# Regulatory Compliance Category > National Credit Act Forum >  Q & A's on the National Credit Act

## Eugene

Q:  Does the new NCA supplement or replace the Debt Collection Act?
A:  The NCA should be seen as supplementary.  The regulations relating to Debt Collection fees, for example, are not affected by the NCA.

Q:  How is Ã¢â¬ÅplainÃ¢â¬Â language defined?
A:  Legal terms and those in Latin should be avoided

Q:  If a provider does not have to register is he only excluded from the interest rate restrictions?
A:  Although a provider may be small enough not to register, he will still be governed by all the provisions of the Act Ã¢â¬â except registration and reporting to the NCR

Q:  Reckless lending Ã¢â¬â what if the consumer applies for a number of loans/ credit on the same day? 
A:  As the provider you may not know this. A provider can only be held responsible for what can be reasonably expected to be known Ã¢â¬â which excludes circumstances where the consumer deliberately chose to mislead him or her.

Q:  Are there thresholds for reckless lending?
A:  Nothing explicit. The NCA associates reckless lending with over-indebtedness - which will rely on the assessment of providers. 

Q:  Interest rate hikes could cause a consumer to become over-indebted, however, the last loan could have been responsible lending- what happens in this situation?
A:  It is possible that a change in individual circumstance or an unexpected hike in interest rates could cause a consumer to become over-indebted and distressed. In this case, no provider may be deemed to have been reckless, but they are still likely to be affected by debt-rescheduling. 

Q:  Is the 5-day quote period the same as a Ã¢â¬Ëcooling offÃ¢â¬â¢ period?
A:  No. It refers only to the validity of the quote. If a consumer decides on the basis of the quote to accept the credit immediately, there is no compulsory cooling-off period 

Q:  How does one show products which have imbedded insurance?
A:  Insurance charges must be explicitly disclosed

Q: How often must the provider evaluate - on every credit application or at the beginning of the term agreement?
A:  The provider must assess every credit application, with the understanding that this assessment applies to the term of the loan. An extension will require a re-assessment. 

Q:  Does the monthly fee include statements and mailing and other transaction fees, e.g. debit order fee?
A:  Yes. It includes all monthly fees associated with servicing the loan

Q:  Will the mortgage evaluation fee be included in the initiation fee?
A:  Yes. It includes all  fees associated with initiating the loan

Q:  How does credit life insurance work? 
A:  This may be charged on a monthly basis or annual basis Ã¢â¬â but may not be amortized across the entire loan term. 

Q:  Will VAT be charged?
A:  On fees, yes.

Q:  Is the provider entitled to change interest rates Ã¢â¬â as in, say, a variable interest rate mortgage?
A:  Yes, the Act allows for this, although, clearly this needs to be disclosed to the consumer before the agreement is signed informed.

Q:  Do the service fees include debt collection costs?
A: No. These are separate - and not set by the NCA regulations

Q:  Can the consumer dispute information with the credit bureaux directly?
A: Yes. 

Q:  Will there be a register of people who are debt counselors?
A:  Yes. All debt counselors must be registered

Q:  Does debt counseling take over from administration orders?
A:  The NCA does not address admin orders directly, but section 130 (3) of the Act has relevance. Debt counseling may be seen as a parallel - and hopefully over time - better route than admin orders.

Q:  Who pays the debt counselor? How can debt counselors be deemed neutral if they are outsourced by the provider?
A:  The consumer being assessed will pay a fee. Debt counselors may not be "outsourced" by providers - but they can be "outsourced" by employers willing to help their employees.

Q:  Do the regulations imply that a person must go through debt counseling before they go the magistrate?
A:  It is not a compulsory stage, although it is possible a magistrate may refer a case to a debt counselor

Q:  Will the Tribunal automatically enforce the counselorÃ¢â¬â¢s recommendations? Is there a right to representation?
A:  The Tribunal will hear representation and will evaluate the recommendations of the debt counsellor.

Q:  Does this apply to motor leases?	
A:  Yes. Only leases of fixed property are excluded.

Q:  Does this apply to staff loans?
A:  Yes. Could still be seen as reckless, for example, if make no assessment of borrower (employee)

Q:  Does the Act apply to incidental credit such as cellphone, electricity interest?
A:  There is limited application of the Act to incidental credit - see section 5 of the Act


(www.bankseta.org.za)

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## duncan drennan

> Q:  Are there thresholds for reckless lending?
> A:  Nothing explicit. The NCA associates reckless lending with over-indebtedness - which will rely on the assessment of providers.


