Members of Parliament who are interrogating proposed changes to the National Credit Act (NCA) have been asked to consider whether the changes go far enough to protect you from abusive credit providers.
“The key question is: do the reforms go far enough? Are they intrusive enough?” Ismail Momoniat, deputy director-general at National Treasury, asked the portfolio committee for trade and industry during public hearings into amendments to the NCA.
One of the proposed changes that is likely to be accepted deals with affordability assessments.
In terms of the Act, credit providers must carry out an affordability assessment before granting you credit. But there are no regulations to govern how the assessments should be done; this is left to the discretion of credit providers.
MacDonald Netshitenzhe, chief director of policy and legislation at the Department of Trade and Industry (DTI), this week said that self-regulation “hasn’t worked. Therefore, we will prescribe to address weaknesses in self-regulation.”
The regulations will require credit providers to comply with a prescribed code of conduct, rather than a voluntary, industry-created code, in order to be registered with the National Credit Regulator. The prescribed code of conduct will regulate how providers carry out affordability assessments.
Momoniat says that although Treasury “broadly supports” the amendments to the NCA, there are “broader issues”. “How financial institutions conduct business; some practices are disgraceful. We have heard of banks that will give you only 90 percent of a mortgage bond, and the remaining 10 percent [by way of a] personal loan.”
In other words, instead of granting you one loan to finance a property purchase, the bank grants you two loans: a relatively inexpensive home loan and an expensive personal loan.
Over-indebtedness has become worse over the past few years, Momoniat says. “The NCA amendments are in the right direction. However, global standards have got tougher, and the NCA needs to be tougher to keep up,” he says.
Zodwa Ntuli, deputy director-general of consumer and corporate regulation at the DTI, said yesterday that the cost of credit is a concern.
The cost of credit consists of: an initiation fee, a monthly service fee, credit insurance, interest, default administration charges and collection costs. All of these costs are capped except for credit insurance, which is “excessively pricey”.
The DTI wants the cost of credit insurance to be capped and regulations to this effect to be finalised within six months. It also wants collection costs, which are governed by other laws, to be capped in the NCA.
Collection costs are capped in the Debt Collectors Act, but lawyers also do debt collection and their fees are not capped.
“In developing the capping, the Minister of the DTI must confer with the Minister of the Department of Justice and Constitutional Development,” Ntuli says.
The DTI is also concerned about the selling of loan books, which results in consumer abuse.
When credit providers tire of trying to recover outstanding debt from their customers, they can sell their loan book. Companies that buy this debt usually engage lawyers to collect the debt. Sometimes the debt has prescribed, which means the debtor is no longer liable to pay it.
“The practice of selling or collecting debts that have prescribed should be made an offence in the NCA,” Ntuli says.