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Background_ SARB Discussion

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					NCA Introductory Workshop for BANKSETA and with Institute of Bankers
February – March 2006

SESSION 2

Dr. Penelope Hawkins

F E A S i b i l i t Y

Credit Provision: Agreements and Marketing
2.  Sales and marketing practices  Pre-agreement, quotes and contracts  Interests rates and allowable fees and charges  Reckless lending and overindebtedness  Unlawful agreements and unlawful provisions
FEASibilitY (Pty) Ltd
NCA Workshop: Session 2 2

2.1

Marketing Practices

Aim is to: “curb undesirable marketing and sales practices (including door-todoor solicitation) and regulation of credit intermediaries.” Sections 74-76; 89(1)b; 119(4)

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Sales and Marketing Practices: Prohibitions
2.1.1
 “Negative option marketing” prohibited  Automatic increases in facility limits prohibited (except for annual increases subject to consideration of monthly cash advances / credits)  Telemarketing and sale of client information prohibited (unless with consent)  Agreements at home only if invited; at workplace only if agreement with employer or union
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Sales and Marketing practices: Advertising
2.1.2  Prescribed credit statements; disclosure of cost  Unregistered providers prohibited from advertising  Personal solicitations must include prescribed information  Prescribed cost of credit disclosure where goods sold on credit
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Pre-agreement statements, quotes and contracts
2.2
 Pre-agreement statement must cover terms and conditions  Quote is binding for 5 business days  Form and content prescribed for small agreements; more flexible for intermediate and large agreements (content not form prescribed)  Small agreements: pawn and small transactions  Intermediate agreement: credit facilities (such as credit card) and mid-size transactions  Large agreement: mortgages and large transactions
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Interest rates, fees and insurance
2.3
 Minister to impose limits on whole market or sub-sector  Interest rate: Initiation fee
 Capped, depending on the nature of the credit, and the size of the transaction  Must be disclosed as a % per annum  Level: slightly higher than usury – but no exemptions  “in duplum rule”: default interest limited to settlement value at time of default. Outstanding interest and costs can never exceed outstanding capital
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2.3.1

Fees

 Initiation fee
 Will be prescribed and limited  Only applicable if application results in a credit agreement  Likely to vary by type of loan e.g. micro loan vs. mortgage

 Service fee
 Will be prescribed and limited  In most cases a monthly or annual fee will apply  In the case of credit facility (like a credit card), may be per transaction
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2.3.2

Fees (cont.)

 Allowance made for cost recovery of:
 Default administration charge

 Collection costs
 Extended warranty

 Delivery installation and fuelling
 Taxes

 Charges unrelated to credit provision
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2.3.3

Insurance

 Only credit life insurance and insurance cover against loss or damages of property pledged as security housing insurance compulsory, rest optional  To cover outstanding debt  Must allow for consumer choice (own or credit providers)  Only recovered via monthly charges (except for large agreements – where an annual charge may be imported) Section 100-106
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2.4

Reckless lending

“Focus to shift from price control to protection against overindebtedness and regulation of predatory lending practices” Section 78-88; S130

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2.4.1

Reckless lending

 Reckless credit
 Failure to take reasonable steps to assess repayment history and “existing financial means, prospects and obligations”  Extending credit where the “consumer will be unable to satisfy in a timely manner all the agreements to which the consumer is a party”  But: protection only available when consumers disclosed accurately + ‘unjust enrichment’ prevented
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2.4.2

Reckless lending

 Criteria for recklessness
 No assessment of the consumer’s circumstance
 Consumer did not understand his/her obligations  Agreement concluded when consumer already over-indebted

 Assessment based on information when agreement

made; consumer required to “fully and truthfully
disclose”  Over-indebtedness applies to individual – reckless lending to the debt
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NCA Workshop: Session 2 13

2.4.3

Reckless lending

 If reckless:
 Magistrates may not issue court orders for debt recovery – but will refer to debt counselor for debt restructuring (and may then approve them)  Agreement may be suspended or obligation reduced by Court or Tribunal (e.g. in extreme cases all fees and interest written – off)  Provider may be prosecuted by National Credit Regulator
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2.4.4

Reckless lending

 Regulated debt counselors to assist consumers

 Assess financial position, may recommend restructuring, suspension of reckless loans … within defined rules  Cannot be approached if debt recovery instigated

 Enforced through consent orders by the Tribunal or debt restructuring orders by the court  Credit record “cleaned” if consumer meets commitments
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2.5

Unlawful agreements

 Unlawful agreements (pawn transactions excluded)
 When: minors; mentally unfit; under administration and administrator has not consented; unregistered provider; “negative option credit”  Except if credit provider “induced” or “mislead” into entering into agreement

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2.5.1

Unlawful provisions

 Unlawful provisions
 When: Deceitful; Fraudulent; Defeat Act; Waive prescribed “common law rights”; Automatic increases in credit limit; Alterations without consent; Retains bank Card ID or PiN; Representative is agents of consumer; Pre-authorisation to enter premises for repossession; Power-ofattorney; consent to payment prioritisation; allow general set-off; interest variations
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Unlawful agreements and provisions
2.5.2
 Agreement becomes void:
 Effect: void  Consumer payments to be refunded and either
 (i) cancel all rights of credit provider to recover the outstanding monies or  (ii) forfeit to the State if canceling rights would unjustly enrich consumer

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Session 2

Question and Answer Session

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