One of the biggest changes to the National Credit Act (NCA) is an amendment to the maximum interest and fees that you can be charged on different types of loans.
These caps apply from May 6 2016 and may not be retrospectively applied to loans you took out before then.
The good news is that the maximum interest rates you can be charged are linked to calculation formulas using the repo rate (currently 7%). The repo rate is the interest rate at which the SA Reserve Bank lends money to commercial banks such as FNB, Absa, Standard Bank, Nedbank and Capitec.
The revised capped interest rates on loans are:
. Unsecured credit (personal loans etc):
Repo rate + 21% per annum = 28%
. Mortgage agreements (home loans):
Repo rate + 12% per annum = 19%
. Credit facilities (credit cards and store cards):
Repo rate + 14% per annum = 21%
. Developmental credit:
Repo rate + 27% per annum = 34%
. Incidental credits: For example, if you are late paying your doctor’s bill, he can charge you interest at 2% per month.
. Other credit agreements:
Repo rate + 17% per annum = 24%
. Short-term transactions: 5% per month on the first loan and 3% per month on subsequent loans within a calendar year.
The maximum service fee that may be charged on credit agreements has increased from R50 a month to R60 a month (excluding VAT).
The maximum initiation fees on credit agreements have also been changed and now stand at:
. Initiation fee on a home loan: R1 100 plus 10% of the amount in excess of R10 000, capped at a maximum fee of R5 250.
. Initiation fee on credit facilities (credit cards and store cards), personal loans and short-term credit transactions: R165 plus 10% of the amount in excess of R1 000, capped at a maximum fee of R1 050.
. Initiation fee on developmental credit for small businesses: R275 plus 10% of the amount in excess of R1 000, capped at a maximum fee of R2 600.
. Initiation fee on developmental credit for low-income housing: R550 plus 10% of the amount in excess of R1 000, capped at a maximum fee of R2 600.
Ian Wason, CEO of DebtBusters, says that in the past, lenders had the ability to charge as much as 32.65% for unsecured loans.
“Now that they are being forced to reduce that to 21%, they may get far more selective about who they lend money to. This could drive more people towards loan sharks and other unaccredited lenders.
“Often, these fringe players don’t adhere to the
NCA and the Debt Counselling Rules System, so the National Credit Regulator will need to police this,” he cautions.
The methods used by credit providers to determine whether or not you can afford a loan are now stricter than before. Credit providers now have to:
. Ensure that they obtain three months of payslips; or the latest three months of bank statements reflecting three salary deposits; or the latest three months of documented proof of income; or latest financial statements.
. Work on average over not less than three months in cases where there is a material variance in the income. This change is important for consumers to take note of because in the past it was often possible to open an account just by presenting an identity document. Now you have to arrive prepared with the necessary documentation.
The next step is for the credit provider to perform a specific calculation to ascertain the following:
. Your gross income, using the documentation supplied by you.
. All statutory deductions.
. What your “minimum living expenses” are – according to the minimum expense norms – to establish the net income.
. All your existing debt obligations, as may be reflected by the credit bureaus. The net result is your “discretionary income”. The “discretionary income” is the amount available to repay new debt. The monthly repayment on any new credit agreement must be less than this amount.
Wendy Monkley, head of marketing at DebtBusters, notes that the DebtBusters’ Debtometer report for the first quarter of this year indicates that banks’ share of overall debt is down 55% (from 72% in 2012), signalling a scaling back on lending by credit providers, “which was what DebtBusters predicted in March last year – a downward trend in unsecured lending”.
Monkley says that while the amendments to the affordability assessment regulations are a step in the right direction, consumers with nowhere left to turn may find themselves tempted to approach loan sharks for assistance.
“The unfortunate reality is that many consumers don’t know about debt counselling and how it can benefit them,” she says.
“Debt counselling is the best solution for consumers who are struggling to pay their way and who need their debt consolidated into a lower monthly repayment to free up cash for living expenses.”