New law protects honest borrowers, writes Isaac Moledi

It seems every time a new law with a strong consumer protection bias is introduced to make things right, an uproar and squeals of protests erupt. Why?

It seems every time a new law with a strong consumer protection bias is introduced to make things right, an uproar and squeals of protests erupt. Why?

Why has the implementation of the National Credit Act caused such a stir?

If it's not mortgage bond facilitators or small credit retailers in the furniture and electrical businesses, it's motor dealers or banks and insurance companies here and there complaining. Why?

Does this mean that the financial services industry and those involved in the credit extension market were not doing things correctly before the new credit law came into being?

"It's like the financial services industry woke up on June 1 this year to find completely new rules in the credit extension sector," said a property expert recently.

For the most part, says the expert, the act merely provides guidelines for good credit management.

A prospective homebuyer complained to Your Money recently about her bank granting her a bond before the act came into effect, but was later told that her bond had been withdrawn because she could not afford it.

On contacting the bank about the query, the bank told Your Money that the homebuyer did not qualify due to the "stringent" act requirement.

The bank, said the consultant, after conducting the required verification and assessment, discovered she did not qualify.

"Didn't you conduct that verification when you initially granted her the loan?" Your Money's question was met with silence.

What the bank consultant was trying to tell Your Money was that for any lending, lenders not only need to know about an applicant's salary and how it is spent.

The act now requires that lenders should draw up a detailed statement of income and costs, a household budget and details of other credit commitments, before they can grant further credit to help assess affordability.

This means you might have to wait a couple of days for a consultant to check the information you provided on your credit application.

But the question is, what was the procedure previously? This sounds like a simple and healthy credit practice, something that all businesses should have followed in the first place.

The advent of the act is unlike the past when, in addition to the purchase price, you also had to pay huge interest and an administration fee, all kinds of insurances, membership of some or other club and various other subscriptions, all of which increased the price of an item by as much as 100percent, sometimes even more.

With the National Credit Act, all interest rates, fees and additional charges must be disclosed. The interest rate charged is also regulated.

This means that interest rates and other costs may not be in excess of the prescribed rates.

The big difference is that you now have more bargaining power, as the NCA allows you to demand a quote from a credit granter, valid for five days, giving you an opportunity to shop around for the best deal.

No add-on costs for insurance are allowed. All costs to a credit agreement must be advised in advance and you have the right to arrange insurance directly, rather than pay the credit provider to do so, or choose to arrange his or her own insurance policies.

What is interesting about the new credit law is that no one can now sell you furniture on credit and then later sell your house on auction to recover the arrears payment on the furniture.

If you are already over your head in debt and the lender grants you a further loan, that lender could lose the right to collect the money advanced to you.

Unlike previously, you may pre-pay any amount owing at any time, and no penalty may be levied for the full settlement of that account.

The only exception now is in the case of mortgage bonds or agreements that are more than R250000, which are subject to a termination charge of not more than three months interest.

For those who are married in community of property, it is now required that the written consent of the spouse is obtained before such credit is granted.

When a credit provider is making an affordability assessment, the onus is on you to fully and truthfully answer any request for information made by the credit provider.

If you lie or do not reveal the requested information, you will not be able to fall back on the protection provided by the act.