GIVE YOURSELF SOME CREDIT

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GIVE YOURSELF SOME CREDIT

• Presenter Pieter Stassen
• Based on learnings from the Kreditinform credit
  toolkit

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• For a two week free trial access to the
  Contemporary Gazette visit www.gazette.co.za
• For more information on the Kreditinform
  Compliance Toolkit visit www.exclaim.co.za

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• WHY CONSIDER THIS ACT?

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Indirect use

• Ensure it remains non-applicable
• Avoid accidental credit provision
• Consumers outside Act can re-negotiate
• Employer, insurer, assessment requirements and
  opportunities

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Costs may not exceed balance

• Initiation, service fee, interest, credit
  insurance, default administration and collection
  costs
• that accrue during default
• may not together exceed the unpaid balance of the
  principal debt
• as at the time the default occurs

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Unlawful credit agreements

• Void from start
• Court may cancel or forfeit recovery
• Know or can reasonably determine minor, mentally
  unfit or administration order
• Automatic agreement unless offer declined

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Unlawful credit agreements

• Supplementary agreement or document that would be
  unlawful if included
• General or specific stop notice and no further
  appeal or review available
• Refund money paid under agreement
• Interest at agreement rate from date consumer
  paid until date refunded

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Unlawful provisions

• Void from stated date
• Court must sever
• Else court must alter provision
• Else declare agreement unlawful from date it or
  amended agreement took effect

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Unlawful provisions

• 33 examples of unlawful provisions
• Red flag the ones open to wide interpretation
• General purpose or effect to defeat purposes or
  policies of the Act, deceive a consumer or
  subject the consumer to fraudulent conduct
• Fail to do anything required in terms of the Act

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Unlawful provisions

• Waive or deprive a consumer of a right set out in
  the Act
• Avoid a provider's obligation or duty in terms of
  the Act
• Set aside or override the effect of a provision
  of the Act
• Authorise the provider to do anything unlawful in
  terms of the Act

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Amendments to pre-existing agreements

• Any amendment to pre-existing agreement results
  in new agreement (i.e. more provisions apply)
  unless it is a change to
• the interest rate under a variable rate
  agreement or
• the interest rate or the credit limit under a
  credit facility

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• WHAT IS THE ACT TELLING US?

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1. One size does not fit all

• No application e.g.
• lease of immovable property
• agreement with state or organ of state
• utility/continuous service defers payment until
  periodic statement and no interest
• agreement not at arms length
• cheque or credit card accepted as full payment
  but payment refused by third party provider
• corporate consumers asset value / annual
  turnover, with related persons, at agreement,
  R1m
• corporate consumer R250 000 agreement

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1. One size does not fit all

• Partial application e.g
• credit guarantees (only to extent that Act
  applies to guaranteed credit facility or
  transaction)
• corporate consumers to whom the Act applies
• agreements made before the Act or a section
• incidental credit agreements

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1. One size does not fit all

• Full application e.g.
• mortgages, secured loans, instalment agreements
• leases of movable property resulting in
  ownership
• credit facility, pawn transactions, discount
  transactions
• payment deferred and charge, fee or interest for
  agreement or deferred amount

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1. One size does not fit all

• Unlawful agreements and provisions
• Individuals pre-commencement applies to the
  extent that law applied to similar effect to such
  agreement or provision when agreement was made
• Micro-enterprises post-commencement apply
• Micro-enterprises pre-commencement applies to
  the extent that law applied to similar effect to
  such agreement or provision when agreement was
  made except negative option marketing and
  unlawful provision that implies variable interest
  

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1. One size does not fit all

• Consumer rights
• Individual pre-commencement applies after 1 June
  2007
• Micro-enterprises post-commencement applies
• Base prohibited unfair discrimination on member,
  owner, client, employee, manager
• Micro-enterprises post-commencement applies
  after 1 June 2007
• Base prohibited unfair discrimination on member,
  owner, client, employee, manager

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1. One size does not fit all

• Over-indebtedness and reckless credit
• Individuals pre-commencement any part relating
  to reckless credit does not apply
• Micro-enterprises post-commencement does not
  apply
• Micro-enterprises pre-commencement does not
  apply

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1. One size does not fit all

• Credit marketing practices
• Individuals pre-commencement does not apply
• Micro-enterprises post-commencement does not
  apply
• Micro-enterprises post-commencement does not
  apply

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1. One size does not fit all

