Credit plays a key role in the economy. It helps people achieve their goals and promotes business growth. However, if it is not used wisely, it can also lead to excessive debt.
The National Credit Act (NCA) regulates credit in South Africa to ensure fairness, transparency, and responsible lending.
In this guide, we’ll discuss your rights and responsibilities under the NCA, and how to manage credit sensibly.
What is the NCA?
The NCA is a piece of legislation that governs credit agreements in South Africa.
It ensures a fair credit market and protects consumers from unfair or irresponsible lending practices.
If you have a credit card, store card, personal loan, or any other credit agreement, the NCA applies to you.
About the NCA
The NCA was signed into law in March 2005 and came into effect in 2007, replacing the Usury Act of 1968, which regulated money lending, and the Credit Agreements Act of 1980, which focused on regulating credit transactions such as instalment agreements.
The NCA changed credit legislation in South Africa, making the industry more efficient and addressing gaps and contradictions in the old legislation.
What is the purpose of the NCA?
The NCA aims to create a fair credit market by:
Expanding access to credit, including microfinance. It allows people of different income levels to access credit at fair prices.
Regulating consumer credit. It sets limits on interest rates and fees, and ensures transparent credit agreements.
Banning unfair credit practices. Lenders must check if you can afford repayments (i.e. verify your income and expenses). They may not harass you for repayments.
Encouraging responsible credit use. It promotes financial awareness and protects you from getting into too much debt.
Preventing reckless lending. The NCA protects you against “predatory” lenders, who use unfair or abusive practices when offering loans. Lenders must ensure that consumers understand their obligations and can afford repayments.
Providing debt relief options. Overindebted consumers can apply for debt counselling. A qualified debt counsellor can help you restructure your debt and protect you against credit-related legal action.
Ensuring clear credit information. Advertisements and credit agreements must be in plain language, with all terms disclosed. This is to ensure you understand the associated risks, costs, and obligations.
Who falls within the scope of the NCA?
Consumers
The NCA covers consumers – individuals or juristic persons, such as corporations – buying goods or services on credit. However, not all sections of the act apply to juristic persons.
Credit providers
The act also covers credit providers – people or institutions that grant credit. Only providers registered with the National Credit Regulator (NCR) can legally offer credit.
Credit bureaus
Also within the scope of the NCA are credit bureaus – organisations that collect and store consumer credit histories, including loan and payment records.
Which credit agreements fall under the NCA?
The NCA covers:
Loans
Credit cards and store accounts
Instalment purchases
Credit agreements for secured and unsecured debt
What is not covered by the NCA?
Note that the NCA does not cover the following:
Certain juristic persons, i.e. businesses.
Pawn transactions, i.e. when pawning something valuable, such as jewellery, as security for a loan.
Incidental credit agreements, e.g. medical bills paid later, with interest charged if you don’t pay on time.
School loans. These are treated differently because they’re meant for education, not personal spending.
Consumer rights under the NCA
Consumers have several important rights under the NCA. These include:
The right to apply for credit
Anyone who qualifies for credit may apply – lenders can’t turn you away based on your race, gender, or other personal factors. However, you’ll only get credit if you can afford and manage it.
The right to be given a reason if credit is declined
If your credit application is turned down, you can demand a reason for the rejection, which must be provided in good time.
The right to protection against unfair lending
You’re protected against reckless lending. That means credit providers aren’t allowed to lend you more than you can repay. They must conduct an affordability check before granting credit.
The right to clear information
Credit agreements must be in plain language. You have the right to receive regular statements once you’ve been granted credit. You’re also entitled to one free credit report a year, and you can challenge information held by credit bureaus.
The right to apply for debt counselling
If you find you’re overindebted – meaning, you have more debt than you can afford to repay – you have the right to apply for debt counselling and restructure your debt through the debt review process.
The right to privacy
Credit providers must keep your personal and financial information confidential.
