National Credit Act Regulations

Obviously the hot news at the moment in the credit management profession in South Africa is the National Credit Act no. 34 of 2005 .


We will try keep you advised and informed with as much news and insight into the Act as possible. We previously reported on the release of the draft regulations. Now Francis Newham, director and Sam Robertson, associate with law firm Cliffe Dekker Inc. have done an article on their website, which highlights some of the administrative challenges posed by the regulations.

"There are certain provisions in the draft regulations that will cause some concern to credit providers, particularly from an administrative perspective. Together with the Credit Act itself, the regulations will impose an increased obligation on credit providers with respect to the collection, retention and reporting of information. A few of these areas are highlighted below.

All credit providers (whether they are required to be registered or not) must report certain information relating to the credit agreement and the consumer to either the National Credit Regulator or a credit bureau.

If the interest charged by the credit provider is pegged to a variable rate such as the prime interest rate, then every time this rate changes, a notice must be supplied to the consumer re-calculating the total interest payable, monthly interest and date the change took effect.

The collection costs incurred by the credit provider may not exceed the actual costs of recovering the debt as allowed by the relevant legislation. In other words, the credit provider may not charge the consumer whatever it likes in relation to collection charges - it is limited to the charges allowed in terms of the Magistrates' Court, Supreme Court, Debt Collector's and Attorneys Acts. It must be noted that many attorneys and collection agencies charge more than the prescribed tariffs and in that case, the credit provider will not be able to recover all collection costs incurred from the consumer, but only that portion allowed by the relevant tariff.

All registered credit providers are obliged to maintain, for a period of at least three years, all applications for credit, credit agreements and credit accounts, as well as records relating to applications for debt review and reasons for rejection of credit.

A credit provider must give a consumer at least 20 business days' notice before submitting certain adverse information to a credit bureau.

When concluding a credit agreement, the credit provider must provide the consumer with the options to:

decline an annual credit limit increase;

be excluded from telemarketing campaigns, or not to be included in any list that may be sold or distributed by the credit provider; and

be excluded from any mass distribution of email or sms messages.

These options must be recorded in a register and must be maintained for as long as the consumer has an account with the credit provider. If the consumer re-elects any of the options, any records of previous selections may not be retained.

The credit provider is obliged to lodge periodic compliance reports, statistical returns, financial and operational returns and assurance reviews with the Regulator.

Prescribed forms have been provided in the draft regulations stipulating the exact information required. Some of these documents can, however, only be compiled by auditors or other qualified financial professionals.

Even though the regulations are still in draft form, it is anticipated that any only minor changes will be made and most of the onerous provisions mentioned above will remain largely intact.

While it is expected that certain sections of the Act will only come into operation as late as April 2007, the Department of Trade and Industry (DTI) has advised that the registration requirement of credit providers will most likely have to have been complied with by August 2006. The CEO of the National Credit Regulator has already been appointed (on 5 April 2006), which is a clear indication that the DTI and Legislature intend keeping to their estimated timelines.

It is quite clear from the nature of the draft regulations that a substantial administrative process will have to be embarked on by all credit providers so as to comply with the National Credit Act and its regulations.