Q & A's on the National Credit Act

[Eugene]

Q: Does the new NCA supplement or replace the Debt Collection Act?
A: The NCA should be seen as supplementary. The regulations relating to Debt Collection fees, for example, are not affected by the NCA.

Q: How is “plain” language defined?
A: Legal terms and those in Latin should be avoided

Q: If a provider does not have to register is he only excluded from the interest rate restrictions?
A: Although a provider may be small enough not to register, he will still be governed by all the provisions of the Act – except registration and reporting to the NCR

Q: Reckless lending – what if the consumer applies for a number of loans/ credit on the same day?
A: As the provider you may not know this. A provider can only be held responsible for what can be reasonably expected to be known – which excludes circumstances where the consumer deliberately chose to mislead him or her.

Q: Are there thresholds for reckless lending?
A: Nothing explicit. The NCA associates reckless lending with over-indebtedness - which will rely on the assessment of providers.

Q: Interest rate hikes could cause a consumer to become over-indebted, however, the last loan could have been responsible lending- what happens in this situation?
A: It is possible that a change in individual circumstance or an unexpected hike in interest rates could cause a consumer to become over-indebted and distressed. In this case, no provider may be deemed to have been reckless, but they are still likely to be affected by debt-rescheduling.

Q: Is the 5-day quote period the same as a ‘cooling off’ period?
A: No. It refers only to the validity of the quote. If a consumer decides on the basis of the quote to accept the credit immediately, there is no compulsory cooling-off period

Q: How does one show products which have imbedded insurance?
A: Insurance charges must be explicitly disclosed

Q: How often must the provider evaluate - on every credit application or at the beginning of the term agreement?
A: The provider must assess every credit application, with the understanding that this assessment applies to the term of the loan. An extension will require a re-assessment.

Q: Does the monthly fee include statements and mailing and other transaction fees, e.g. debit order fee?
A: Yes. It includes all monthly fees associated with servicing the loan

Q: Will the mortgage evaluation fee be included in the initiation fee?
A: Yes. It includes all fees associated with initiating the loan

Q: How does credit life insurance work?
A: This may be charged on a monthly basis or annual basis – but may not be amortized across the entire loan term.

Q: Will VAT be charged?
A: On fees, yes.

Q: Is the provider entitled to change interest rates – as in, say, a variable interest rate mortgage?
A: Yes, the Act allows for this, although, clearly this needs to be disclosed to the consumer before the agreement is signed informed.

Q: Do the service fees include debt collection costs?
A: No. These are separate - and not set by the NCA regulations

Q: Can the consumer dispute information with the credit bureaux directly?
A: Yes.

Q: Will there be a register of people who are debt counselors?
A: Yes. All debt counselors must be registered

Q: Does debt counseling take over from administration orders?
A: The NCA does not address admin orders directly, but section 130 (3) of the Act has relevance. Debt counseling may be seen as a parallel - and hopefully over time - better route than admin orders.

Q: Who pays the debt counselor? How can debt counselors be deemed neutral if they are outsourced by the provider?
A: The consumer being assessed will pay a fee. Debt counselors may not be "outsourced" by providers - but they can be "outsourced" by employers willing to help their employees.

Q: Do the regulations imply that a person must go through debt counseling before they go the magistrate?
A: It is not a compulsory stage, although it is possible a magistrate may refer a case to a debt counselor

Q: Will the Tribunal automatically enforce the counselor’s recommendations? Is there a right to representation?
A: The Tribunal will hear representation and will evaluate the recommendations of the debt counsellor.

Q: Does this apply to motor leases?
A: Yes. Only leases of fixed property are excluded.

Q: Does this apply to staff loans?
A: Yes. Could still be seen as reckless, for example, if make no assessment of borrower (employee)

Q: Does the Act apply to incidental credit such as cellphone, electricity interest?
A: There is limited application of the Act to incidental credit - see section 5 of the Act


(www.bankseta.org.za)

[duncan drennan]

Q: Are there thresholds for reckless lending?
A: Nothing explicit. The NCA associates reckless lending with over-indebtedness - which will rely on the assessment of providers.

