HEAD FOR SUCCESS Business Studies Grade 12

TERM 1 Topic 1: Impact of recent legislation on business – response to demands for redress and equity

NATIONAL CREDIT ACT (NR 34 OF 2005) The National Credit Act was introduced to provide guidelines to credit providers and consumers, regarding their rights and responsibilities. A credit provider is a business or person who lends money to another person or business. A credit applicant (consumer) is a business or person who wants to borrow money.

NATIONAL CREDIT ACT (NR 34 OF 2005) NATURE of the NCA: The law prescribes the basic rights of consumers in the credit market, and aspects that lenders / credit suppliers must be met. Prevention of over-indebtedness of consumers. Regardless of whether the lenders are registered, the act applies to all lenders / credit suppliers. Prevent credit applicants to receive credit which they cannot repay and then be blacklisted by the credit bureau. Improve consumer rights with regard to credit and promote full participation in the country’s economy.

NATIONAL CREDIT ACT (NR 34 OF 2005) PURPOSE of the NCA: Development of a credit market that is accessible to all South Africans. Encouraging responsible borrowing and fulfilment of financial obligations by consumers, and avoidance of over-indebtedness. Promoting equity in the credit market. Addressing and correcting imbalances in negotiating power between consumers and credit providers.

NATIONAL CREDIT ACT (NR 34 OF 2005) PURPOSE of the NCA: Discouraging reckless credit granting by credit providers and contractual default by consumers. Ensuring consistent treatment of different credit products and different credit providers. The majority of people in South Africa are low income earners, which made it impossible for them to access credit and they had to go to micro- lenders if they wanted credit. The repayment of this credit was unrealistically high, which plunged consumers in more debt. The NCA, wants to prevent this.

NATIONAL CREDIT ACT (NR 34 OF 2005) PURPOSE of the NCA: The Act prohibits unfair and discriminatory lending / credit supplying. Make credit granting more accessible. Prevention of reckless credit because credit providers must research the creditworthiness of applicants thoroughly to ensure that the applicant will be able to repay debts. Credit providers must ensure that the applicant understand the obligations in the agreement before credit is granted.

NATIONAL CREDIT ACT (NR 34 OF 2005) PROVISIONS IN THE ACT TO REACH THE GOALS: Investigation of applicant’s creditworthiness: Credit providers should investigate the applicant’s credit record and control the information in this regard on the application form to determine whether credit to the applicant may be granted. Written notice: The credit provider must, before entering into the credit agreement, submit a written quote to the applicant. All costs related to the credit must be indicated, as well as the monthly instalment that the applicant must pay if he / she accepts the a quote. Advertising: The NCA requires advertising in connection with credit granting not to be misleading and that all costs should be included in the advertisement.

NATIONAL CREDIT ACT (NR 34 OF 2005) PROVISIONS IN THE ACT TO REACH THE GOALS: Credit marketing: The NCA prohibits door-to-door credit sales, and negative option marketing. The latter means that the provider assumes that the person to whom the credit is marketed accept the credit because the person did not specifically refuse it. Fluctuating interest rates: The interest rate may change if the SA Reserve Bank changes the repo rate, while the credit agreement is still in force. Certain conditions apply.

NATIONAL CREDIT ACT (NR 34 OF 2005) PROVISIONS IN THE ACT TO REACH THE GOALS: Return of goods: The debtor may inform the credit supplier at any time during the term of the credit agreement, that he / she wishes to terminate the agreement. Certain conditions apply. Debt Counselling: Credit providers cannot simply put the credit receiver on a blacklist if the person cannot pay. The credit receiver have the right to go for debt counselling or to ask the Consumer Court to settle the problem.

NATIONAL CREDIT ACT (NR 34 OF 2005) PROVISIONS IN THE ACT TO REACH THE GOALS: Penalties: The business (credit provider) may not charge any penalties should the customer wish to settle his debt early. The National Credit Regulator can issue a penalty to credit providers that do not comply with the Act. According the Act such an administrative penalty cannot be more than 10 % of the business’ annual turnover or R1 million. According to the Act imprisonment can also be imposed in serious cases.

NATIONAL CREDIT ACT (NR 34 OF 2005) ADVANTAGES AND DISADVANTAGES: ADVANTAGES FOR CONSUMERS:DISADVANTAGES FOR CONSUMERS: The National Credit Act protects consumers against unfair credit practices. Difficult to gain access to credit. The National Credit Act protects consumers against the excessive granting of credit. Consumers have to budget more carefully. More information must be given to consumers – e.g. consumers have the right to reasons for credit being refused. No further credit is allowed when a consumer is placed under debt review. Discourages consumers from purchasing goods they cannot afford. Consumers who previously qualified for credit, but who do not qualify any longer, may experience a decline in their standard of living. Consumers are entitled to receiving monthly statements. Consumers have the right to information in any official language.