• Pre-agreement disclosure and form
• Individuals pre-commencement Applies from 1 June
  2007
• Micro-enterprises post-commencement Applies
  except where relates to large agreements
• Micro-enterprises pre-commencement Applies from
  1 June 2007 except where relates to large
  agreements

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1. One size does not fit all

• Liability, interest, charges and fees
• Individuals pre-commencement only statement of
  account for pre existing agreement concluded
  after 1 June 2006
• Micro-enterprises post-commencement does not
  apply
• Micro-enterprises pre-commencement does not apply

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1. One size does not fit all

• Records and representatives
• Individuals pre-commencement applies except for
  records relating to credit assessment
• Micro-enterprises post-commencement applies
  except for records relating to credit assessment
• Micro-enterprises pre-commencement applies
  except for records relating to credit assessment

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1. One size does not fit all

• Small transactions
• pawn transactions
• credit facilities with a credit limit at or below
  R15000
• credit transactions where principal debt falls at
  or below R15 000
• never include mortgage agreements or credit
  guarantees

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1. One size does not fit all

• Intermediate agreements
• Credit facilities with a credit limit between R15
  000 and R250 000
• Credit transactions with principal debt per
  transaction or guarantee between R15 000 and R250
  000
• Excludes a pawn transaction (small agreement),
  mortgage agreement (large agreement) or credit
  guarantee

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One size does not fit all

• Large agreements
• Mortgage agreements
• Credit transaction with a principal debt per
  transaction or guarantee at or above R250 000
• Excludes pawn transactions (small agreement) or
  credit guarantees
• Regard as mortgage agreement where both a credit
  facility and credit transaction

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2. Focus on consumers

• Reckless credit
• Defence if prove consumer failed to fully and
  truthfully answer any requests for information by
  provider as part of the assessment
• And a court or the Tribunal determines the
  failure materially affected the ability to make a
  proper assessment

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2. Focus on consumers

• Reckless credit
• General understanding and appreciation of risks
  and costs and rights and obligations
• Debt re-payment under credit agreements
• Whether there is a reasonable basis to conclude a
  commercial purpose for applying can work
• Existing financial means, prospects and
  obligations (income or right to receive, include
  household and reasonably estimated future
  revenue)

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2. Focus on consumers

• Reckless credit
• No payment required by agreement
• No interest, fee or other charge may be charged
• Providers rights under agreement or law in
  respect of that agreement are unenforceable
• Once it ends rights and obligations revive
• except to extent that court orders otherwise
• except for charges during suspension

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2. Focus on consumers

• Consumer rights
• No discrimination, penalisation, proposed
  alteration, acceleration, enforcement,
  termination etc where right used
• No unfair discrimination when
• assessing ability
• deciding about agreement
• determining cost
• proposing or agreeing terms and conditions
• assessing or requiring compliance
• exercising rights
• reporting etc.

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2. Focus on consumers

• Consumer rights
• Basis of evaluative method to manage, underwrite
  and price credit risk must not be unfair
  discrimination ground
• Credit refusals based on reasonable commercial
  grounds
• customary risk management and
• underwriting practices

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2. Focus on consumers

• Consumer rights
• Written main reason for refusing credit when
  requested
• Written bureau contact details if based on report
• Required documents in official language that
  consumer reads or understands
• To extent reasonable in usage, practicality,
  expense, regional circumstances and balance of
  needs and preferences of population ordinarily
  served

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2. Focus on consumers

• Consumer rights
• Required document in prescribed form or plain
  language otherwise
• Options on delivery of required document
• No fee for original copy or first year single
  replacement copy (else prescribed fees)
• Tribunal application if frivolous or vexatious

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2. Focus on consumers

• Consumer rights
• Use as permitted by Acts or provincial law
  (Promotion of Access to Information Act applies
  where conflicts with this Act)
• Protect confidential information of consumer or
  prospective consumer received, compiled, retained
  or reported
• Only report or release
• to consumer or prospective consumer
• as permitted by Acts or provincial law
• as directed by consumer, court order or Tribunal

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2. Focus on consumers

• Consumer rights
• Advise client 20 business days before credit
  bureau report with copy on request
• Ensure accurate, up-to-date, relevant, valid,
  complete and not duplicated
• Provide evidence or remove report 20 business
  days from filed challenge
• Application if frivolous, unfounded, wholly
  unreasonable

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3. Rethink marketing

• No negative option marketing or harassment
• Opting out requirements
• Limitation at private dwelling (pre-arranged by
  consumer, financing incidentally offered or
  prescribed)
• Limitation at workplace (with employer,
  non-prompted invitation or formal arrangement
  with employer and representative trade union)