Q: If there is nothing explicity wrt reckless lending, what norms can be applied?

Q: If credit has been granted, and a debtor defaults on their debt, what is the path to recovering the amount still due?

Q: Will the NCA impact on rental agreements at all?

[Eugene]

Duncan

With regard to reckless lending:

If a credit provider fails to conduct the assessment or conducts the assessment and enters into the agreement despite the preponderance of available information showing that:
the consumer did not understand the risk, costs, rights and obligations under the agreement; and / or
entering into that credit agreement would make the consumer over-indebted;
that agreement would be deemed to be reckless, and the legal onus would be on the credit provider to show that the credit was not recklessly extended.

If an agreement is declared reckless because the credit provider failed to conduct the assessment, or conducted the assessment but despite the available information indicating that the consumer did not generally understand risk, costs, rights and obligations under the agreement, entered into the credit agreement; the court may set aside all or part of the consumer's obligations under the agreement or may suspend the force and effect of the agreement until a date determined by the court.

A credit provider may determine for itself the evaluative mechanism to be used in meeting its assessment obligations.

Path to follow to recover amount due:

If a consumer is in default under the Credit Agreement (Part C of chapter 6 of the Act), provided that the credit agreement is not subject to debt review; a debt restructuring order or the subject in proceedings before a court that could result in a debt restructuring order; or before an alternative dispute resolution agent, ombud with jurisdiction or consumer court the credit provider must notify the consumer in writing of the default, proposing that the consumer refer the matter to a debt counsellor, alternative dispute resolution agent, consumer court or ombud with jurisdiction, so that the parties may develop and agree to a plan to bring the payments up to date.

A credit provider may approach a court if the consumer has been in default for at least 20 business days and at least 10 business days have elapsed since the credit provider delivered written notice to the consumer, bringing the default to the consumer's notice or terminating the application for debt review; and in the case of a notice bringing the default to the consumer's attention, the consumer has not responded or has responded by rejecting the proposals; and in the case of an instalment agreement, secured loan or lease, the consumer has not surrendered the relevant property.

If the court makes an attachment order with respect to property that is the subject of a credit agreement, the credit provider must advise the consumer of the estimated value of the property, and if it is sold, the amount debited or credited to the consumer's account, in terms of 127 of the Act.

Rental agreements

As far as I can establish the lease of immovable property (rental of a house) will be excluded from the NCA. The full impact on arrears with regards to lease agreements, penalty fees (“interest?”) are not clear and have to be clarified through court proceedings.

[Dave A]

A credit provider may determine for itself the evaluative mechanism to be used in meeting its assessment obligations.

Seeing as an external party will be deciding on whether the assessment process was adequate, I'm sure we're going to have to pay close attention to any precedents on this.

[Eugene]

Dave, I fully agree. The problem lies herein: will Joe Soap with the local cooka-shop have the means of really extending credit to anyone when confronted with the difficulties of doing a proper assessment as the NCA requires? While working with many leading retailers it is clear that they will be able to assess to a large degree: they have facilities like scoring, database search, access to credit bereaus etc.

[duncan drennan]

It appears, to me, that collecting debt is going to be a long and drawn out process for a number of reasons.

Firstly, someone has to decide whether the credit was granted recklessly and whether the consumer was fully informed.

that agreement would be deemed to be reckless, and the legal onus would be on the credit provider to show that the credit was not recklessly extended.

Even in a case where a credit provider has gone through the whole process correctly, they now not only have to prove that the money is owed to them, but that the process was correct. This pushes up the cost of collection and buys time for the consumer.

Secondly it would appear that the process as a result of a default could be quite lengthy

provided that the credit agreement is not subject to debt review; a debt restructuring order or the subject in proceedings before a court that could result in a debt restructuring order; or before an alternative dispute resolution agent, ombud with jurisdiction or consumer court

Some poor little guy trying to collect his debt (even if he has invested all the time in the correct processes) is still going to take AGES to actually get his money (other than the direct cost). For a lot of small businesses that means no food on the table at the end of the month.

Or will it actually turn out to be easier in practice? I'm lucky in that this doesn't really affect me, but I'm pretty concerned about the impact it can have on small businesses.

