New era dawns in the way you borrow money

May 26, 2007 By Neesa Moodley

The high charges often hidden in credit agreements and the way you approach your debt problems will change from Friday, when the National Credit Act, designed to protect the consumer, comes into full effect. Caps on interest rates and on fees for different credit agreements will keep unscrupulous credit providers in check.

If you find you have taken on more debt than you can afford, you will be able to consult a debt counsellor, who can advice you accordingly. You will also find you have greater control of and increased access to your credit record.

We look at these three aspects of the act.

Fees and interest rates

The National Credit Act (NCA) will put a stop to exorbitant or unreasonable interest charges and fees and credit agreements. Currently, the maximum interest rates lenders can charge are 23 percent for transactions of R10 000 or less and 20 percent for transactions of more than R10 000.

According to the NCA, the capped fees and interest rates from June 1 will be:

Vehicle finance, credit cards, overdrafts and store cards:

• The maximum initiation fee will be R150 per agreement plus 10 percent of the amount of the facility over R1 000.
• However, this fee is then capped at R1 000 or 15 percent of the principal debt, whichever is the lowest.
• The maximum monthly fee on, for example, an overdraft will be R50.
• The maximum interest rate will be the repo rate (currently nine percent) multiplied by 2.2 plus 10 percent a year.
• This equates to 29.8 percent currently.

Micro-loans:

For short-term micro-loans - those up to six months - the maximum interest rate will be five percent a month.

For long-term micro-loans - longer than six months - the maximum interest rate will be the repo rate multiplied by 2.2 plus 20 percent a year.

This equates to 39.8 percent at the current repo rate of nine percent.

Incidental credit agreements:

These include a cellphone or doctor's account.

At the time the service is rendered, it is not considered to be a credit agreement. But if you fail to pay the account by the due date and it runs into arrears, the supplier will levy interest charges and it becomes an incidental credit agreement. The maximum interest that can be charged is two percent a month.

Mortgage bonds:

• The maximum initiation fee will be R1 000 per agreement plus 10 percent of the amount of the agreement over R10 000. However, this is capped at R5 000 or 15 percent of the principal debt, whichever is the lowest.
• The maximum interest rate on mortgages will be the repo rate multiplied by 2.2 plus five percent a year.
• This works out at 24.8 percent at the current repo rate of nine percent.

If you transfer your mortgage bond from one bank to another and the property remains in the same name, the bank will not be allowed to charge you an initiation fee unless you requested the transfer. In other words, if a bank approaches you with a more attractive interest rate on your home loan and you agree to switch credit providers, you should not be charged an initiation fee.

Debt counselling

From June 1, you can approach a debt counsellor for assistance if you feel you are over-indebted. Debt counsellors have been trained since January by service providers approved by the National Credit Regulator (NCR).

They will provide you with budgeting advice and will also mediate with your credit providers to reach an amicable solution. You may approach a debt counsellor directly for advice or you may be referred to a debt counsellor by either a creditor or a magistrate's court.

Indicators of over-indebtedness include borrowing money to pay other loans, skipping payments on some accounts in order to pay others or having numerous judgments against you.

When you apply for debt counselling, you cannot take on new loans or credit until you have paid all your debts and have received a clearance certificate from your debt counsellor. You will also be listed on credit bureau records as a consumer under debt counselling.

Currently, the National Credit Act provides for a R50 application fee for debt counselling, but the department of trade and industry is considering changes to debt counselling fees.

"When finalising the debt counselling fees, a major consideration is that debt counselling is sustainable and ensuring we do not perpetuate some of the abusive practices associated with debt administration," Peter Setou, the senior education manager at the NCR, says.

State employees who are over-indebted will be granted free access to NCR-approved debt counsellors as part of the financial wellness programme for civil servants offered by the Life Offices' Association.

According to the Careways Group, which provides corporate employee services, South Africa has three million employees with expenses or debt repayments that exceed their income and more than four million employees with bad credit records.

Credit bureaus

Should you wish to register a complaint about incorrect information on your credit record, you can contact one of the two main credit bureaus in South Africa:

TransUnion at 0861 482 482

Experian at 0861 105 665

Or you can complain to the Credit Information Ombud at 0861 662 837.

If you are not satisfied with the response from the credit bureaus and the ombud, you can lodge a formal complaint with the National Credit Regulator at 0860 627 627.

Credit bureaus must remove the following consumer credit information from their records by June 1:

• Any information relating to debts less of than R500;
• Any information relating to accounts that have been dormant for at least two years before September 1, 2006;
• Civil court judgments up to R500, unless you have more than two unpaid judgments;
• Civil court judgments up to R5 000, if the judgment is older than 18 months from June 1 and you do not have more than two unpaid judgments against you; and
• Civil court judgments up to R50 000, if you had paid the full amount by September 1, 2006.
• Civil court judgments up to R50 000 as at September 1, 2006 will be removed in September this year if you have paid the full amount by September 1.

Consumers

As a consumer, the onus will be on you to disclose all your expenses when you apply for credit or a loan. This could mean a "total expense" amount of all your debts or the balances and instalments of all your debts and includes regular expenses such as food, electricity, rent and medical expenses.

While this might seem harsh, these measures have been put in place to protect you and to ensure you do not become over-indebted.

To lodge a complaint with the National Credit Regulator, you can telephone: 0860 627 627; email: complaints@ncr.org.za; website: www.ncr.org.za

To contact the Credit Information Ombud, telephone: 0861 662 837; email: ombud@creditombud.org.za; website: www.creditombud.org.za