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3. Rethink marketing

• Limited advertising without disclosures
• notice or ad by seller of goods indicating
  prepared to accept payment through anothers
  credit facility
• only refers to credit availability of credit and
  no reference to costs, interest rate or monthly
  instalment
• Show initiation fee and service fee if advert
  only shows interest rates
• Must show costs together in same average font as
  ad if it refers to any credit costs

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3. Rethink marketing

• Ad discloses a monthly instalment or other credit
  cost disclose
• instalment amount
• number of instalments
• total amount of instalments, including interest,
  fees and compulsory insurance
• interest rate and
• residual or final amount payable (if any).

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3. Rethink marketing

• TV or audio ad referring to credit costs must
  give disclosed costs same prominence as other
  elements
• Ad may not advertise an unlawful form of credit
• Ad may not be misleading, fraudulent or deceptive
• Ad may not contain a statement or wording similar
  to
• no credit checks required
• blacklisted consumers welcome
• free credit

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3. Rethink marketing

• Use comparative credit costs only as permitted by
  law or industry code of conduct
• Show all costs for each alternative being
  compared
• Generally solicitation may not contain similar
  wording to loan guaranteed or pre-approved
• Direct solicitation may not contain similiar
  wording to no credit checks required, blacklisted
  consumers welcome or free credit

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4. Stay abreast of laws

• Provincial requirements
• Assurance report
• Change in thresholds
• Regulator to publish guidelines for assessment
  mechanisms, models and procedures to result in
  fair and objective assessment

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4. Stay abreast of laws

• Prescribed private dwelling marketing
• Regulator may provide guidelines on compliance
  format and contents
• Assurance Provider must act in accordance with
  guidelines to be issued and issue a report on the
  basis of findings
• Developmental and public interest regulations

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5.Know related laws

• Promotion of Access to Information Act
• Prescription Act
• BEE Codes
• Repealed laws

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6. Increased costs

• Pre-agreement disclosure and form for small
  agreement
• Intermediate and large agreements
• Pre-agreement quotation and statement
• Form including disclosures in form
• If quote not part of agreement, quote information
  on agreement first page in 'Cost of Credit table

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6. Increased costs

• Disclosure linked to cost of credit table
• Other disclosures (all fees together, date fees
  will be levied, other information relating to
  charging, sum of amounts)
• Information sharing disclosures
• Consumer related disclosures (right to rescind,
  terminate, ADR, file a complaint, the credit
  agreement in terms of s123, surrender goods,
  right to prepay amounts, debt counsellor)

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6. Increased costs

• Charges limited to amounts allowed by Act,
  including third parties nothing else
• Charge same price as substantially similar goods
  or services in ordinary course of business sold
  cash
• Initiation fees only if there is a credit
  agreement and never above 15 of principal debt
• Not where new agreement with existing consumer
  completely/ partially replaces other

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6. Increased costs

• Service fees maximum monthly service fee is R50
• Interest on default or overdue payment may not
  exceed highest interest rate applicable to any
  principal debt
• May require credit life insurance during term
  never exceeding total of outstanding obligations
• mortgage full asset value of that property
• other insurance against damage or loss of
  property
• No unreasonable insurance or cost

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6. Increased costs

• May offer optional insurance for obligations
  under agreement or possession, use, ownership or
  benefits
• Further disclosures where provider proposed
  policy
• Limited default administration charges only if
  consumer defaulted on payment duty
• Limited collection costs may not exceed costs
  incurred by provider in collecting the debt

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6. Increased costs

• Additional fees or charges for instalment
  agreement, mortgage, secured loan or lease
• cost of extended warranty agreement
• delivery, installation, initial fuelling charges
• connection fees, levies or charges
• taxes, licence or registration fees
• Consumer may have provider act as agent in
  arranging above
• May only charge actual amount payable by provider
  after discount, rebate or allowance

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6. Increased costs

• May not unilaterally increase service fees or
  interest rate unless credit agreement with a
  variable interest rate
• Written notice of at least five business days
  with particulars of change in interest rate or
  charge amount
• In respect of a agreement with variable interest
  rate, written notice within 30 business days
  after a change in the variable interest rate
  takes effect

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6. Increased costs

• Periodic monthly statements of account
• Two months for an instalment agreement, lease of
  movable property or secured loan
• Six months for a mortgage agreement
• Small agreements form and content