Q: If there is nothing explicity wrt reckless lending, what norms can be applied?

Q: If credit has been granted, and a debtor defaults on their debt, what is the path to recovering the amount still due?

Q: Will the NCA impact on rental agreements at all?

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## Eugene

Duncan

With regard to reckless lending: 

If a credit provider fails to conduct the assessment or conducts the assessment and enters into the agreement despite the preponderance of available information showing that:
the consumer did not understand the risk, costs, rights and obligations under the agreement; and / or
entering into that credit agreement would make the consumer over-indebted;
that agreement would be deemed to be reckless, and the legal onus would be on the credit provider to show that the credit was not recklessly extended.

If an agreement is declared reckless because the credit provider failed to conduct the assessment, or conducted the assessment but despite the available information indicating that the consumer did not generally understand risk, costs, rights and obligations under the agreement, entered into the credit agreement; the court may set aside all or part of the consumer's obligations under the agreement or may suspend the force and effect of the agreement until a date determined by the court.

A credit provider may determine for itself the evaluative mechanism to be used in meeting its assessment obligations.

Path to follow to recover amount due:

If a consumer is in default under the Credit Agreement (Part C of chapter 6 of the Act), provided that the credit agreement is not subject to debt review; a debt restructuring order or the subject in proceedings before a court that could result in a debt restructuring order; or before an alternative dispute resolution agent, ombud with jurisdiction or consumer court the credit provider must notify the consumer in writing of the default, proposing that the consumer refer the matter to a debt counsellor, alternative dispute resolution agent, consumer court or ombud with jurisdiction, so that the parties may develop and agree to a plan to bring the payments up to date.

A credit provider may approach a court if the consumer has been in default for at least 20 business days and at least 10 business days have elapsed since the credit provider delivered written notice to the consumer, bringing the default to the consumer's notice or terminating the application for debt review; and in the case of a notice bringing the default to the consumer's attention, the consumer has not responded or has responded by rejecting the proposals; and in the case of an instalment agreement, secured loan or lease, the consumer has not surrendered the relevant property. 

If the court makes an attachment order with respect to property that is the subject of a credit agreement, the credit provider must advise the consumer of the estimated value of the property, and if it is sold, the amount debited or credited to the consumer's account, in terms of 127 of the Act.

Rental agreements

As far as I can establish the lease of immovable property (rental of a house) will be excluded from the NCA. The full impact on arrears with regards to lease agreements, penalty fees (Ã¢â¬Åinterest?Ã¢â¬Â) are not clear and have to be clarified through court proceedings.

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## Dave A

> A credit provider may determine for itself the evaluative mechanism to be used in meeting its assessment obligations.


Seeing as an external party will be deciding on whether the assessment process was adequate, I'm sure we're going to have to pay close attention to any precedents on this.

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## Eugene

Dave, I fully agree. The problem lies herein: will Joe Soap with the local cooka-shop have the means of really extending credit to anyone when confronted with the difficulties of doing a proper assessment as the NCA requires? While working with many leading retailers it is clear that they will be able to assess to a large degree: they have facilities like scoring, database search, access to credit bereaus etc.

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## duncan drennan

It appears, to me, that collecting debt is going to be a long and drawn out process for a number of reasons.

Firstly, someone has to decide whether the credit was granted recklessly and whether the consumer was fully informed.




> that agreement would be deemed to be reckless, and the legal onus would be on the credit provider to show that the credit was not recklessly extended.


Even in a case where a credit provider has gone through the whole process correctly, they now not only have to prove that the money is owed to them, but that the process was correct. This pushes up the cost of collection and buys time for the consumer.

Secondly it would appear that the process as a result of a default could be quite lengthy




> provided that the credit agreement is not subject to debt review; a debt restructuring order or the subject in proceedings before a court that could result in a debt restructuring order; or before an alternative dispute resolution agent, ombud with jurisdiction or consumer court


Some poor little guy trying to collect his debt (even if he has invested all the time in the correct processes) is still going to take *AGES* to actually get his money (other than the direct cost). For a lot of small businesses that means no food on the table at the end of the month.

Or will it actually turn out to be easier in practice? I'm lucky in that this doesn't really affect me, but I'm pretty concerned about the impact it can have on small businesses.

