New credit law on the way 

Iona Minton
Thu, 11 Aug 2005

This article is a printout from iafrica.com
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There is a new credit bill in the pipeline and it is going to significantly change how the lending business is conducted in South Africa. The bill is set to be passed into law in October 2005 and become effective from early 2006. The aim of the bill is to prohibit unfair lending practices and combat rising levels of over-indebtedness.

According to Werksmans Attorneys, the Bill regulates previously unregulated entities, such as credit bureaus, and will extend the regulatory net to all providers of credit within the South African market. The bill is quite extensive, but here are a few important features that could affect you.

The rights of consumers
Under the new Act, all persons are entitled to apply for credit and credit providers cannot discriminate against a consumer when deciding whether or not to extend credit to the consumer. However, banks can continue to make use of score card models when evaluating whether or not to extend credit to a consumer; provided that there is no discrimination against the consumer on the basis of marital status, gender or race.

If a credit provider refuses to offer credit, the consumer is entitled to be provided with a reason for the refusal. In addition, a consumer is entitled to be advised by a credit provider before any adverse information regarding that person is reported by the credit provider to a credit bureau and credit bureaus are required to give consumers access to reports and other credit information held by them.

Consumers are also entitled to challenge the accuracy of information held by a credit bureau and a credit bureau is required to investigate any such challenge. A duty is placed upon a credit bureau to take reasonable steps to verify the accuracy of any credit information which is reported to it.

Consumers are entitled to receive credit documentation in at least two official languages and such documents must be provided free of charge.

The Bill also proposes the application of the 'financial means, prospects and obligations' test. Generally, this would require a consumer to provide proof of income, expenses, budgets for household and general expenses, a list of assets and liabilities including a list of all existing credit agreements.

Over-indebtedness
Based on information provided to the credit provider, a consumer would be seen to be over-indebted if the available information at the time the determination is made indicates that the consumer is, or will be, unable to satisfy in a timely manner all the obligations under all credit agreements to which the consumer is a party. Knowingly providing false or deceptive information under these provisions is a criminal offence.

Cost of credit
A credit provider cannot charge a consumer any fee or charge prohibited by the Act and cannot charge interest in excess of the maximum interest rates determined by the Minister from time to time. Importantly, a credit provider cannot charge a consumer a higher price for goods or services made available on credit than the same or substantially the same goods or services provided in the ordinary course for cash.

Credit insurance
A credit provider is well within its rights in requiring a consumer to take out credit life insurance or credit insurance to cover the outstanding balance under the credit agreement. However, the credit provider cannot force a consumer to take out credit insurance which is unreasonable or which provides cover in excess of that required to insure the outstanding balance under the credit agreement. The credit provider is required to give the consumer the option of taking out their own insurance policy.

Statements of account
A credit provider is required to provide a consumer with a statement of account containing the prescribed information on a periodic basis as stipulated in the Bill. A consumer is entitled by notice in writing to dispute the accuracy of any information contained in such statement of account and in such circumstances, the credit provider is required to investigate and resolve such dispute. The credit provider cannot take action against the consumer for non-payment whilst such matter remains unresolved.

According to recent comments made in the press, South Africa’s consumer debt crisis is costing the country an estimated R500-million a month directly and another R500-million a month in productivity losses.

Existing South African insolvency and consumer protection legislation does not assist in the combating of over-indebtedness and overspending by consumers and it is hoped that the introduction of this Act will assist in finding a solution to the debt problems of consumers.

 

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