[Eugene]

Duncan, I am working on a memo regarding the procedures to follow (and loopholes if there are any) wrt the debt collection process that needs to be followed under the new Act. Will post it as soon as it is available.

[zainool]

TELESALES vs NCA

There are many companies (banks included) that engage in selling credit cards to consumers using the Telesales environment.

Q: What are the Do's and Dont's when it comes to selling Credit Cards to consumers telephonically?

Q: In terms of the National Credit Act, are there prohibitions with regards to time/day of week/etc a Telesales Consultant can contact a consumer in order to sell a Credit Card telephonically?

Q: Are there certain phrases (eg. PRE-APPROVED) that a Telesales Consultant are now restricted from using in terms of the NCA?

Q: Is there anything that a Telesales Consultant that used to sell credit cards in the past under the old Usury Act could do previously, but is now prohibited, restrained from, limited to, in terms of the New National Credit Act?

[Eugene]

Zainool, firstly I must admit that I am no expert on telemarketers and the laws pertaining thereto and will do some further investigation.

I believe that the do’s and don’t of telemarketing will be more fully regulated by the proposed Consumer Protection Bill. A third draft of the Bill is expected to be available for comment at the public hearings to be conducted during the Parliamentary process in July/August 2007. I recently was given a copy of Mark Heaton’s from the Direct Marketing Association of SA comments on the Bill. Interestingly enough he commented that the application of the act excludes the following from being covered by the CPA:
(i) a transaction concerning services to be supplied under an employment contract;or
(ii) a credit agreement, as defined in the National Credit Act, irrespective whether that Act applies to that credit agreement.

This would exclude all “credit agreement” transactions covered by the NCA. It is unsure whether this would exempt direct marketing activities using information covered by the NCA for the purposes of offering products covered by the NCA – but it is an avenue worth exploring.

According to a colleague at RL Daly Attorneys there is a prohibition on the use of certain phrases like “no credit check required” and “cheap credit” and “loan guaranteed” and pre-approved”. You may also not use a person’s particulars in the compilation of marketing lists, telemarketing etc. The new Act requires that interest rates and other costs must be spelled out in any advertisements in a format that is prescribed by the National Credit Regulator.

[Dave A]

Q: Can credit granted to a business be deemed reckless credit.
A: If the business entity being granted credit is a juristic person, the sections relating to reckless credit are not applicable.

[duncan drennan]

Q: What type of unsolicited sales communication is allowed under the NCA?

The reason that I ask: over the past week both my wife an I have received unsolicited mail offering personal loans up to R100k (if you have a salary over R5k), from one particular bank (this bank also happens to be advertising sweet "reduce your debt" ads on TV....)

My understanding is that cold calling is prohibited, what about unsolicited offers via postal mail, or email for that matter?

[Brett Bentley]

Dave you need to distinguish what type of credit you are referring to.

If the credit granted is incidental then regardless of the type of entity the credit is granted, in terms of Section 5 of the NCA the reckless credit granting provisions do not apply.

[Dave A]

Dave you need to distinguish what type of credit you are referring to.

The entirety of Chapter 4 Part D simply does not apply to juristic persons - period - in terms of 78 (1).

78. (1) This Part does not apply to a credit agreement in respect of which the consumer is a juristic person.

Obviously the fact that the matter is a credit agreement in the first place is pertinent too, otherwise you can't invoke reckless credit protection either .

My point in that post is - under absolutely no circumstances can a juristic person enjoy the benefits of claiming reckless credit protection. This is reserved for natural persons only.

As an aside on this - the definition of a juristic person i.r.o. trusts is particularly interesting.

[Eugene]

Section 1 defines a juristic person as including a partnership, association or other body of persons, corporate or unincorporated, or a trust if there are three or more individual trustees; or the trustee is itself a juristic person but excludes a stokvel.

[Dave A]

I found it unusual that they've used a non-standard definition. There is a general principle being applied in legislative revues that seeks to standardise these sorts of common definitions.

It was the "three or more trustees" in particular that pricked my interest. I saw a suggestion somewhere that the way around the credit squeeze when buying a property was to buy it in a trust - and it mentioned two trustees!