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## Eugene

Duncan, I am working on a memo regarding the procedures to follow (and loopholes if there are any) wrt the debt collection process that needs to be followed under the new Act. Will post it as soon as it is available.  :Whistling:

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## zainool

There are many companies (banks included) that engage in selling credit cards to consumers using the Telesales environment.

Q: What are the Do's and Dont's when it comes to selling Credit Cards to consumers telephonically?

Q: In terms of the National Credit Act, are there prohibitions with regards to time/day of week/etc a Telesales Consultant can contact a consumer in order to sell a Credit Card telephonically?

Q: Are there certain phrases (eg. PRE-APPROVED) that a Telesales Consultant are now restricted from using in terms of the NCA?

Q: Is there anything that a Telesales Consultant that used to sell credit cards in the past under the old Usury Act could do previously, but is now prohibited, restrained from, limited to, in terms of the New National Credit Act?

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## Eugene

Zainool, firstly I must admit that I am no expert on telemarketers and the laws pertaining thereto and will do some further investigation.

I believe that the doÃ¢â¬â¢s and donÃ¢â¬â¢t of telemarketing will be more fully regulated by the proposed Consumer Protection Bill. A third draft of the Bill is expected to be available for comment at the public hearings to be conducted during the Parliamentary process in July/August 2007. I recently was given a copy of Mark HeatonÃ¢â¬â¢s from the Direct Marketing Association of SA comments on the Bill. Interestingly enough he commented that the application of the act excludes the following from being covered by the CPA:
(i) a transaction concerning services to be supplied under an employment contract;or
(ii) a credit agreement, as defined in the National Credit Act, irrespective whether that Act applies to that credit agreement.

This would exclude all Ã¢â¬Åcredit agreementÃ¢â¬Â transactions covered by the NCA. It is unsure whether this would exempt direct marketing activities using information covered by the NCA for the purposes of offering products covered by the NCA Ã¢â¬â but it is an avenue worth exploring.

According to a colleague at RL Daly Attorneys there is a prohibition on the use of certain phrases like Ã¢â¬Åno credit check requiredÃ¢â¬Â and Ã¢â¬Åcheap creditÃ¢â¬Â and Ã¢â¬Åloan guaranteedÃ¢â¬Â and pre-approvedÃ¢â¬Â. You may also not use a personÃ¢â¬â¢s particulars in the compilation of marketing lists, telemarketing etc. The new Act requires that interest rates and other costs must be spelled out in any advertisements in a format that is prescribed by the National Credit Regulator.

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## Dave A

Q: Can credit granted to a business be deemed reckless credit.
A: If the business entity being granted credit is a juristic person, the sections relating to reckless credit are not applicable.

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## duncan drennan

Q: What type of unsolicited sales communication is allowed under the NCA?

The reason that I ask: over the past week both my wife an I have received unsolicited mail offering personal loans up to R100k (if you have a salary over R5k), from one particular bank (this bank also happens to be advertising sweet "reduce your debt" ads on TV....)

My understanding is that cold calling is prohibited, what about unsolicited offers via postal mail, or email for that matter?

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## Brett Bentley

Dave you need to distinguish what type of credit you are referring to. 

If the credit granted is incidental then regardless of the type of entity the credit is granted, in terms of Section 5 of the NCA the reckless credit granting provisions do not apply.

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## Dave A

> Dave you need to distinguish what type of credit you are referring to.


The entirety of Chapter 4 Part D simply does not apply to juristic persons - period - in terms of 78 (1). 




> 78. (1) This Part does not apply to a credit agreement in respect of which the consumer is a juristic person.


Obviously the fact that the matter is a credit agreement in the first place is pertinent too, otherwise you can't invoke reckless credit protection either  :Big Grin:  . 

My point in that post is - under absolutely no circumstances can a juristic person enjoy the benefits of claiming reckless credit protection. This is reserved for natural persons only.

As an aside on this - the definition of a juristic person i.r.o. trusts is particularly interesting.

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## Eugene

Section 1 defines a juristic person as including a partnership, association or other body of persons, corporate or unincorporated, or a trust if there are three or more individual trustees; or the trustee is itself a juristic person but excludes a stokvel.

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## Dave A

I found it unusual that they've used a non-standard definition. There is a general principle being applied in legislative revues that seeks to standardise these sorts of common definitions.

It was the "three or more trustees" in particular that pricked my interest. I saw a suggestion somewhere that the way around the credit squeeze when buying a property was to buy it in a trust - and it mentioned two trustees!

