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Credit Ombud

The credit landscape in South Africa is marked by constant changes to the legislation, products, prices and other variables. It is subject to complex legal principles which makes it extremely difficult to navigate for the average consumer.

“It is an unfortunate fact that many consumers do not know what their rights are in relation to a credit agreement. That is why it is important to at least know when and where to seek help in the case of a dispute or when trying to investigate whether there are grounds for a complaint’, says the Credit Ombud, Nicky Lala Mohan.

Some of the common factors that cause confusion and lead to complaints in relation to credit agreements, have been around even before the implementation of the National Credit Act, such as the complaints regarding listings on the credit bureaus. Other issues are new and especially since the recent amendments to the Act, consumers are likely to question aspects of their credit agreements which they have not done previously.

For example, there are new rules around the affordability assessments and reckless credit, the new calculation of fees and interest, and new rules around the collection of prescribed debts.

NEW INTEREST RATES AND FEES

On 6 May 2016 new regulations came into effect which reduces the maximum interest rates that credit providers can charge for most forms of credit. At the same time the monthly administration fee that can be charged was increased from R50 to R60 (excl VAT). These changes are applicable to new credit agreements. For example, the maximum interest rate for an unsecured loan, is now 28% - and it was 35.4%.

Consumers should bear in mind that most agreements are signed subject to a variable interest rate, which means that when the Repo rate changes, the interest rate applicable to the agreement will also change. “This is why any announcement by the Reserve Bank regarding an increase in the Repo Rate, has such a major effect on consumers”, advises the Credit Ombud. “It usually means that consumers have to pay more for every single credit agreement, and that whilst most are already living at the limits of their income”, he continues.

Consumers are advised to scrutinise their accounts every month and should they suspect anything untoward, they should immediately raise a query with the credit provider. “If consumers are not satisfied with the response, it will be perfectly in order to raise the matter with the Credit Ombud as a complaint, and we will investigate”, says Lala Mohan.

AMENDMENTS TO COMPULSORLY AFFORDABILITY ASSESSMENTS

Since September 2015, amendments to the National Credit Act and Regulations lead to stricter requirements on the credit providers at the time of entering into a new credit agreement to conduct affordability assessments in a certain prescribed manner For example, it requires them to:

·       Ensure that they obtain 3 months’ pay slips; or the latest 3 months bank statements, reflecting 3 salary deposits; or latest 3 months’ documented proof of income or latest financial statements;

·       They must work on average over not less than 3 months, in cases where there is a material variance in the income. This change is important for consumers to take note of, because in the past it was often possible to open an account immediately and by simply presenting an identity document. Now they will have to arrive prepared with the necessary documentation.

·       The next step is for the credit provider to perform a very specific calculation to ascertain the following:

o   Firstly they have to establish gross income, as per the requirements set out above.

o   Then they must deduct all the statutory deductions.

o    Next they have to calculate what the “minimum living expenses” – according to the minimum expense norms, in order to establish the net income.

o   Finally they have to take into account all the consumers’ existing debt obligations, as may be reflected on the credit bureaus, and the net result is the consumer’s “discretionary income”.  The “discretionary income” is the amount available to repay new debt. The monthly repayment on any new credit agreement must be less than this amount.

In order to safeguard the consumers against unfair or incorrect practices in this regard, the regulations also stipulated a process for aggrieved consumers who are unhappy with the outcome of the credit providers’ affordability assessment. They may at any time lodge a complaint in terms of sections 134 or 136 at credit provider. The credit provider must attempt to resolve within 14 days. If the complaint is not resolved, the consumer can approach the NCR. The NCR must in turn resolve the complaint within 7 days. If the NCR issues non-referral notice, then the consumer may approach National Consumer Tribunal directly with the complaint about this issue.

Consumers who feel aggrieved about the process or suspect that their credit was granted recklessly, may also bring such a complaint to the Credit Ombud for assistance.

