement

Section 89 lists a number of unauthorized credit agreements, including

• agreements with customers not assisted by guardians;
• an agreement with someone who is otherwise mentally unfit;
• an agreement with a person under an administrative order without the administrator's consent;
• agreement generated from the marketing of negative options (described above);
• an agreement with an unregistered credit provider that should be registered (unless the application for registration is made within thirty days after the credit agreement is concluded); and
• agreement with the credit provider that is subject to notice by the NCR to stop extending the credit.

If a credit agreement is found to be unlawful, the court must order

• that the credit agreement is null;
• that the credit provider refunds to the consumer any money paid by the consumer, at interest; and
• that the credit provider's right to refund money paid or goods sent to the consumer will be canceled or forfeited to the State (if the court holds that the consumer otherwise would be unfairly enriched).

Credit providers will not get back the money lent or the property sold, and the court does not have the discretion to book this. This is a drastic medicine and departure from common law. It was not previously available in the case of unregistered micro lenders, and is a significant new drug available to consumers.

Thus, for example, a court would be able to declare a loan from an unregistered lender to be void (if the law requires a micro lender to be registered), and instruct the micro lender to return all installments paid, at interest. Furthermore, the court must order that the loan amount paid to the consumer be retained by the borrower or withdrawn to the State. The amount lent is therefore lost to the unsigned lender at all.

Terms of unlawful credit agreement

Section 90 lists many terms of credit agreement (as opposed to the whole agreement) which is illegal and is not permitted. They are too many to mention here. This list has many words and a broad reach; many provisions may be open to a variety of interpretations, which tend to lead to uncertainty. For example, a provision is unlawful if the purpose or effect generally is to defeat the purpose or policy of the Act, or to "deceive" the consumer. Furthermore, the provision is unlawful

• if it avoids the obligation or obligation of the credit provider in relation to the Act;
• to the exclusion or omission of the effect of the provisions of the Act;
• if authorizing a credit provider to do anything illegal in relation to the Act, or to fail to do whatever is necessary in the provisions of the Act;
• if it frees or robs a consumer of the rights granted by the Act;
• if it waives the general legal rights applicable to the credit agreement;
• if it expresses the consumer's consent to the value of the enforcement fee of a predetermined agreement;
• if it expresses consumer consent to the jurisdiction of the Court of Appeal, or any court which does not normally have jurisdiction for reasons of its geographic location;
• if it provides to a consumer who deposits an identity, credit or debit or access card, or provides a PIN;
• if it authorizes a person acting on behalf of the credit provider to enter the location to take back the goods; or
• if it contains an attempt to previously sign any documentation related to enforcement of the agreement (such as approval to rate or attachment-emoluments order).

Unlawful provisions do not apply

Source of the article : Wikipedia