Calling on the National Credit Act
09 February 2016
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On mobile, on digital, on demand, this is Old Mutual Live, the Money Coach edition. Hello and welcome, my name is Chris Gibbons. With me in the Old Mutual Live studio, John Manyike, Head of Financial Education at Old Mutual. John, welcome, good to have you on board, as always.
John Manyike: Thanks Chris.
CG: Now, in a recent edition of Old Mutual Live Money Coach, we touched on loan sharks. Many of those are illegal, although not all. But many of us borrow money in a different way, when we buy things like furniture or appliances or cars, on credit and we can often find ourselves in just as much trouble. Nor is it just the big ticket items. All those items at clothing stores which seem so easy to get hold of, to say nothing of those fearsome things called credit cards.
That’s why in this edition of Old Mutual Live Money Coach, we’re going to be telling you all you need to know about the National Credit Act and a bit about debt review as well. John Manyike, let’s start with some history to help us understand this a bit better. The new credit act was passed, the problem was, I couldn’t get credit, it was in fact that too many people were granting me too much credit too easily.
The importance of the National Credit Act
JM: Absolutely, we got, as a country, into a situation where people were just getting credit easily and more and more people were getting into debt. The direction the country was taking was such that we could see that this was going to become a problem.
It is a problem for the economy of course, when people are over-indebted because then it means they’re actually removed from the mainstream of the economy. They cannot do anything because all they can actually do is service debt.
In 2005 the National Credit Act was introduced and it was put in place to protect you as a consumer, as well as the credit provider. Because there are rights and responsibilities of both that need to be observed. More importantly, the National Credit Act stops credit providers from offering you a loan or a credit when they can see that you cannot afford it. That is actually called ‘reckless lending’ in terms of, I think around Section 1881 of the National Credit Act.
CG: The emphasis falls onto the retailer or the bank, the credit provider to ensure that I can genuinely afford to repay the loan.
JM: Absolutely. In other words, if a lender grants you a loan when you cannot afford it, it has become unlawful.
CG: How does the credit provider know that? What happens if I don’t tell the credit provider that I have other accounts, for example?
JM: Those are some of the responsibilities of a borrower, you need to make a full discloser and be truthful about your expenses and so on. Because if you mislead a lender or a credit provider and say you understate your expenses or your overstate your income. You cannot come back later and say no, I can’t afford it, therefore the credit provider was reckless. You have a responsibility as a consumer to make a full disclosure and be truthful and honest about your income and expenses.
Is it becoming harder to get a loan?
CG: Is it working, is it in effect becoming more difficult for people who really can’t afford a loan to get one?
JM: Absolutely. I think it’s really tightened things up, to make sure that people don’t just get credit easily. This over-reliance on credit has somewhat been arrested. Although the trends are still showing that people are still relying more on credit. But at least we know that there’s a process in place and the creditors are also aware of the risk of granting loans to a person who cannot afford.
We’ve had some of the landmark settlements in the country between one big lender who is granting credit recklessly and they would fund huge sums of money. A couple of months later we learn that they were in serious difficulties, to the extent that that institution had to go under some form of curatorship. It is very risky business for any credit provider to ignore the provisions of the National Credit Act.
CG: Equally, if I do take on credit, once I’ve been properly checked and then I don’t make the payments, I could be in trouble, if it’s a home loan or a car loan, I could lose that asset.
JM: Absolutely, the first thing that happens there is you are registered as a bad credit, a consumer. Once you’ve been blacklisted, you cannot borrow. Secondly, these days, when you want to look for a job, I mean there are a lot of employers who would want to look at your credit profile. If they feel that you’re living beyond your means, they just wouldn’t hire you. Especially in the financial services sector. Again, you don’t want to limit your prospects of finding employment, of your mobility to advance your career because of your credit profile.
CG: That then brings us to debt review, if I am over-indebted, if I owe too much money to too many people, how does the National Credit Act help me?
Debt review vs administration
JM: So, one of the provisions of the National Credit Act is the introduction of debt counselling, what we sometimes call a ‘debt review’ process –
CG: There’s no difference between the two.
JM: It’s the same thing.
CG: Debt counselling and debt review, they’re the same thing.
