# Regulatory Compliance Category > National Credit Act Forum >  Early signs of an NCA impact.

## Dave A

A question we all should be asking ourselves - does the introduction of the National Credit Act have an impact on our business?

Up until now, much of the interest has been around questions like: 
Do we need to register as a credit provider?Do we need to change our contracts?Do we need to change our credit granting processes?Does the process of collecting debt change?

I'd like to suggest there is a distinct possibility that whilst your business might not be affected directly by the regulatory changes, the NCA could still have a significant impact on your business.

Consider, for a moment, that up until now financial institutions have been reasonably comfortable granting credit because at the end of the day they know that the debtor (or some individual) is so tied up in fine print, the credit provider owns them until the day they've paid up. Banks in particular have been in a _no lose_ position. When it comes to granting credit to individuals, this is no longer the case. Perhaps they are going to be a little more circumspect as to who they are going to provide credit to.

I'd like to suggest that they might be a *lot* more circumspect.

Given banking's traditional _belt and braces_ approach to lending credit, I strongly suspect that the wriggle room provided by the NCA for over-indebted individuals means the banks are going to be pretty wary.

There is also another factor that is going to come into play. It should now, in theory anyway, be pretty easy for a credit provider to establish the *total* debt burden of any individual through the national credit database. Up until now the bank has only known what an individual has as debt (and potential debt) with them, with only a vague idea of what might be owing elsewhere. And I've got a sneaking suspicion that once the spread is added up, and particularly *once the potential debt is factored in*, there are going to be some pretty surprised faces.

Maybe surprised is the wrong word, more like a lifted eyebrow. Because, after all, they *still* own you and everything you own, or may own or earn, until the day you pay.

Except for new debt after 1 June.

Consider, for a moment, that we now go through a stage of mass credit application refusals as banks gently ease into this new dispensation. How dependent is your business on private individuals being able to access credit?

Car dealers and estate agents come to mind. Highly dependent on their clients getting finance for their products. And I'm sure that there a plethora of businesses around those industries that are going to be affected by a change too.

Of course, all will be revealed by statistics in time. Some adjustments will be made and we'll drift towards a new equilibrium. But the problem with statistics is that they tend to become available a fair while after the fact. And sometimes by then the horse has bolted. Whilst the effect of a shock wave might disipate after a while, it still does not prevent the shock wave from doing significant damage.

But perhaps we can get some sort of idea faster than waiting for the stats.

The simple indicator would be - How are credit application approvals going in the motor vehicle and real estate industries since 1 June? 

So I was wondering. If you are a car dealer or estate agent, or perhaps you know an estate agent or car dealer and get the opportunity to ask - take a moment to answer (or get an answer) to this question...

Any noticeable change in credit approval rates lately?

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## Eugene

The "wonder Act" (NCA) has been in operation for a couple of weeks and no serious or rather earth-shattering changes could be noted - yes the sun did come up after the long anticipated effective date (1 June 2007) when consumers are to be protected by the Act. And yes, contrary to the doomsday prophets that suggested that we could not use our credit cards or ATM machines as the banks are not quite ready, everything worked fine.

Being in the debt collection industry my offices were flooded with enquiries as to how the new Act will improve their way of living...  and no there are no quick fixes and all your debt will not be mysteriously written off as a token of goodwill from your credit provider... seems like everthing is "business as usual".

I do however have a couple of grave concerns:

1.  I am told by the NCR that a total number of 55 debt counsellors have to date registered as such for the whole of South Africa - very troublesome...
2.  Amendments to the Act and Regulations regarding a couple of practicalities and oversights in the Act is on the way - no indication when they will be published though ...
3.  No-one, not even the NCR could explain and direct me to an "alternative dispute resolution agent" ... seems that they might be a secret tribe...

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## Eugene

On a lighter side of the NCA: I just had to post this one...  :Stick Out Tongue:  

Operator: "Thank you for calling Scooter's Pizza. May I have your ..." 

Customer: "Halloo, can I order?" 

Operator : "Can I have your multi purpose card number first, Sir?" 

Customer: "It's ....., hold on .....eh....698-45-54610 ..." 

Operator : "OK... you're .... Mr Sfiso Majola and you're calling from 17 Retief Street. Your home number is 011 403 2366, your office 011 764 2302 and your mobile is 082 266 2566. Which number are you calling from now Sir? 

