Monday, 4 June 2007

South Africa: New Responsible Lending Law

South Africa: New Law attempts to balance responsible lending and borrowing

Article from Independent Online - South Africa 1st June 2007

The exploitation of consumers by unscrupulous money-lenders that have led many poor people into debt traps will become a criminal offence under the new National Credit Act, which comes into effect on June 1.

However, consumers have been warned by the National Credit Regulator and banks that dishonest disclosure of income and expenses could result in some of their new-found protection being forfeited under the new Act.

The National Credit Act 34 of 2005 replaces the Usury Act, the Integration of Usury Laws Act 1996 and the Credit Agreements Act 1980, which have regulated the granting of credit since 1968. The Act will make it difficult for credit grantors to give loans to over-indebted consumers.

Gabriel Davel, CEO of the National Credit Regulator, which has legislative powers under the Act similar to the Financial Services Board, said the legislation would, for the first time in history, regulate information held by credit bureaus and provide protection for consumers entering into credit agreements.

Consumers who lied would forfeit some of the protection
"The new Act is a consumer protection piece of legislation. It is there to ensure that consumers are treated fairly in credit contracts," Davel said.

Davel said that credit card debt had grown by 128 percent during the past two years and that the latest statistics obtained by his office showed household debt had risen to R750-billion.

Credit grantors, including banks, retailers, micro-lenders and pawnbrokers who have 100 or more loan agreements or loans of R500 000 or more on their books will be required by the Act to register with the regulator. About 4 200 credit grantors have registered.

Davel said the National Credit Register, which would list consumer debt and act as a database for credit grantors, would be ready in January 2008. Credit grantors must check credit bureaus and the register before granting credit, to ensure repayment affordability.

However, he warned that consumers who lied about existing debts when opening new accounts would forfeit some of the protection afforded by the legislation.

The Act makes provision for debt counsellors to assist over-indebted consumers who fall into the debt trap.

Credit Information Ombudsman Manie van Schalkwyk said consumers could approach debt counsellors and if it was found that the consumer was over-indebted credit grantors would not easily be able to obtain a judgement.

"The debt counsellor can make a recommendation to the court that there has been reckless lending, and if the credit grantor is found guilty the agreement could be suspended and a fine of up to R1 million can be imposed," Van Schalkwyk said.

Consumers who "go into counselling" will be prohibited from obtaining further loans until the debt is repaid.

Louis Malherbe, Nedbank's home loans business analyst for the new Act, cautioned consumers to be truthful about all their debts when applying for credit.

"A mortgage originator will ask what your expenses are, including all your retail accounts, and it is vital that the consumer tells us upfront, otherwise the reckless lending provision falls away," Malherbe said.

Under the new Act it will be illegal for credit grantors to issue credit cards to consumers who have not applied for them. Costs that have been standard practice for banks, such as early settlement or administration fees, will also be illegal.

Louis von Zeuner, Group Executive Director of the Absa Group, said bank staff had been working overtime to implement new computer systems in order to comply with the Act. This had cost the bank R100-million.

"Nedbank fully supports the Act, and a huge amount of work has gone into ensuring that we grant credit in a manner that upholds the principles of the National Credit Act," said Wessels.

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