COMPLAINTS ABOUT CREDIT REPORTS

With respect to credit bureau reports, a consumer is entitled to one free report per year, but very few consumers make use of this right. It almost appears as if consumers would rather avoid seeing their own credit reports and this a culture that we need to change. “The best advice we can give consumers is that they check their reports regularly for any discrepancies”, says the Credit Ombud. Unfortunately most consumers still wait until they apply for new credit and if there is a problem, then they often find out that the reason is due to the information reflecting on the bureau reports which contains something negative. “If a consumer was in the process of buying a new home or a motor vehicle, having to first resolve a dispute about information on a credit bureau report can be very frustrating”, adds the Ombud.

The better way to deal with this aspect is to be proactive and either obtain a report prior to entering into negotiations or applying for credit, alternatively, obtain report at least once a year to check that the information is accurate and up to date.

If you find anything wrong and need to challenge information on your report, you must log a dispute with the credit bureaux first and allow their offices 20 business days for investigation. “There is no need to pay any other party or organisation a fee to assist you to “clear your report”. These parties cannot do anything that you as a consumer, with the assistance of the credit bureaus as well as the Ombuds office cannot do for free” warns Lala Mohan.

The reason why we say this is the following: “The credit bureaus are mandated by the NCA to ensure that the information that they keep is factually correct, and up to date, and only displayed for the required period. In other words, if the information about a past default or missed payment is accurate, nobody will be able to have it deleted, notwithstanding the fact that you may have brought your arrears up to date .

“This is an important fact that consumers often misunderstand. Many consumers want their negative history removed once they are able to pay their accounts again, in order to obtain new credit. However, the past payment history will reflect for the prescribed period as comprises accurate and factual information” explains Lala Mohan.

If the information is not correct, any consumer should be able to have it corrected, through the dispute process at the bureaus or if need be, with our assistance,” explained Lala Mohan. “Our services are free of charge and we will conduct our own investigations in a fair and independent manner and provide you with resolution” he continued.

EMOLUMENTS ATTACHMENT ORDERS

Commonly known as “garnishee orders”, these court orders allow credit providers to deduct outstanding payments directly from an individual’s salary via their payroll.

In our experience, many consumers pay in terms of these orders for years, all the time feeling that they never properly consented to the judgment or the amount, that they do not know what the outstanding balance is or that they have long since overpaid but cannot get the deductions to stop. If the original debt was owed to one of the members of the Credit Ombud, we would be able to investigate any of these issues. “Once a consumer logs a complaint with our office, the Credit Ombud will look at the credit agreement from inception to understand whether or not the agreement and subsequent legal action was valid,” says Lala Mohan.  

The office will also look into matters such as:

  • The affordability assessment conducted by the credit provider - to see if the loan was reckless.
  • The interest rate and fees charged to ensure they are in line with the National Credit Act.
  • Obtaining a detailed statement of account showing capital, interest and repayment calculations to ensure the consumer has not overpaid.

HOW TO COMPLAIN

Consumers should firstly contact their credit provider to discuss the problem that they may be experiencing. For example if they dispute an entry on their statement of account, or require an updated statement or if they wish to enter into a reduced payment arrangement due to the fact that they have suddenly fallen onto difficult times.

With respect to credit bureaux matters, as stated above, you must log a dispute with the credit bureaux first and allow their offices 20 business days for investigation.

Where you find that you are dissatisfied with a credit provider or that you are not happy with the credit bureau outcome, or if you do not receive any assistance (e.g. no reply) from these parties, you may contact our offices for assistance. Our services are free of charge and we will conduct our own investigations in a fair and independent manner and provide you with a resolution.

Consumer should always be aware that they do not have to accept unfair treatment or any other breaches of their rights in terms of the Act. They could contact the office of the Credit Ombud for assistance with all disputes relating to credit bureau listings, credit agreements with non-bank lenders and retailers. The office can be contacted on 0861 66 28 37; on the website www.creditombud.org.za; email us at ombud@creditombud.org.za or send a sms to 44786 and we will call you. 

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