National Credit Act

1
National Credit Act

• How does the Act fit together ?
• Gabriel Davel
• June 2006

2
Key Sections, Concepts
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Application of Act enforcement agencies

• Interpretation, purpose application
• All forms of credit, as long as arms length,
  with certain limitations on loans to juristic
  persons incidental credit
• Special treatment for developmental credit
• Regulatory Institutions
• National Credit Regulator for registration,
  enforcement
• National Consumer Tribunal
• separation between Tribunal Courts
• Registration requirements
• Registration of Credit Providers, Credit Bureaux
  Debt Counselors
• Act will apply generally, irrespective of
  registration status

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Which agreements under Act ?

• Credit agreement
• Payment is deferred Charge fee or interest
  is levied on deferment
• Incidental agreements providers not
  registered only specific sections apply to
  agreements, from time that they become overdue
  and late payment fee or interest is levied
• Juristic persons certain sections dont apply
  at all large juristic persons exempted from
  whole Act large agreements exempted

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Which credit providers must register ?

• gt 100 agreements or gt R500,000
• excluding incidental credit agreements
• If not registered cannot advertise agreements
  unlawful
• 30 days after agreements to register
• Cannot wait for June 2007 to register !!!
• Until 28 July to submit application form, once
  receipt acknowledged OK until 2007

Registration administrative, low entry barriers
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Implication if your clients are juristic persons

• Juristic persons greater than R1mil Act never
  applies
• (assets or turnover)
• Juristic persons smaller than R1mil but
  transaction greater than R250k Act does not
  apply
• Following sections never apply to juristic
  persons
• Marketing practices
• Reckless credit over-indebtedness
• Limits on interest fees
• Prohibition on variation in interest calculation

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Incidental Credit Agreements ( overdue
accounts)

• Definition incidental credit agreement
• goods or services provided to the consumer
  fee, charge or interest payable when payment
  not within determined period
• supplier of a utility or other continuous
  service not a credit facility if
• Interest or fees only levied if consumer fails to
  pay in time
• overdue amount incidental credit S4(6)b
• incidental credit agreement takes place
• 20 business days after charging late payment fee
  or interest S5(2)
• Only certain sections of Act then becomes
  applicable,
• statements, interest limitations, debt collection
  limitations
• No initiation fee may be charged !
• Not pre-agreement sections agreement
  requirements reckless lending etc.

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When Does The Act Come Into Effect?

• Act 1 June 2006, certain sections later dates
• Institutions Regulator 1 June 2006
• Tribunal 1 Sept 2006
• Registration Credit providers Bureaux 40
  working days from 1 June 2006
• Debt Counsellors before 1 June 2007
• Credit bureaux credit information 1 Sept
  2006
• All other compliance sections 1 June 2007
• (disclosure, quotes, agreements, limits on
  interest fees, reckless lending, debt
  counselling etc)
• Usury Act Credit Agreements Act apply until 1
  June 2007

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Overview of the Act
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Credit Law Committee- undesirable marketing
and sales practices (including door-to-door
solicitation) regulation of credit
intermediaries

• Intention
• Consumer must agree, before an agreement can come
  into effect !
• Pressure selling curbed
• Greater honesty in advertising
• How
• Negative option marketing unlawful agreement
• Advertising information regulated
• Only 1 automatic increase per year, amount
  limited
• Require explicit consumer choice, opt-out for
• Automatic increases, telemarketing campaigns,
  Consumer information sold for marketing purposes
• Limits on marketing sales _at_ home work
• S74 S76, 89(1)b, 119(4)

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Credit Law Committee-simplify standardise
disclosure, prevent unfair contractual clauses

• Unlawful agreements
• Ability to prohibit certain practices,
  contractual clauses, make clauses severable,
• rather than unconscionable conduct approach
• Unlawful provisions
• (c) common law exclusions (jk) provider
  agent
• (m) priority processing (n) set off
• Pre-agreement disclosure quote
• quote, binding for 5 days
• prescribed form content for small agreements
• optional for intermediate large
• S89, 90, 92, 93