Customer: "Home! How did you get all my phone numbers?" 

Operator : "We are connected to the System Sir." 

Customer: "May I order your Seafood Pizza..." 

Operator : "That's not a good idea Sir." 

Customer: "How come?" 

Operator : "According to your medical records, you have high blood pressure and even higher cholesterol levels, Sir." 

Customer: "What?... What do you recommend then?" 

Operator : "Try our Low Fat Hokkien Mee Pizza. You'll like it" 

Customer: "How do you know for sure?" 

Operator : "You borrowed a book entitled "Popular Hokkien Dishes" from the National Library last week Sir." 

Customer: "OK I give up ... Give me three family sized ones then, how much will that cost? 

Operator : "That should be enough for your family of 10, Sir. The total is R149.99! 

Customer: "Can I pay by credit card?" 

Operator : "I'm afraid you have to pay us cash, Sir. Your credit card is over the limit and you owe your bank R3720.55 since October last year. That's not including the late payment charges on your housing loan, Sir." 

Customer: "I guess I have to run to the neighbourhood ATM and withdraw some cash before your guy arrives." 

Operator : "You can't Sir. Based on the records, you've reached your daily limit on machine withdrawals today." 

Customer: "Never mind just send the pizzas, I'll have the cash ready. How long is it gonna take anyway?" 

Operator : "About 45 minutes Sir, but if you can't wait you can always come and collect it on your Green Double Cab ....." 

Customer: "What!" 

Operator : "According to the details in the system, you own a Nissan Double Cab, ... registration number NRB 132 GP ......" 

Customer: " *'!^ *%^*%^I7*" 

Operator : "Better watch your language Sir. Remember on the 15th July 1987? You were convicted for using abusive language to a policeman. I need not tell you what happened to you at Sun City Prison" 

Customer: [Speechless] 

Operator : "Is there anything else Sir?" 

Customer: "Nothing ...... by the way ... aren't you giving me those 3 free bottles of cola as advertised?" 

Operator : "We normally would Sir, but based on your records you're also diabetic ... " 

Customer: "Please cancel the order, my wife will have to cook ...."

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## Dave A

New vehicle sales are down in June. As far as I can tell, this is a marked change in direction. Whilst in part this is attributed to interest rate hikes, the impact of the NCA is also noted. I think the fact that sales to individuals is down whilst commercial vehicle sales have continued to show growth is also something of a clue. 



> South African new vehicle sales declined by 12,1% year-on-year in June, data showed on Tuesday, as the effects of higher interest rates pinched household budgets.
> 
> The National Association of Automobile Manufacturers (Naamsa) said 50 056 new units were sold in June compared with 56 927 in the same month last year. Including sales from the Associated Motor Holdings company, total sales were 54 061 vehicles.
> 
> Naamsa said the decline in new vehicle sales was a delayed reaction to interest-rates increases last year, which resulted in households tightening their budgets, as well as higher fuel costs.
> 
> The Reserve Bank raised interest rates by 200 basis points between June and December 2006, and by another 50 basis points last month in a bid to curb consumer spending that was putting pressure on inflation.
> 
> The government also introduced a new credit law on June 1, aimed at lowering indebtedness, which reached a record high of 76% of disposable income in the first quarter of 2007.
> ...

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## Dave A

More signs of an impact in this report.



> *NCA may have larger than expected impact*
> While stopping short of an outright view, economic and market analysts ETM say there is some evidence banks have taken quite a big hit from the National Credit Act (NCA), and this may have repercussions on upcoming credit extension data and hence interest rates.
> 
> "We have spoken to one or two key people and it seems to hint at the fact that credit extension and various other services may come off sharply. We may well see a sharp drop in M3 and PSCE," economic analyst from ETM, Russell Lamberti, told I-Net Bridge on Thursday morning.
> 
> "This then ties in with lower car sales, disappointing manufacturing data, expected lower retail sales and then to the rate decision in August," he added.
> 
> ETM had indicated in earlier commentary that if the anecdotal evidence proved to be correct arguments against further rate hikes would increase.
> 
> ...

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## Chatmaster

There is no doubt in my mind that the economy will be effected seriously with the NCA.

