The National Credit Act came into affect on June 1. The Act is aimed at curtailing reckless lending and encourages debt counselling for people who find themselves in a debt trap.
Owing to changes brought about by the Act, consumers will now have to be far more aware of their credit risk, because this will determine the rate at which they can borrow.
Banks are now able to charge for the risk you pose in terms of credit worthiness. This is good news for those whose risk profile has prevented them from taking out a bank loan. Because banks can charge as much as 39% a year in interest on an unsecured loan, they will be more willing to take on higher-risk customers.
It could, however, spell bad news for customers who have credit in the form of bank credit cards. Your credit card interest might be 20% currently, but if you are not meeting your monthly payments, you might receive a call from the bank to ‘renegotiate” terms. You could end up paying 29% interest on the credit card. For example, this will cost R240 more a year on a R5 000 credit card balance.
This is because banks are allowed to ‘price for risk”. The higher the risk you pose of not meeting your payments, the higher the interest rate you will pay.
A positive change brought about by the Act is that, should you find yourself in a debt trap, there will be much more support. Lenders will not be able to bring a court order and attach your salary.
If you find yourself in a financial mess, you should contact your credit provider, explain the problem and renegotiate payments. ‘Credit providers are accommodating; the last thing they want to do is go the legal route,” says Mike MacMillan, head of credit at FNB.
If you are unsuccessful in renegotiating payments, or if you are in a dire financial situation, the next step is to see a debt counsellor appointed by the state. In fact, the lender cannot bring any action against you without informing you in writing of your rights to a debt counsellor.
The debt counsellor will consider your case and, if warranted, will consult all of your credit providers to reach a set repayment schedule that is affordable.
This is taken to a magistrate’s court and a court order is issued, which says that you need to pay only the agreed amount each month. This protects you from further action from creditors.
But do not think this is a get-out-of-jail-free card. If you fail to make payments, the court protection falls away and the creditors can bring judgements against you.
If credit providers believe a debt counsellor has been unreasonable, they can argue their case in court.
MacMillan warns that a judgement against you is not to be taken lightly. You will be listed at the credit bureaus and will not be able to borrow further money, nor will a lender be allowed by law to lend you money. Your credit facilities will be closed, you will have no access to loans and your credit history will be tainted.
MacMillan says there has been some misunderstanding of the reckless lending caveat. The Act states that anyone who can prove that the lender behaved recklessly can have his or her debt overturned. This will apply after June 1. If you have been spending in the hope of having your debt written off, bad luck. Lenders had until June 1 to get their proper processes in place.
Credit check
Your credit record is one of your most valuable assets. Your credit record, held by the credit bureaus, will determine the rate at which you borrow, so it is worth doing regular credit record checks to make sure your credit record is accurate and that there are no negative listings. Both ITC Transunion and Experian offer consumers one free credit check a year. Thereafter the cost is R20, excluding VAT. If there is a negative listing on your credit record, follow it up with the lender and see if you can come to an agreement to have it removed. The National Credit Act requires lenders to inform consumers before putting a negative comment on their credit record.