JM: That’s correct, so when a person is over-indebted, they can approach a debt counsellor who would then assess their affordability. Looks at whether they’re really, really over-indebted and this is in extreme cases where there’s more debt than income. Of course a lot of people are in that situation where there’s more repayments than income. But there are extreme cases where really, a person cannot afford to service their loans and so on.
In this case, a debt counsellor would be required to assess the affordability of that individual and they would have to set up a realistic budget, negotiate with creditors and then also approach a court to make it a concerned order. Meaning that if the court makes it an order that this is what a person can pay. No legal action can sue on the basis of being beyond what a person can afford, if I can put it that way.
CG: How is that different, John, from administration?
JM: Very often people confuse the two. Debt review or debt counselling is a different process compared to administration. Administration would apply to consumers with less than R50 000 total debts. They can apply to a Magistrate Court to be placed under administration which is, to some extent, similar to debt review. But a court will appoint someone to handle your creditors and your finances on your behalf. But administration is not a process catered for by the National Credit Act.
But it’s still very popular with a lot of South Africans. Again, if you’re under the administration, you cannot be borrowing because then you are registered as somebody who is under administration, you’re limited in terms of what you can do with your money because you have an administrator who is appointed by the court who directs where your money goes and so on.
CG: By the same token, if I’m in debt review, if the order has been granted, I can’t borrow money either.
JM: Absolutely, so the first thing that a debt counsellor would do is once you’ve been registered as somebody who has applied for debt review. Is to register those details into the Credit Bureau. So any creditor would know that you are under debt review or have applied for debt review. So you may not apply for credit while you are still under debt review. Until such time that you’ve serviced your obligations and there’s a clearance certificate that you are now out of debt review.
Sequestration – the big one
CG: That’s debt review and administration. Then if we’re not confused enough already, then there is sequestration.
JM: Yes, that’s a tough one.
CG: That’s the big one.
JM: It is certainly because if none of the options that we’ve mentioned so far would work for a person, one can apply for sequestration. But this is not an option to be taken lightly as it has very severe consequences for you, such as losing your property and belongings to pay your creditors.
If you’re going under sequestration, it means your properties, your movable properties and so on need to be sold in order to actually recover some money. But then again, you can apply after five years to have yourself rehabilitated, which means that you start afresh.
If you’re not able to make an arrangement with your creditors or they’ve already handed your account over to collections or agencies or attorneys, it is not too late. You can also arrange repayment with them, but sequestration is hectic stuff. It’s not something I would really advise a person to do, that’s really last resort if there’s no other way. But then you need to stomach the fact that you’re going to lose some of your assets.
CG: If not all of them. Then there’s a final one, a little variation on this theme called ‘debt mediation.’
Voluntary Debt Mediation Solutions
JM: Of late creditors have studied what we call Voluntary Debt Mediation Solutions. It’s an informal way of settling the matter without having to go to court, without having to go through the formal process of debt review in terms of the National Credit Act.
CG: All right, you’re listening to Old Mutual Live, the Money Coach edition, on demand, visit dogreatthings.co.za. I think we need to wrap this one up John, with maybe a simple question: How do I know if I need debt counselling or indeed, if I qualify for debt counselling.
JM: One would have to approach a registered debt counsellor, I’m saying ‘registered’ because a debt counsellor must be registered with the National Credit Regulator. So you can approach one and they will assess whether you do qualify. Obviously take into account your level of indebtedness and so on. However, I know that at a later stage we will talk about consolidation. Which is an option that perhaps is worth exploring amongst other things.
CG: This has been another edition of Old Mutual Live, the Money Coach edition, my name is Chris Gibbons. With me in the Money Coach studio has been John Manyike, Head of Financial Education at Old Mutual. John, if the listeners want more information, where would they go?
JM: You can like our page on Facebook, which is On the Money Financial Education Programme, or you can follow us on Twitter at OM_OnTheMoney.
CG: John Manyike thank you for that, get in touch any time. If you have any questions for either John or me, or topics you’d like us to cover on Old Mutual Live Money Coach, please feel free to send them direct to me at email@example.com. We’d be delighted to hear from you. Until the next time, thank you for listening, Old Mutual Live, on mobile, on digital, on demand.