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## Eugene

> Q: What type of unsolicited sales communication is allowed under the NCA?
> 
> My understanding is that cold calling is prohibited, what about unsolicited offers via postal mail, or email for that matter?


Duncan, the required content for advertising practices is found under section *21* of the Rules under the NCA:

If an advertisement refers only to the availability of credit, and no reference is made to costs, interest rate or monthly instalment, no further disclosure of cost of credit, interest rate or monthly repayment is required.
If an advertisement discloses only the interest rate or the maximum and minimum rates where a range is applicable and no reference is made to other costs of credit, no further information has to be disclosed, but the advertisement must indicate that an initiation fee and service fee will be charged, if applicable;

Any of the following statements or phrases, or any wording that has substantially the same meaning, may not form part of any advertisement or direct solicitation for credit-
(a) "no credit checks required",
(b) "blacklisted consumers welcome";
(c) "free credit"

A direct solicitation may not contain the expressions _"loan guaranteed", "pre-approved"_ or similar statements except when the credit granted is not subject to any credit assessment after acceptance by the consumer.

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## Rebel

When you daft the memo remember to address the issue of in duplum - would repo costs fall in under the in duplum together with costs that belong to a debt collector in term of the debt collectors costs - what about attorney and own client fees ?

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## Dave A

in duplum?  :Confused:

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## daveob

> in duplum?


http://www.creditmanagement.co.za/?p=165

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## Dave A

:EEK!: 

So a client "neglects" to pay you R500.00 COD as arranged which now falls under incidental credit; it doesn't take much to incur over R500.00 in collection costs!

Is this for real? Because believe me, the end effect once the pain has kicked in enough is the death of *any* kind of small account credit. The only solution in the service industry would be "pay me first before I even *start* the job" - even payment on completion wouldn't cut it.

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## Rebel

In duplum = sec 103 (5) of the NCA

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## Sieg

In Duplum

the "in duplum" rule in law refers to interest on the debt and means that a creditor may not recover an amount in interest which exceeds the original capital amount [the maximum amount of interest recoverable is therefor limited to the same amount of the capital debt]

For example, if the debtor original owes R100, the interest amount that can be recovered, cannot exceed R100. 

The "in duplum" rule has merely been confirmed in section 103(5) of the NCA. 

It has nothing to do with the legal costs and other recoverable amounts. 

Sieg

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## Dave A

Hmm. Let's run through this step by step:

Section 103 (5) reads:



> (5) Despite any provision of the common law or a credit agreement to the contrary, the amounts contemplated in section 101(1)(b) to (g) that accrue during the time that a consumer is in default under the credit agreement may not, in aggregate, exceed the unpaid balance of the principal debt under that credit agreement as at the time that the default occurs.


And then we look at 101(1)(b) to (g) and find:



> 101. (1)A credit agreement must not require payment by the consumer of any money or other consideration, except-
> 
> (b) an initiation fee, which-
> 
> (i) may not exceed the prescribed amount relative to the principal debt; and
> 
> (ii) must not be applied unless the application results in the establishment of a credit agreement with that consumer;
> (c) a service fee, which-
> 
> ...


At this point, I'm nervous. But then we look at the Limited application of Act to incidental credit agreements:



> 5. (1) Only the following provisions of this Act apply with respect to an incidental credit agreement:
> 
> (e) Chapter 5, Part C, subject to subsection (3)(a);


Sections 101 and 103 are both in Chapter 5, Part C, so moving onto section 5(3)(a)...



> (3) A person may only charge or recover a fee, charge or interest-
> 
> (a) in respect of a deferred amount under an incidental credit agreement as provided for in section 101(d), (f) and (g) subject to any maximum rates of interest or fees imposed in terms of section 105;


OK. I'm still nervous  :Confused: 
Am I limited to recovering only R500 of my collection costs from a client who owes me R500.00 under an incidental credit agreement?

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## Rebel

I am afriad that the codification of the in duplum rule in the NCA has everything to do with the amounts that may be recoverred from a debtor.

The amount that is owing by the debtor when he defaults - say R 100 - may never be increased by more than double - another R 100 - with any and all additions to the default amount. SO interest, costs, admin, etc - all inclusive - may never be more than another R 100 in my example.

