Credit and the law: Here are the rights you must know about

It is important for consumers to know what the law says about credit and to know how your rights as a consumer are protected when you use credit, especially since the pandemic has changed how we buy and how we spend credit in difficult financial times.

Digital technology has changed the financial world by making financial transactions, including credit, more convenient, simpler and accessible. However, consumer rights regarding credit are now threatened and that makes it important for consumers to know what the National Credit Act says about credit.

Unfortunately, the pandemic depleted consumers’ money and they have become so desperate that they take up more credit easier and more impulsively, says the National Credit Regulator (NCR). The National Credit Act protects you in various ways, but you also have to protect yourself by ensuring that your credit transactions adhere to credit law.

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Only borrow from registered credit providers

All credit providers must be registered with the NCR and have to abide by the regulations made in terms of the act to check if you can afford the credit you apply for.

Credit regulations

The credit regulations that are a part of credit law assist credit providers to assess if you can get credit. It also protects you from reckless credit practices. According to the regulations, credit providers must take practical steps to check your income by requiring salary slips or bank statements for the past three months at least.

The credit provider must at least determine if you will be able to afford the monthly payments after tax, unemployment insurance, maintenance and all other compulsory payments, such as credit payments, have been deducted from your income. They must check these facts at the credit bureau.

In addition, credit providers must also take practical steps to ensure you use the credit for the purpose you filled in on your application. If you are already under debt counselling, you will not be allowed to borrow more.

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Reckless lending in credit law

Section 80 of the National Credit Act says a credit agreement is reckless when credit providers fail to check if you can afford to pay the money back or even approve the loan although it is clear that you will not be able to pay it back.

Section 81 requires you to be honest when you apply for credit so that the credit provider has all the relevant information before deciding on whether to approve your credit application. Credit providers are banned from reckless lending and have to:

• Ensure you understand the risks and costs of the credit and what you rights and duties are about the credit
• Check your payment history for credit agreements
• Check your current financial status, prospects and duties
• Check if there are reasonable grounds for your business to be successful if you apply for a business loan.

However, a credit provider is not guilty of reckless lending according to the act if you were dishonest and the National Consumer Tribunal finds that your dishonesty had a real impact on the ability of the credit provider to check if you can afford credit.

The courts can remove your rights and duties regarding a credit agreement or even end the agreement and then you do not have to pay the money back as stipulated in section 84.

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Can you afford credit?

Section 82 requires a credit provider to fairly and objectively decide if you can afford credit and regulation 23A was later added to require that they check your current financial ability to see if you can afford to pay back the money.

Credit providers must check your income before deductions by checking your salary slips for the past three months or bank statements for the past three months that show the salary payments. They can also use documentary evidence of your income or banks statements if you are not employed.

If you work for yourself or work somewhere where you do not get proof of income, you also have to submit bank statements for the past three months or financial statements.

You must note all your financial duties and the credit provider must use it with all the prescribed tables and proof of income to calculate the amount you can borrow based on how much you have left of your income.

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Credit law tips

• Check the registration number of the credit provider with the NCR, keeping in mind that illegal lenders have no registration number or use a false number.
• Legal credit providers do not ask you to pay an amount upfront when you apply for a loan. It is illegal to do that, but credit providers can charge an administration payment once the loan is approved.
• Be wary of credit providers offering loans in text messages, especially if they mention that the loan is ‘guaranteed’.
• Also be careful if someone offers to ‘find’ you a loan.
• Read all the documents carefully before accepting a loan. Illegal schemes will often let you join for a monthly fee for something like a funeral policy and if you refuse to pay, the threatening calls start.
• Do not give your banking details when you apply for credit online.
• Be careful when credit offers contain words such as “no credit checks”, “blacklisted welcome” and “free credit”.
• Read all the terms and conditions carefully before you click to show that you have read it.
• Ensure that you know what the total cost of the loan will be before you sign the application. The cost of credit can include interest, once-off upfront fees, monthly service fees and credit life insurance.
• Before you sign the application, ask for a statement and quotation that shows exactly how much you will pay for the credit in the end.
• According to the act you have the right to obtain information in simple and understandable language, as well as reasons for why your application has been refused if your application is not successful.
• Unregistered credit providers usually charge excessive interest that do not adhere to the act. They also do not ensure that you can afford the monthly payments and they use unscrupulous tactics to make you pay, such as keeping your ID, Sassa card, bank card or passwords.
• Be honest when you apply for credit and give all the information required.