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6. Increased costs

• Summary during statement period including total
  amount debited or credited for
• payments received
• fees levied
• interest accrued
• insurance costs levied
• collection costs levied
• default administration costs levied
• legal fees incurred

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6. Increased costs

• Intermediate / large agreements form and content
• At request of consumer, deliver free statements
  within ten business days
• Disputed entries in accounts
• written notice explaining or confirming error
• inhibits enforcement proceedings
• Statement of settlement amount within 5 business
  days after request

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6. Increased costs

• Lease of movable property or instalment agreement
  not entered at providers registered premises may
  be terminated within 5 days
• Refund money paid under agreement within 7
  business days
• Reasonable cost of goods returned and restored to
  saleable condition and reasonable rent for use of
  goods
• May apply to court once other avenues exhausted
  and then ask actual fair market value depreciated

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6. Increased costs

• A consumer must act in terms of s125 when
  terminating a credit agreement at any time by
  paying the settlement amount
• A consumer must act in terms of s127 when
  terminating an instalment agreement, secured loan
  or lease of movable property
• Credit provider may take steps in chapter 6 part
  C to enforce and terminate where consumer in
  default
• Must still meet any residual obligations

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6. Increased costs

• A written or electronic register of all
  solicitation, completion or conclusion agents
  must be kept
• Fee or commission by person who is not an
  employee or agent may not exceed limits
• Registered credit provider register of consumers
  with each consumers
• applications, application declined with reasons,
  pre-agreement statement and quote
• credit agreement entered into

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6. Increased costs

• Register of consumers must also show each
  consumers documentation in support of reasonable
  steps to assess a proposed consumers
• general understanding and appreciation of risks
  and costs and rights and obligations
• debt re-payment history
• existing financial means, prospects and
  obligations
• basis to conclude that any commercial purpose may
  prove to be successful

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6. Increased costs

• Registered credit providers additional register
  for consumers with each consumer's
• full names and surname and identity number
• date of loan granted, amount, instalment amount,
  number of instalments and defaults in respect of
  each agreement
• date on which agreement was terminated and reason
• Registered credit providers register of
  operations
• income, expenses and cash flow
• credit transaction flows
• management accounts and financial statements

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6. Increased costs

• Records maintained for 3 years from the date of
  termination or date of refused application
• Annual compliance report six months after
  financial year-end
• Statistical return by 15 February each year where
  annual disbursements R15 million or less
• Four statistical returns where annual
  disbursements above R15 million

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6. Increased costs

• Annual financial statements within 6m after
  financial year-end, including assurance report
• Registered credit provider annual financial and
  operational within 6m after financial year-end
• Assurance report within 6m after financial
  year-end
• Analysis of any item in prescribed forms within
  20 business days after Regulator requested it

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• HOW CAN WE SIMPLIFY THE ACT?

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1. To register or not

• Continue checking whether to register
• R500 000 principal debt / 100 agreements
• Exclude incidental credit agreements
• Include associated persons

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2. Defined agreement or not

• Separate credit agreements outside Act
• Contractual, common and other law
• Corporates asset value / annual turnover gt R1m
  (including related corporates)
• Contractual, common or other law

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3. Individual consumer or corporate

• Add note whether individual or micro-enterprise
• Ask consumer about related persons
• Note with micro-enterprises that large agreements
  excluded from Act
• Note with micro-enterprises that thresholds may
  change

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4. After 1 June 2007 or before

• Add note whether before or after commencement
  date
• Note that amendment to pre-existing agreement
  changes it to a new agreement
• Note repealed laws with regard to unlawful
  agreements and provisions
• Note new laws eg Protection of Personal
  Information Bill and Consumer Protection Bill

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5. Exceptional agreement (Incidental credit
example)

• Limited to
• restricted activities by unregistered persons
• consumer rights and confidentiality, personal
  information and credit records
• over-indebtedness and reckless credit except to
  the extent that it deals with reckless credit
• consumer's liability, interest, charges and fees,
  limited to interest, default administration and
  collection costs
• statements of account and alterations once the
  incidental credit agreement is deemed to have
  been made - certain sections only apply once
  interest is first charged

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5. Exceptional agreement (incidental credit
example)

• Unless settled, deemed made 20 business days
  after
• supplier first charges late payment fee or
  interest or
• pre-determined higher price for full settlement
  becomes applicable
• No credit insurance costs, initiation fees or
  service fees
• Only charge or recover if disclosed and consumer
  accepted amount or basis of charge on or before
  supply

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