NATIONAL CREDIT ACT (NR 34 OF 2005) ADVANTAGES AND DISADVANTAGES: ADVANTAGES FOR CREDIT PROVIDERS:DISADVANTAGES FOR CREDIT PROVIDERS: The National Credit Act protects credit providers against bad debt. Administrative burden – more admin involved in credit providing process. Credit providers have greater certainty as to what constitutes unfair credit practices. Smaller consumer market – goods may only be sold to credit-worthy customers. Cash flow improves as a result of less bad debt.Debt collection procedures are more complex. Promotes transparency, because the credit application process is more transparent. Credit providers cannot collect form consumers that are under credit review. Credit which has been granted recklessly cannot be recovered. May experience decline in sales due to the shrinkage of the consumer market.

NATIONAL CREDIT ACT (NR 34 OF 2005) IMPLICATIONS FOR BUSINESSES: The purchasing function can no longer depend on obtaining credit as a certainty. More administration – a credit provider must provide a consumer with a quotation, which shows all the relevant costs and repayment values, before the credit agreement is concluded. Before granting credit, a credit provider must assess the consumer’s creditworthiness and ability to repay the credit – this is known as credit control. Strict credit control results in a reduction of available credit.

NATIONAL CREDIT ACT (NR 34 OF 2005) IMPLICATIONS FOR BUSINESSES: Thus, it is more difficult for enterprises to sell their products and more difficult for consumers to buy products. The purchasing department, together with the financial department, have to ensure that enough cash is at hand to acquire goods. Consumers have the right to receive information in any official language – businesses may not have employees capable of speaking the language preferred by the consumer.

NATIONAL CREDIT ACT (NR 34 OF 2005) RIGHTS AND RESPONSIBILITIES OF CREDIT PROVIDERS AND CONSUMERS: RESPONSIBILITIES OF CREDIT PROVIDERS:RESPONSIBILITIES OF CONSUMERS: A credit provider must provide a consumer with a quotation, which shows all the relevant costs and repayment values, before the credit agreement is signed. The consumer must pay the debt as agreed upon in the credit agreement. Must register as a credit provider.The consumer must inform the credit provider of any change concerning: The consumer’s residential or business address. The address where the goods are kept. The name and address of any other person to whom possession of the goods has been transferred. Must assess the consumer’s creditworthiness. May not extend credit recklessly

NATIONAL CREDIT ACT (NR 34 OF 2005) RIGHTS AND RESPONSIBILITIES OF CREDIT PROVIDERS AND CONSUMERS: RIGHTS OF CREDIT PROVIDERS:RIGHTS OF CONSUMERS: May issue a summons and apply for judgement against the consumer. The right to receive a copy of the document that records the credit agreement. Where there is no debt review application, the credit provider may take legal action against the consumer, if: The consumer has been in default for at least 20 days; and The credit provider has given the consumer at least 10 days’ written notice by registered mail, and the consumer did not respond. The right not to be discriminated against unfairly. The right to reasons for credit being refused. The right to information in an official language The right to information in plain and understandable language. Right to access and challenge credit records and information.

NATIONAL CREDIT ACT (NR 34 OF 2005) OBLIGATIONS OF LENDERS / CREDIT PROVIDERS (BUSINESSES): Credit Agreements: The NCA provides for different types of credit agreements and require the agreement to be in writing. Examples of such credit agreements: Credit cards Bank overdraft facilities Short-term loans Pledging of assets (pawn shops) Rebates / discount Instalment sale agreement Mortgage loans, etc.

NATIONAL CREDIT ACT (NR 34 OF 2005) OBLIGATIONS OF LENDERS / CREDIT PROVIDERS (BUSINESSES): Credit Agreements: The NCA distinguish between small, medium and large credit agreements. Small – credit limit to a maximum of R Medium – credit limit more than R but less than R Large – the credit agreement exceeds R

NATIONAL CREDIT ACT (NR 34 OF 2005) OBLIGATIONS OF LENDERS / CREDIT PROVIDERS (BUSINESSES): Pre-Agreement Statement: The credit provider must submit to the applicant pre-agreement documentation before the credit agreement is concluded. It must contain the following information: Interest rate Deposit required if applicable Repayment period and number of payments Instalments which must include interest, principal payment, other fees such as monthly service fee and credit life insurance Amount of money for the agreement Procedure and ‘penalties’ if the credit receiver wants to pay the outstanding balance prematurely When the instalments are payable e.g. weekly, monthly an d on what date it is due, etc.

NATIONAL CREDIT ACT (NR 34 OF 2005) OBLIGATIONS OF LENDERS / CREDIT PROVIDERS (BUSINESSES): Assessment of the applicant’s credit rating by the credit provider: The NCA force credit providers to investigate the applicant’s creditworthiness to determine whether the applicant will be able to promptly fulfil the credit obligations. Form 16 of the NCA can be used in this regard as prescribed by the National Credit Regulator (NCR). The credit provider may wish to consult organizations in this regard: The applicant’s employer The applicant’s bank The National Credit Register Registered Credit bureaus Businesses where the applicant has / had credit agreements, etc.

