The National Credit Act (“NCA”) of 2005 is a law designed to regulate the consumer credit market in South Africa. It aims to promote a fair and accessible credit environment, protect consumers, and encourage responsible credit practices.

In essence, the NCA seeks to:

• promote black economic empowerment and ownership within the consumer credit industry;
• prohibit reckless credit granting and ensure responsible use of credit;
• provide for debt re-organisation in cases of over-indebtedness; and
• establish a consistent enforcement framework for consumer credit.

The Act also addresses debt restructuring, regulates credit information, and establishes the National Credit Regulator (NCR) and the National Consumer Tribunal.

Key aspects of the NCA

• Fair and Transparent Credit Market - the NCA aims to create a credit market that is accessible to all South Africans, particularly those who have been historically disadvantaged;
• Consumer Protection - the Act protects consumers by prohibiting unfair credit and marketing practices, and by promoting responsible credit granting and use;
• Debt Restructuring – the NCA provides mechanisms for debt restructuring in cases of over-indebtedness;
• Regulation of Credit Information – the Act regulates credit bureaus and the collection and use of credit information;
• National Credit Regulator (NCR) – the NCR is responsible for enforcing the Act and promoting responsible credit practices; and
• National Consumer Tribunal - the National Consumer Tribunal handles disputes related to the NCA. 

Restrictions on Lenders

The NCA places several restrictions on lenders in South Africa, primarily focused on preventing unfair and reckless lending practices and promoting responsible credit granting. These restrictions cover areas like marketing practices, affordability assessments, and the level of interest rates and fees. 

Key restrictions imposed by the NCA on lenders include: 

• Marketing Practices – the NCA restricts misleading advertising and prohibits certain marketing tactics, such as door-to-door selling and unsolicited marketing at workplaces or homes. Consumers must receive clear and understandable marketing communications, including a detailed written quote valid for five business days. 
• Affordability Assessments - Lenders are obligated to assess a consumer's ability to repay the loan before granting credit, considering their income, debts, and overall financial situation. This assessment aims to prevent "reckless credit granting," which could lead to over-indebtedness. 
• Reckless Credit - it prohibits lenders from entering into credit agreements with consumers if they fail to conduct a proper assessment of the consumer's understanding of the risks and costs of the loan and their ability to repay it. 
• Interest Rate Caps and Fees - caps the interest rates, fees, and charges that lenders can charge, based on the type of credit and the time the credit was granted. The maximum interest rate is usually based on the SA Reserve Bank Repo rate. 
• Consumer Rights - provides consumers with various rights, including the right to be informed of the reasons for credit denial, the right to request information from credit bureaus, and the right to challenge reckless credit agreements. 
• Discrimination - Lenders are prohibited from discriminating against consumers based on characteristics like race, age, or sexual orientation when granting credit. 

In summary, the NCA aims to balance the interests of lenders and consumers by promoting responsible lending practices, protecting consumers from predatory lending, and ensuring fair access to credit. 

Maximum interest rates you can be charged

The NCA sets maximum interest rates and fees for credit agreements. The current maximum interest rates for different types of credit agreement are linked to the repo rate and shown below:

* The first short-term loan you take attracts interest at 5% per month. The second loan in the same calendar year attracts interest at 3% a month. Short-term loans are repayable over 6 months.

Maximum fees you can be charged

The National Credit Act (NCA) sets maximum fees that can be charged on different types of loans, primarily focusing on initiation fees, monthly service fees, and interest rates. These caps vary depending on the loan type, such as home loans, credit cards, unsecured loans, and developmental credit agreements. 

The maximum initiation fee allowed on a home loan in South Africa, as per the National Credit Act, is R5,250. This is calculated as R1,100 plus 10% of the loan amount above R10,000, but never exceeding R5,250. However, you will find in most circumstances that your initiation fee actually works out to be R 6,037.50 (this is because banks adjust up for VAT, so they can clear the maximum fee even after VAT is paid, essentially pushing VAT onto the consumer).

Use a reputable mortgage broker

Using a reputable broker will ensure you get more value out of the bank’s offer. By using a broker, you can access multiple offers simultaneously and negotiate on fees and interest rates so you can have the confidence knowing you received the best deal in the market at the time.

Phoenix Bonds is a premium mortgage broker in South Africa, with a proven track record (check out the reviews on Google).  For expert advice and personalised service, fill in your details HERE and one of our experienced Consultants will be in touch.