When applying for credit or repaying it, South Africans may assume lenders have the upper hand, but when dealing with creditors, banks, payday lenders, and debt collectors, consumers’ rights are protected by law.
The most important laws which regulate how credit is granted, how financial advice is provided and how debts may be collected or enforced are the Consumer Protection Act (CPA), the Financial Advisory and Intermediary Services Act (FAIS), and the National Credit Act (NCA).
According to René Moonsamy, chairperson of the National Debt Counselling Association, the National Credit Act is amongst the most progressive pieces of credit legislation in the world.
It protects consumers’ rights even before they apply for credit, with fair treatment and disclosure provisions that require credit providers to ensure credit agreements are clear and understandable. It also requires that interest rates, fee repayment terms, and the total cost of credit be disclosed before the agreement is signed.
While the NCA is specific to the credit industry, consumers also benefit from broader protection in the CPA against unfair practices. These include the right to fair, honest and responsible marketing and protection from unfair contract terms.
The FAIS Act offers protection from poor financial advice. It requires that financial advisers recommending financial products be licensed and that the advice they provide is appropriate to the consumer’s circumstances.
When it comes to getting credit, the NCA seeks to strike a balance between ensuring fair access while preventing over-indebtedness. Credit providers may not unfairly discriminate against applicants. If credit is declined, consumers can request written reasons for the refusal.
At the same time, lenders must conduct an affordability assessment before granting credit. If a proper assessment isn’t done or credit is provided knowing the consumer cannot afford it, the lending is considered reckless. Courts may set aside or suspend recklessly granted credit agreements.
The NCA also regulates debt collection practices. It stipulates that consumers must be treated fairly and without harassment, informed about what they owe, and protected from unlawful fees. Only prescribed collection fees may be charged. Consumers have the right to challenge incorrect or disputed debt.
Even consumers who default on a credit agreement have rights. They must receive a formal notice advising them that they have defaulted and the options to remedy the situation. These can include paying the arrears, negotiating repayment terms or entering debt counselling.
Credit providers generally need court orders to repossess property, attach assets or enforce judgments, but must pause legal action if the consumer enters debt counselling before enforcement begins.
“This is an incredibly important provision in the NCA, because it provides a legal framework for consumers who are in financial difficulty to restructure their debt in a way that is safe and transparent, while protecting their assets,” says Moonsamy.
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Anyone has the right to approach a registered debt counsellor, although consumers who are married in community of property need to apply with their spouse.
After a comprehensive financial assessment, the debt counsellor will negotiate reduced monthly payments for all credit agreements falling under the NCA. These exclude debt, such as rates and school fees. The restructuring of debt strikes a balance between the consumer’s ability to pay and the overall debt level.
Once the restructuring process is concluded, a court or the National Consumer Tribunal approves the debt counselling agreement. The consumer then makes an affordable monthly payment, which is distributed to creditors by an independent payment distribution agency, also regulated by the NCA.
Once all unsecured debt is cleared and any bond payments are up to date, the debt counsellor issues a clearance certificate, legally ending the debt counselling process.
“In the formal economy, South African consumers enjoy considerable legal safeguards from their rights to access credit to an effective framework to protect overindebted people, enabling them to restructure and pay off their debt and get a fresh start,” says Moonsamy.
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