NATIONAL CREDIT ACT (NR 34 OF 2005) OBLIGATIONS OF LENDERS / CREDIT PROVIDERS (BUSINESSES): No reckless credit providing: If the credit supplier fails to adhere to the provisions mentioned in Pre-Agreement Statement and Assessment of the applicant’s credit rating by the credit provider it can result that the Consumer Court may declare the agreement as reckless credit providing, unless the applicant has failed to answer certain information fully and truthfully. If the creditworthiness of the applicant has been examined and it appears that the applicant will have an excessive debt burden it the agreement is granted, and it is still being granted by the credit provider, it is also regarded as reckless credit providing.

NATIONAL CREDIT ACT (NR 34 OF 2005) OBLIGATIONS OF LENDERS / CREDIT PROVIDERS (BUSINESSES): No reckless credit providing: If an pre-agreement with the applicant has been arranged and it appears that the applicant did not understand the risks, costs or obligations under the proposed agreement, it is seen as reckless credit providing. When the Consumer Court declares a credit agreement to be reckless credit providing the credit provider has no legal right to claim to the outstanding debt or assets that the consumer has received through the agreement.

NATIONAL CREDIT ACT (NR 34 OF 2005) OBLIGATIONS OF LENDERS / CREDIT PROVIDERS (BUSINESSES): Registration of credit providers: Credit providers with over 100 debtors or more than R in total lent, must register as authorised credit suppliers with the National Credit Regulator. This institution regulates the credit industry.

NATIONAL CREDIT ACT (NR 34 OF 2005) OBLIGATIONS OF LENDERS / CREDIT PROVIDERS (BUSINESSES): Record keeping by credit suppliers: The NCA and NCR requires credit suppliers to keep records in written and / or electronic format of the pre-agreement, as well as the evidence of investigation of the applicant’s creditworthiness. The applicant must also sign a statement that must be attached to the above mentioned in which he / she declares that: The costs, risks and obligations under the credit agreement was understood, and that all information relating to the application was truthfully and completely provided.

NATIONAL CREDIT ACT (NR 34 OF 2005) OBLIGATIONS OF LENDERS / CREDIT PROVIDERS (BUSINESSES): Compliance report: All registered credit suppliers must submit annually, a detailed compliance report to the NCR. This report will put pressure on the company’s administrative function, which means credit providers should increase their administrative capacity.

NATIONAL CREDIT ACT (NR 34 OF 2005) RIGHTS AND OBLIGATIONS OF CREDIT APPLICANTS (CONSUMERS): All consumers who is a legal entity have the right to apply for credit, without being subjected to discrimination Applicants should not conceal any relevant information that may have an impact on the granting of credit. Applicants have the right to know what the reason is why a credit application is rejected. Debtors receiving credit must comply to the terms of the agreement. Credit receivers have the right to apply for debt counselling if they are unable to meet the obligations of the agreement.

NATIONAL CREDIT ACT (NR 34 OF 2005) REMEDIES: The consumer can rely on rights protected by the National Credit Act, for example: The credit agreement may not contain unlawful provisions. The consumer is entitled to apply for debt review. The credit provider cannot pursue his remedies against the consumer while the consumer is under debt review. A credit provider may issue a summons and apply for judgement against the consumer.

NATIONAL CREDIT ACT (NR 34 OF 2005) COMPLIANCE WITH THE PROVISIONS IN THE ACT AND PENALTIES IF THE BUSINESS FAILS TO COMPLY: Credit providers must register with the NCR if they want to act as credit providers in the credit sector. Credit providers are prohibited by the NCA to allow applicants to obtain too much credit. Credit providers must comply in all provisions of the NCA and NCR. Certain credit agreements and terms of credit agreements are unlawful and unenforceable. Records and information by credit bureaus can be challenged and required to be corrected.

NATIONAL CREDIT ACT (NR 34 OF 2005) COMPLIANCE WITH THE PROVISIONS IN THE ACT AND PENALTIES IF THE BUSINESS FAILS TO COMPLY: The National Consumer Tribunal (NCT) can impose administrative fines. The NCT may declare certain conduct to be unlawful. The NCT may interdict unlawful conduct. The NCT may require repayment of certain monies to consumers. No discrimination against applicants or false / misleading marketing of credit is allowed by the NCA. Failure to register as a credit provider and failure to indicate it as such during credit marketing, as well as failure to comply with the provisions of the NCA and NCR, is punishable by a fine. Certain contraventions of the Act are criminal offences.

NATIONAL CREDIT ACT (NR 34 OF 2005)