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## Rebel

watch out that you don't try and clasify an agreement as NCA or not by its name - rather look at the causa - a cellphone contract can be in or outside the NCA - if no interest is charged then its outside - if they charge interest then its inside - mora interst on arrears does not bring it into the NCA

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## Dave A

OK. So let's get this cleared up then.

I provide a once-off service for a client. I am supposed to get paid once I have completed the service - (either immediately or within 30 days - does this affect anything?). The client fails to make the payment as arranged.

Now what?
Does this fall under the NCA?
If the fee for providing the service was R500.00, am I limited to being able to recover a maximum of R500.00 of my collection costs incurred?

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## duncan drennan

> I provide a once-off service for a client. I am supposed to get paid once I have completed the service - (either immediately or within 30 days - does this affect anything?). The client fails to make the payment as arranged.


My understanding is that it becomes an incidental agreement when interest is charged, but maybe other charges (such as recovery fees) also push this into the realm of an incidental credit agreement.

My reading of those sections is the same as yours - any additional charges are limited to R500.

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## Rebel

Yes the NCA can be applicable should the receiving company be below the thresholds set - R 1 mil yearly turnover or R 1 mil asset value

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## Dave A

"Can" is kinda like "may."

Let's assume the client falls under the R1 million turnover or assets line. Here's the problem as I see it.
You don't do a credit check on a COD customer.
You provide the service and the client fails to pay.
You are now limited to R500.00 for collection costs?

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## Rebel

> "Can" is kinda like "may."
> 
> Let's assume the client falls under the R1 million turnover or assets line. Here's the problem as I see it.
> You don't do a credit check on a COD customer.
> You provide the service and the client fails to pay.
> You are now limited to R500.00 for collection costs?


Dave,

Yes "can" is like "may" - The NCA may be applicable if the end user is a "small" business ie below thresholds. Now you drag COD orders in - they fall outside the NCA definitions of credit agreements to start with. Should you not pay the COD and then interest is added it will come back under the NCA as incidental credit. The moment it is back under the NCA the sec 103 (5) in duplum is activated. As you know "reckless" does not apply to incidental.

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## Rebel

> Dave,
> 
> Yes "can" is like "may" - The NCA may be applicable if the end user is a "small" business ie below thresholds. Now you drag COD orders in - they fall outside the NCA definitions of credit agreements to start with. Should you not pay the COD and then interest is added it will come back under the NCA as incidental credit. The moment it is back under the NCA the sec 103 (5) in duplum is activated. As you know "reckless" does not apply to incidental.


Dave,

Lets talk about these "collection costs" (sec 101 g). The amount due at the point of default is the trigger that must not be overstepped. Say the service was for R 500 and the sec 101 (b-h) add on was say another R 100. The client default at that point with no payments then the max for default is another R 600. With this measure the NCR tries to put a stop to ginormous collection costs.

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## duncan drennan

> Should you not pay the COD and then interest is added it will come back under the NCA as incidental credit. The moment it is back under the NCA the sec 103 (5) in duplum is activated.


What if you don't charge interest but you do charge collection fees - would that place it under the NCA?

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## Rebel

> What if you don't charge interest but you do charge collection fees - would that place it under the NCA?


Dave,

2 elements bring a transaction under the jurisdiction of the NCA:
a. There must be a deferrement of a the full or portion of the capital
b. A charge, interest or fee must be levied for the deferral of a.

Your example falls outside as there is no b.

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Dave A (26-Nov-08)

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## Dave A

So that would be goodbye to COD discounts, I guess.

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## blues1974

needing some advise! i had to apply for debt review or commit suicide, i went for debt review. i recently started but a few things worry me. firstly, my debt counsellor is charging me R4050 for his fee, then an additional R3500 for the court proceedings and now I start paying the nominated credit facility. is this the going rate as far as debt counsellors are concerned? do I start paying the NRC Distribution agency if they haven't been appointed by the court? my current cousellor said that my total monthly repayments will be R 7200. this number has not been approved by the court yet, where do I go from here as I need to start paying the Distribution agency as of this month! don't know what to do??

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## Rebel

Dear Blues 1974 - Firstly your DC should have enlighten you seeing that he charges you at the top of the rate suggested by the NCR. Secondly remember that the longer you delay the bigger the balance as DC does not stop interest on accounts. Start paying to reduce your own debt. If unsure send the monies directly to the credit providers - working through a PDA costs you even more - anything from R7.50 to R25.00 per instalment

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Dave A (24-Jul-10)

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