# Regulatory Compliance Category > National Credit Act Forum >  HOW THE NCA CAME ABOUT

## Eugene

With the NCA (National Credit Act) being into operation now and many of us experiencing the implementation as a schlep, it might be worthwhile to sit back and think why and how the Act came about. This is an extract was compiled from Advocate Asheena Singh's scripts on the NCA as well as the debt counsellors training guide:

The National Credit Act was enacted in 2006 to comprehensively regulate the credit industry in South Africa. Its promulgation was the culmination of discussions and research conducted by various entities and government institutions. These indicated that the prevailing legislative environment at that time was incapable of addressing contemporary concerns in the credit market. Issues such as reckless lending, over-indebtedness, and access to credit were not being adequately addressed.

The credit market was regulated by the following legislation:
	-	Usury Act, 73 of 1968,
	-	Usury Act, Exemption 1407 of 2005 (Exemption Notice),
	-	Credit Agreements Act, 75 of 1980,
	-	Alienation of Land Act, 68 of 1981,
	-	Lay-by Regulations - promulgated under the Sale and Services Matters Act, 25 of 1964.

The Usury Act was the primary legislation that regulated the industry. This Act was, generally, intended to regulate the cost of credit and to ensure that there were proper disclosures in credit agreements. It applied to money lending transactions (mainly from R 10 000.00 to R 500 000.00), credit transactions and leasing transactions (movable properties). The Usury Act was generally criticized for being too complicated and difficult to comprehend. 

Whilst the Act had good intentions of bettering disclosure of the cost of credit by expressing the total cost of credit as a percentage of the capital amount, there were significant problems concerning the capitalisation of certain charges and costs. This complicated the disclosure of the cost of credit. The Usury Act was not adequately monitored and enforced, and breaches of the Act by financial institutions were rife. The Act was also criticised for being unable to adequately deal with complex credit transactions, credit cards, access bonds and unregistered micro-lenders.

Towards 1992, government realised that the Usury Act and its stringent limitations on the cost of credit had contributed to inadequate access to credit for the majority of the population. In 1992, to promote better access, government introduced the first Exemption Notice to the Usury Act (GN 3451 of 31 December 1992). This exempted all loans below R6 000.00 from the Act.

This Exemption Notice was the main factor that precipitated the establishment of a formal micro-lending industry. Whilst the 1992 Exemption was successful in providing more access to credit, government was concerned about certain abuses and malpractices that developed in this unregulated environment. These malpractices included the retention of bank cards, pins and identity documents by the micro lenders, as well as abusive collection methods. Government introduced a second Exemption Notice in June 1999. In terms of this notice, micro-lenders were still permitted to charge unlimited fees for credit disbursed, but they were required to register with a regulatory entity (Micro Finance Regulatory Council (MFRC)). The Exemption Notice also prescribed minimum standards of conduct and operations that micro-lenders were required to comply with. The MFRC was given authority to monitor and enforce compliance with these standards. The Exemption was limited to loan agreements where the disbursed amount was R 10000.00 or less with a repayment period not exceeding 36 months. The 1999 Exemption Notice was repealed and substituted by Exemption Notice 1407 of 2005.

The regulation of the micro-lending industry was in many ways a precursor to the National Credit Regulator, for instance:
	-	It introduced the registration process for micro- lenders.
	-	Micro-lenders, unlike other creditors, were regulated by an appointed authority - the MFRC. Any non-compliant conduct of a micro-lender could be investigated and prosecuted by a disciplinary committee established in terms of the Exemption Notice"
	-	The Rules of the MFRC and subsequently the Exemption Notice introduced the concept of reckless lending into the credit market.
		The purpose of this was to deal with over- indebtedness.
	-	A National Loans Register was introduced in order to assist micro-lenders in affordability assessments to combat and avoid the granting of reckless loans,
	-	    The conduct of agents of micro-lenders was also regulated.

Another important piece of legislation that regulated the credit industry was the Credit Agreements Act. This legislation never applied to money lending transactions, but rather leasing agreements, instalment sale agreements and credit transactions. The Act introduced new concepts into the credit market, such as the cooling-off period for regulated transactions. It also prescribed a fair legal process in situations where the credit granter had to repossess goods bought on credit, following a default in payment.

The Alienation of Land Act was intended to regulate the sale of land. The purpose of the Act was, amongst other things, to protect individuals who purchased land. It prescribed that sale of land agreements had to be in writing and that money could not be paid before the land was registered. In the event the land was purchased by instalments, the Act prescribed various disclosures that were intended to protect the purchaser.

The Lay-by Regulations were promulgated in terms of the Sale and Services Matters Act. Very few people were aware of the existence of Lay-by Regulations, which were intended to protect consumers party to lay-by transactions. Three of the prescriptions were that the transaction period could not exceed 6 months; that the agreement should be in writing, and; that interest could not be charged on the purchase price. 

As early as July 1994, the South African Law Commission (which was requested to conduct an in-depth study of Credit Laws of South Africa) identified the need for a single statute that regulated the credit industry. The Credit Law Review Committee (that conducted background research and managed the drafting of the Consumer Credit Bill as it was know when first introduced) also concurred with the views expressed by the Law Commission. The fragmented legislative approach was not sustainable for the following reasons:

-	There were many inconsistencies and overlaps with regard to the scope of the various legislations,
-	The inconsistencies resulted in dissimilar 	standards of protection for various consumers,
-	The multiplicity of laws resulted in confusion for 	both those who were bound by the laws and those who were protected by it,
-	The fragmentation made enforcement of the laws difficult,
-	There was inadequate monitoring of compliance with the law and non-compliance was rife, 
-	The fragmented approach never complied, with international standards.

The promulgation of the National Credit Act has been generally well received and it provided hope for the regulation of the industry.

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