The National Credit Act may be a good idea, but implementation of the act will not be easy…especially when it comes to debt counsellors. For one, there’s a serious shortage of counsellors, while there are also a number of loopholes for the unscrupulous credit provider. Bruce Whitfield: Steven Logan, the head of Logan Attorneys, the […]
16 November 2015
The Department of Trade and Industry (DTI) has released the Draft Credit Life Insurance Regulations for public comment. The draft regulations include proposed caps for credit life insurance for the various types of credit agreements.
Ian Wason CEO of DebtBusters, South Africa’s largest debt counsellor, noted: “In a recent review of credit life charges by mainstream credit providers, DebtBusters uncovered some horrific practices in the marketplace. Findings indicate that although some credit providers, particularly the banks, fall below the DTI’s proposed R4.5 per R1000 of deferred amount, almost all other credit providers are charging far in excess of this, with the average ‘non-bank’ consumers paying over R12 per R1000 borrowed.”
“Furniture retailers are generally charging the highest rates as multiple insurances are bundled into credit life; in some instances credit life charged exceeds R20 per 1000 borrowed, resulting in hundreds of Rands per month being shelled out by consumers towards credit life insurance,” added Wason.
The draft regulations propose maximum prescribed credit life insurance charges for the different credit agreements available, which credit providers may charge in relation to any commission, fees or expenses in relation to the insurance.
|Sub-sector||Maximum prescribed cost of credit life insurance (excluding the cost of credit)|
|Mortgage agreements||R2.00 per R1 000 of deferred amount|
|Credit facilities||R4.50 per R1 000 of deferred amount|
|Unsecured credit transaction||R4.50 per R1 000 of deferred amount|
|Short term credit transaction||R4.50 per R1 000 of deferred amount|
|Developmental credit agreements||R2.00 per R1 000 of deferred amount|
|Other credit agreements||R4.50 per R1 000 of deferred amount|
Credit providers may charge higher credit life insurance fees if the credit life insurance provides for the full settlement of a consumer’s total obligations under the credit agreement due to temporary disability or the consumer’s inability to earn an income. However, in this situation, the maximum cost of credit life insurance can only be increased by R1 per R1000.
There are instances where consumers will be exempt from cover, but these must be explained to consumers from the beginning of the credit agreement. “It is vital that consumers are aware when they are and aren’t covered by the credit life insurance. The credit providers have an obligation to provide this information to their customers prior to the credit agreement being entered into,” highlighted Wason.
“Credit Life has been one of the greatest rip offs of our time! DebtBusters welcomes these proposed maximum prescribed credit life insurance charges. They will go a long way to preventing credit providers from making their money by overcharging clients for credit insurance,” concluded Wason.