I was probably first in line for a rude realization that this act is serious. I had a guy signing an offer on my house in May. He signed the offer and started delaying tactics shortly after. On the first of June he wangled himself out of the "binding" offer legally by simply stating that he wanted 10% interest rate for his bond and the bond he received was not exceptable. He clearly didn't want to buy the house anymore... :Rant1: 

I also had a chat with a couple of my friends in the Real Estate and 2nd hand car dealerships. On the real estate side of things they have only had about 6% of their normal bonds approved, On the car dealership side it is worse for the one friend that is selling strictly cash cars. He used to sell an average of 15 to 20 cars a month. Since the 1st of June he was unable to sell one car. The market segment that normally bought from him cannot make loans anymore. The other 2 guys each own 2nd hand car dealerships are only at 30% of their average sales for this time of the year, there is no indication that this will improve.

Don't want to sound negative but we are heading for serious trouble if all of these stories are true and this continues. This will effectively put a handbrake on the economy.

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## Eugene

*Credit Act makes itself felt*

The National Credit Act (NCA), however, seems to be the main cause. The purpose of this act is to curb South Africans from buying on credit. With the implementation of this act on June 1, consumers who have a lot of debt as a result of buying on credit will find it extremely difficult to purchase their own cars. 

Dealerships now have to go to greater lengths to do credit checks on consumers in order to make sure that they can afford to buy a car, and anyone who supplies credit has to make sure that their customers are aware of the risks. The NCA has made it more difficult for consumers to buy a car because it is no longer fairly easy to obtain a loan. 

As an alternative to regular car finance contracts, consumers can now lease a car from a bank or another financial institution without taking ownership of it, which cuts out the 10 per cent deposit required when one finances a car in the conventional way. Although the deposit payment is avoided, the rate of interest charged will be higher. 

Read the full story on: http://www.cartoday.com/content/news...ge.asp?in=8589

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## Dave A

Surely financial leases are also covered under the NCA?

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## Eugene

During my study of the National Credit Act and eagerly awaiting case law pertaining to the Act to clarify the host of contradictions, I came across a very interesting case recently decided in Constitutional Court by a majority ruling by Judge Ngcobo:

_Barkhuizen v Napier (2007)_

Ã¢â¬ËOn the one hand, public policy, as informed by the Constitution, requires, in general, that parties should comply with contractual obligations that have been freely and voluntarily undertaken.  This consideration is expressed in the maxim pacta sunt servanda which, as the Supreme Court of Appeal has repeatedly noted, gives effect to the central constitutional values of freedom and dignity.  *Self-autonomy, or the ability to regulate oneÃ¢â¬â¢s own affairs, even to oneÃ¢â¬â¢s own detriment, is the very essence of freedom and a vital part of dignity.Ã¢â¬â¢*

One can only wonder how reckless credit and over-indebtedness contemplated in the NCA will have an effect on this ruling as these provisions might be construed as limiting our constitutional rights? Guess we shall have to wait and see what the Courts decide.

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## duncan drennan

I found this quite interesting, it looks like the banks are expecting you to have a lot more room to breath than before - now loans are granted on what's left over after all your expenses rather than a percentage of income (this is kind of an obvious impact). The interesting part is the amount of slack needed for an "average" home - R10800.




> Under the National Credit Act (NCA), only people who can prove they have at least R10 000 in spare change each month need apply to buy a modest home in a middle-class suburb.
> 
> This emerged when the latest house price statistics were released by Absa (JSE:ASA) on Tuesday.
> 
> The average house in an average suburb cost about R925 000 in June.
> 
> Banks can no longer tell you what you must earn to be eligible for a home loan on that amount because they no longer grant credit based on a percentage of gross income, said Absa senior economist Jacques du Toit.
> 
> Instead, the bank will award an amount based on an assessment of your current debts and income. It must tally up all your bills, ranging from essentials - like food - to nice-to-haves such as childrenÃ¢â¬â¢s extramural activities. The bank will grant you a loan based on your remaining capacity to take on debt.
> ...

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## Eugene

Duncan - I had a look at a couple of the bank's credit agreements and it is obvious that the slack of R10800 is very manipulative as one can play around and not declare all your expenses. This would be all fair and well in order to have the loan granted and IF you regulary pay your monthly instalment. The concern might creep in where you find yourself in a tight fix down the line and wanting to re-schedule (debt review) or by the off-chance to be declared over-indebted. THEN you might sit with a scenario where the credit provider issue the defence that you have not declared all your income and expenditure and you may not rely on the protection of the NCA (debt review or being over-indebted).

