There has been much hype in the financial industry about the National Credit Act (NCA), which was promulgated on 1 April 2006 and put into practice on 1 June 2007.
The NCA replaces both the Usury and Credit Agreements Acts, and has far reaching consequences for mortgage lending.
The Banks have been forced to be more transparent and have had to restructure their mortgage lending fees:
The Assessment Fee, which was a fee for the valuation of the property to be transferred, has now been waived. However, it has been replaced by an Initiation Fee. The cost of this varies from bank to bank, but they have been restricted by the NCA
to a maximum of R5000. The exact cost can be obtained from your bank of
choice.
The Administration Fee still exists, but some banks have increased this
cost.
Home Owners Insurance Cover (insurance that covers the ‘brick and mortar’ in the event of fire and destruction) is no longer mandatory to take out with the lender. Should a borrower decide to get his or her own cover, the bank is entitled to charge a substantially higher monthly administration fee.
The purpose of the NCA is to promote a fair and non-discriminatory marketplace for access to consumer credit via the regulation of such credit. More specifically, the NCA is mandated to:
Establish standards with all lenders relating to the granting of consumer credit.
Regulate credit information.
Order responsible granting of credit and the prohibition of reckless lending.
Improve standards of consumer information through the prevention of certain unfair credit marketing practices.
Establish the National Credit Regulator and National Tribunal.
Regulate the transparency of the information on all documentation. The client will have access to information in the language of their choice, in plain and simple terms. Font size will also be regulated.
The act is very comprehensive and can be viewed on the website of any bank. The NCA specifies that all borrowers will also have to be very transparent in the information that they supply when applying for a home loan. Prior to the implementation of the NCA, clients could use the formula of taking 30% of their gross income for repayment purposes. It is now not that simple, as the bank will now need to know what other regular expenses the client has over and above any deductions that come off the salary. The bank will then look at the surplus when making the credit decision for the amount applied for.
The following information will be required from everyone that wants to apply for a home loan:
Personal details – copy of ID.
Home and work domiciles.
Contact telephone numbers and email address (if applicable).
Proof of income plus recent bank statements (where the income is credited to).
Income and Expenditure as well as Assets and Liabilities. These are important as banks need to see not only deductions from the payslip, but all expenses and monthly commitments
Client must sign the application declaration giving permission to apply for the home loan, as well as declaring that they are not under any form of debt review, and acknowledgement that all questions have been fully and truthfully answered.
Credit providers must conduct an extensive financial means test before entering into a credit agreement with a consumer. If found guilty of reckless lending, severe penalties will be imposed (including setting aside of the initial agreement), as well as their rights as lenders being made unenforceable. Credit providers are protected against this if there was any dishonesty or part disclosure by the applicant at the application stage. Thus, client education and screening plays an important role in guarding against this, as does ensuring that they understand the contract and consequences.
A borrower who finds him or herself overcommitted may seek the services of a Debt Counsellor (from the approved panel listed in the NCA) for a small fee. They will source all necessary data and inform all credit advisors within 5 days of receipt of necessary information. They will then determine whether the client is or isn’t over indebted, and they will approach credit providers for assistance in re-arranging client’s debt.
There are some additional points that should be mentioned regarding the National Credit Act:
In the past some clients did not even know that they had judgements against them. This will no longer happen, as the NCA gives clients protection to ensure that this does not occur.
Should a home loan be declined, the bank is required to supply the client with the reasons.
On approval, the client has 5 days from date of quote to accept or decline.
If a client defaults on the loan, new rules govern what action can be taken against them during collections and recoveries.
All in all, the National Credit Act should be seen as a positive step in protecting consumer interests.