12
Credit Law Committee- current interest
regulation circumvented little benefit to
majority of population

• Income on loans limited to-
• Interest, Application Fee Service fee
• Also, at cost recovery default administration
  charge collection costs, extended warranty,
  delivery, installation fueling, connection,
  taxes, charges unrelated to credit provision
• limits by sub-sector
• Codify in duplum rule
• Interest fees after default lt debt at point of
  default
• Credit life insurance
• Only credit life housing insurance
  preconditions, rest optional
• Only recovered via month charges (annual in large
  agreements)
• S100 S106

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Maximum rates

• Plus
• initiation fee
• Plus
• monthly service fee
• insurance

14
Credit Law Committee- shift focus from price
control to protection against over-indebtedness
predatory lending

• Reckless credit
• Over-indebted per available information,
  consumer will be unable to satisfy in a timely
  manner all the agreements to which the consumer
  is a party
• Reckless (1) no assessment (2) consumer did
  not understand obligations (3) agreement made
  consumer over-indebted
• Based on information when agreement made
  consumer fully truthfully disclose
• If reckless
• No court orders for debt recovery Debt Counselor
  could recommend debt cancellation or
  restructuring Court may suspend or reduce
  obligations
• Intention-
• Curb reckless operators Assist consumers that
  are in desperate positions
• Protect responsible credit as far as possible
• S78 S88, S130

15
Credit Law Committee- weaknesses in relation
to credit bureau activities a key inefficiency
in the consumer credit market

• Consumer information
• Curb unlimited trade in private information
  protect confidentiality provide choices to
  consumer
• Credit register
• National, non-competitive register to enable
  indebtedness assessment not competing with
  bureaus
• Credit Bureaux
• Exchange in information regulated Bureaus
  registered, Responsible for data verification
  accuracy,
• Information only obtained from released for
  specified purposes
• Consumer free access to records, Procedure for
  correction, Disputed information blocked
• Limited, defined data cleansing process
• S68 to S73 Effective 1 September

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Credit Law Committee- debt rehabilitation,
national network of debt counsellors

• Credit provider must notify consumer
• Before adverse information to credit bureaux
  before instigating debt enforcement procedures
• Difference between objective subjective
  information
• Debt Counselors, Alternative dispute resolution
  agents, consumer courts ombuds
• Over-indebted Debt counseling ? debt review ?
  debt re-arrangement ? court order
• Disputes ADR, before court process can commence
• S86 S88, S129, S130, S134, S136

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Credit Law Committee- effective enforcement

• Courts powers substantially increased re
  debt-related orders
• Steps prior to debt procedures, debt
  restructuring
• Mechanisms to prevent irregular access to court
  orders
• Regulator
• Registration Monitor market conduct ( report to
  parliament) Monitoring compliance Complaints
• Notice of non-referral,
• undertakings, resolutions agreements,
• compliance notices, compliance certificates
• consent orders
• Tribunal
• S13-16, S54/55, S129/130, S138

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Relationship between Tribunal, Magistrate Court,
High Court

• Regulatory decisions appealed to Tribunal
• Tribunal orders appealed to High Court
• Magistrates bound by Tribunal orders
• Civil action same issue not raised in Tribunal
  civil court Magistrates can deal with Credit
  Act matters, except if dealt with by Tribunal, or
  may refer to Tribunal
• Prohibited conduct vs offense
• Prohibited conduct contravention of Act ?
  Tribunal
• Offenses ? Magistrate High Courts
• S1, S138, S148, S150, S164

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Rules of the Road

• Submit application before 28 July
• Once acknowledgement received, nothing new until
  June 2006
• But, advise client before submitting subjective
  info to credit bureaux
• From June 2007
• quote pre-agreement disclosure agreement
  statements
• advertising
• debt collection process
• keep record of credit decision
• calculation disclosure of interest fees
  insurance

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Conclusion

• Act will drastically affect the credit market
• Current position not sustainable
• Extreme damage to consumers
• Undesirable practices
• Which undesirable practices ?
• credit life insurance preferences
  garnishees blacklisting negative option
  selling misleading disclosure extreme interest
  rates extreme over-indebtedness no possibility
  for rehabilitation admin orders inflated debt
  collection arbitrage between cash credit
  prices payroll practices

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Thank You !