New act makes it difficult for lenders to lure people into debt trap

Isaac Moledi

Isaac Moledi

Come Saturday, South Africans will embrace a new credit culture.

The full implementation of the National Credit Act will mean that the whole culture of credit will change.

The way we live on borrowed cash and the conduct of financial institutions in luring us into this money will take a new turn.

Recent statements by Reserve Bank Governor Tito Mboweni that the "madness" of credit lending had to stop, show that we live on money we have not earned.

Last year, for instance, the number of credit cards in South Africa increased by 40percent and the total credit card debt reached the astronomical figure of R37,5billion. This was despite several 50-basis point hikes in rates.

The act provides for the education of consumers about the hazards of credit and, perhaps more importantly, will put the squeeze on lending institutions to be credible in the way they approach consumers.

Financial institutions have already compiled the banking code of conduct on how consumers should be approached on credit following Mboweni's concerns.

Quinton Cronje, head of marketing for Clicks, one of many stores that offer credit card facilities, believes the act makes it clear that consumers will be better served in future.

The US Agency for International Development (USaid), which donated funds to train 700 South African magistrates to uphold the new act, says: "New legislation will help millions of vulnerable South Africans avoid debts they can't repay."

Cronje notes the act's major benefits:

l The development of access to credit for people who historically could not afford it.

l Systems built into the operation of the act to evaluate credit conditions and interest rates in different consumer markets.

l Address imbalances in the power of credit providers and consumers.

l Promote responsible credit use through proper legal rights and obligations.

l Consumers will have more bargaining power with courts to pay reduced instalments over a longer period.

l Debts that have been cleared will be followed by a clearance certificate and any credit bureau receiving such a certificate must remove all mention of a consumer from their records.

l From the beginning of next month credit providers may no longer send unsolicited and "free" credit card applications.

Cronje applauds the role of the government and other institutions in laying the groundwork for the success of the act.

He agrees with Charlene Dei, USaid's director in South Africa, that it was unacceptable that so many people had their lives ruined by bad credit practices.

"It will take time before consumers understand their rights in terms of the act, but we are confident the parameters are in place to promote fair play," he says.

Cronje says the ability of consumers to take all disputes to the national consumer tribunal will help the process immeasurably.