Johannesburg - Over the past few weeks, I have been inundated with letters – mostly complaints about service providers.
There have been angry letters, letters bordering on being slanderous, humorous ones and a few heart-rending ones.
As I am not a lawyer, I found the following letter interesting in light of the credit ombudsman’s recent statement about the newly amended National Credit Act’s affordability assessment.
A reader from Pretoria, who does not want to be named, writes: “I am making an earnest appeal to you to act on my behalf. I am dealing with a firm of attorneys that has been engaged by Standard Bank for the collection of their debt amounting to R330 000 for a credit card.
“I have made it clear to them that I do not have a regular income [at present] as I am unemployed. I have existing debts to meet and a family to feed.
“The amount that I can afford to pay is R300, which is what I have been paying.
“I have done my level best to show that the total amount they want is far-fetched for me to raise within a period of 10 days, (but) they have served me with summons to attach my movable possessions and I believe that is not the correct way, as I am paying towards this account.
“I know that there are new credit regulations that are in place to protect both the consumer and the credit provider. The summons was served on September 3 on this matter.”
An amount of R330 000 on a single credit card is an eye-watering amount to owe a bank and since the person is now unemployed, they have no way of meeting their obligations.
Paying R300 a month towards that debt will not even cover the interest on that account. Could this possibly be a case of reckless lending?
Then there’s the issue of affordability – how much would the person have had to pay monthly in order to service such a debt?
The credit ombud, Nicky Lala Mohan, announced last month the long-awaited amendment to the National Credit Act would come into effect on September 14.
Noting the summer months usually saw a spike in spending, he warned: “Opening new store accounts may look like an easy option to get all the new clothes you desire, but entering into such contracts is a long-term decision and consumers have to think very carefully before signing on the dotted line.”
Mohan told me that affordability assessments are critical because so many people are over-indebted.
“On March 13, 2015, the National Credit Amendment Act was published with the intent to promote responsible lending and equally so, responsible borrowing.
“With this Amendment Act, affordability assessment regulations were published. However, these guidelines became effective on September 14.
“Over-indebtedness among consumers in our country is prevalent. The National Credit Act of 2005 [which came into operation in June 2007] was introduced to curb reckless credit, however against the object of the act, National Credit Regulator research revealed that credit was, in fact, extended recklessly. This highlighted a severe gap in the credit market in how affordability assessments were being conducted by credit providers. In many instances, assessments were not done at all by credit providers.
“Although it has always been mandatory, under the National Credit Act, for credit providers to carry out affordability assessments before extending credit to you, the act did not prescribe how the assessments had to be done. The affordability assessments, albeit extremely important, is one of the several changes,” he said.
“The other changes relate to prescription in that it is now unlawful for a credit provider to attempt to collect a debt that has prescribed or to sell debt that has prescribed. Prior to the amendment, prescription was interrupted if a debtor acknowledged the debt, made a payment towards it or when summons was issued and served on the debtor.”
His office has been inundated with complaints about adverse listings at the credit bureau or debt collection, but he noted that the ultimate responsibility lies with the individual.
“Many consumers are known to exaggerate their earnings or (underestimate) their expenditure to qualify for credit. Often sales assistants encourage this consumer behaviour due to generated sales commission. However, these claims will hardly help consumers who sign the document and confirm the truth of all the statements therein.
“The new legislation requires three months’ bank statements or pay slips as proof of income. An income assessment will then be done by credit providers to assess whether the consumer can afford the product after deductions.
“If your budget is already stretched, resist the temptation to enter into an agreement which carries with it a monthly instalment with interest and costs,” Mohan warned.
This doesn’t mean that all credit accounts will be restricted to this assessment process as some exceptions include dealing with a developmental credit agreement; a school/student loan; a pawn transaction; or an incidental credit agreement.
“Gym membership agreements and a rental of immovable property are not credit agreements, as defined in terms of the act, therefore the affordability guidelines set out in the amendments are not applicable,” he said.
Consumers can contact the office of the credit ombud for assistance on matters relating to listings on the credit bureau and all non-bank credit transactions.
The office can be contacted at 0861 66 28 37; on the website www.creditombud.org.za or [email protected].
Georgina Crouth is a consumer watchdog with serious bit. Write to her at [email protected] or follow on Twitter @askgeorgie.
THE STAR