Consumer responsibilities under the NCA
The NCA stipulates specific responsibilities that you must fulfil:
Always provide honest and complete information when applying for credit
Don’t lie about your financial situation or income
Read and understand credit agreements before signing them
Keep your personal and contact information up to date
Take out insurance where required
Make payments on time as agreed
Contact your credit provider immediately if you have financial problems
Overindebtedness and reckless credit
The NCA protects consumers from taking on more debt than they can afford through:
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Mandatory affordability assessments. Credit providers must check your income, expenses, and existing debt before lending to you.
Limits on interest rates and fees. This prevents you from falling into excessive debt because of inflated costs.
Debt counselling. If you’re overindebted, you can enter debt counselling and have your debt restructured. This will make your repayments more manageable.
Credit bureau reporting. This helps you monitor your credit status and track your financial health.
The NCA further prohibits creditors from engaging in reckless lending.
A loan is considered reckless if the loan provider didn’t conduct an affordability check, granted credit to someone who can’t afford to repay it, or didn’t explain the terms of the credit agreement.
You can dispute reckless lending with the NCR and seek legal relief if you’ve been granted an unaffordable loan.
What are the advantages of the NCA?
The NCA aims to makes credit agreements fair and transparent. Key benefits include that it:
Protects consumers from unfair lending
Helps people who have trouble reading or writing by making contracts easy to understand
Allows consumers to compare loan options before committing
Provides a system for complaints and disputes through the NCR and National Consumer Tribunal (NCT)
Makes credit more affordable by setting interest rate caps and preventing excessive charges
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National Credit Act – FAQs
1. What is the National Credit Act?
The National Credit Act (NCA) is a law that regulates credit agreements in South Africa. It protects consumers by ensuring fair lending practices, preventing reckless credit, and promoting responsible borrowing.
2. What and who does the NCA apply to?
The NCA applies to all credit agreements between consumers and registered credit providers in South Africa, including personal loans, credit cards, store accounts, and home loans.
3. What are my rights under the NCA?
As a consumer, you have the right to:
Apply for credit (although approval is not guaranteed)
Receive clear and transparent credit agreements
Be protected from reckless lending
Be given reasons for a declined credit application
Apply for debt counselling if you’re struggling with repayments
4. What is reckless credit?
Reckless credit or reckless lending occurs when a credit provider lends money without conducting a proper affordability assessment, or when they don’t make sure the consumer understands the risks, costs, or obligations related to the credit agreement.
5. What happens if I’m overindebted?
If you can’t meet your financial obligations, you can apply for debt counselling. A debt expert will assess your finances and help restructure your debt repayments.
6. What are credit providers required to do under the NCA?
Credit providers must:
Assess a consumer’s financial means before granting credit
Ensure that credit agreements are fair, transparent, and understandable
Register with the National Credit Regulator (NCR)
7. How does the NCA protect consumers from unfair credit practices?
The NCA prohibits unfair lending, ensures clear loan terms, and requires credit checks to avoid debt overload.
8. What is a credit bureau, and what role does it play?
A credit bureau gathers and shares credit data, such as your payment history, debt, and applications for credit. It helps lenders evaluate the creditworthiness of borrowers and helps consumers understand and manage their credit.
9. Can I be refused credit under the NCA?
Yes, a credit provider can decline your application based on affordability or poor credit history. However, if requested, they must provide reasons for their decision.
10. How does the NCA help consumers compare credit agreements?
The NCA requires credit providers to present agreements in simple language and provide written quotes valid for five business days, allowing consumers to compare offers before committing.
11. What is the National Consumer Tribunal?
The National Consumer Tribunal (NCT) is a legal body where consumers can lodge complaints against credit providers. It resolves disputes and ensures compliance with the NCA.
12. What should I do if I suspect reckless lending?
If you believe a credit provider has granted you reckless credit, you can report them to the NCR, or seek assistance from a debt counsellor.
13. How does the NCA regulate debt collection?
The NCA ensures that debt collection is fair and legal, preventing harassment and unfair penalties. Consumers have the right to be informed about the collection process and to dispute incorrect claims.
14. How does the NCA benefit consumers?
Aims to prevent unfair lending and overindebtedness
Encourages responsible borrowing and debt management
Provides debt relief options through debt counselling
Improves transparency and consumer education on credit agreements