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## duncan drennan

Yes, I thought it was quite extreme, and pretty much allows for a zero leveraging of debt, but interesting nonetheless.




> THEN you might sit with a scenario where the credit provider issue the defence that you have not declared all your income and expenditure and you may not rely on the protection of the NCA (debt review or being over-indebted).


So is it all purely trust based? The banks etc. expect that the client will declare everything to them reasonably reliably? Surely this is quite open to manipulation in many ways. What if I decided to have an extra-lean month, and made sure my expenses were as low as possible, maybe shuffle around some things to get what, for the month of entering into the agreement, looks like a very good income-to-debt ratio. Then after the credit is granted go back to normal. Would I be able to say that that was "valid" for the month I applied?

All smoke and mirrors really. If people manipulate the system to get what they want and it bites them in the ass, then it is pretty much the same as before. If they play by the rules there is little room for gearing and so forth.

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## Eugene

A consumer is obliged when applying for any form of credit to fully and truthfully answer any request for information by the credit provider. Failure to do that may serve as a complete defence against allegations of reckless credit by a credit provider especially where a court finds that this materially affected the credit provider's ability to make a proper assessment. (Sec 81 (4))

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## Eugene

I agree that in essence it is basically the same as before, only now it has been codified in such a manner that everyone has to reach for an Oxford dictionary to understand what the legislature accually meant when writing the NCA.

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## Dave A

Here's a thought - It's pretty easy to prove you've "got the slack" if you were paying it in rent beforehand anyway. You're replacing one expense with another.

A bit more feedback along the "early signs" and "property" themes. I'm hearing that the problem area in getting finance is in the < R600k bracket in the greater Durban area. Above that there doesnt seem to be too much trouble. Obviously a very complicated mix of factors that lead to this - but kinda interesting that access to credit is biting at the lower end of the market.

Wasn't the idea to improve fair access to credit? (And here I think that noble thought was targetting the lower end of the market).

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## duncan drennan

> Wasn't the idea to improve fair access to credit? (And here I think that noble thought was targetting the lower end of the market).


Was it to improve fair access to credit, or to avoid the lower end getting over indebted?

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## Dave A

A bit of both, I think. The stated purpose of the National Credit Act is here.

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## duncan drennan

Difficult to say, but I wonder if this is possibly linked to the NCA?




> JOHANNESBURG (Reuters) - South African retail sales growth slowed to 6.4 percent year-on-year in June at constant prices, compared to an upwardly revised 9.2 percent in May, Statistics South Africa said on Wednesday.
> 
> In the three months to the end of June, retail sales -- the main measure of consumer demand -- increased by 7.2 percent compared to the same period the previous year, also at constant prices.
> 
> Article from MoneyWeb


My wife was telling me about a conversation she overheard regarding the NCA. Group of people were discussing the "new credit act" and that it means that it is more difficult for people with a lower income ("like us") to get credit, while the rich people can still easily get it. They also mentioned that the sales people from Bears can't make target (which I'm guessing means that most sales people's paychecks just took a knock for the worse).

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## Eugene

Most sales people in the retail industry work for a very small basic salary (if you can call it that) together with commissions. I spoke to a couple of salespeople and the overall scenario was that they are under immence pressure as in most contract there is a performance clause that if they don't make target, they forfeit a portion of their ever so small basic salary.

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## Dave A

Something a little more qualitative than the feedback I've been getting on the lower end of the property market:



> First-time home buyers and people targeting the lower end of the suburban property spectrum may find themselves squeezed out of the market by higher mortgage rates and the requirements of the National Credit Act (NCA), implemented in June. 
> 
> Early signs of this trend came from a survey of estate agents, the First National Bank (FNB) Property Barometer for the second quarter, released yesterday.
> 
> The lower end is defined by estate agents, but John Loos, an FNB property strategist, said that in the context of the survey, it would include houses worth less than R600 000. To afford a bond for R600 000, a borrower would need to earn at least R24 000 a month.
> 
> The second-quarter survey was supplemented by a survey last month to measure the impact of the NCA. Loos reported a "significant weakening Ã¢â¬Â¦ The percentage of first-time buyers in the market dropped to 16 percent in July from 20 percent in the second quarter. And 43 percent of respondents claim that applicants are struggling to qualify for home loans."
> full story from Business Report here

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