In case anyone was wondering about the incredible upsurge in credit advertising recently, the ombudsman for banking services believes that credit providers are making hay while the sun shines before the final phase of the National Credit Act.
‘We suspect, from what we have heard, that the banks are engaging in an all-out drive to gather as many clients as they can ahead of the National Credit Act, which comes into force in June 2007,” said advocate John Simpson, complaints investigation manager for the banking ombudsman.
This has resulted in a slight upsurge of complaints from bank consumers who have run into financial trouble after taking up unsolicited offers of credit from one or more of the major banks, according to Simpson.
The Act is specifically aimed at stamping out what it calls reckless lending, which includes entering into a credit agreement that would make the consumer over-indebted. Credit providers will not be permitted to merely increase credit limits without first complying with the prescribed formalities. Penalties for non-compliance with the Act range from the suspension of an agreement to an administrative fine of up to 10% of the credit provider’s annual turnover.
The banks should view the complaints received by the ombudsman as an early indication that some borrowers will readily resort to the provisions of the National Credit Act to get out of their financial obligations if they run into financial difficulties.
Apart from not giving credit at the drop of a hat, credit providers will also have to be far more honest in their advertising campaigns as from June 2007.
Take, for example, a recent advertisement by Mercedes-Benz. The car manufacturer is offering a C-Class Mercedes-Benz from only R1 399 a month. There is a tiny little star next to it which indicates that terms and conditions apply, but it is not stated what these are.
On the surface this deal looks pretty good. But a savvy consumer will know that there must be large deposits and residuals in order to come to this relatively low monthly instalment. One has to phone the dealership to discover that this R1 399 instalment is for six months only, after which the instalment jumps to R3 093. This is based on a deposit of up to 17% and a residual of up to 49%. By anyone’s standards this is a fairly misleading advert.
Fortunately, with the changes brought about by the National Credit Act, if a credit provider wishes to advertise a monthly instalment, all other aspects of the financing need to be included on the advert in the same size font as the instalment offer. No hiding behind stars and ‘terms and conditions apply”. The advert will have to state the interest rate, deposit and residual and length of payments. This will bring home to borrowers the full cost of buying on credit and allow people to make more accurate comparisons.