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What you need to know about the new Credit Act

The act seeks to eliminate reckless granting of credit. That included extending credit to people that can’t afford to pay it back as well as increasing credit limits more than once a year without the express, written permission of the customer.
On the affordability front, it falls to the credit provider to check whether the customer is capable of repaying the credit at the rates of interest and in the period stipulated. 
According to Lauren Kleynhans of TransUnion, one of South Africa’s largest credit bureaus, one of the best ways of accessing a customer’s likelihood of delinquency or, conversely, propensity to pay, is to use the information collected over recent years by the various credit bureaus database together with your own customer information.
That seems obvious –in a negative way, in terms of people defaulting on payments .Yet, surprisingly, of the 18 million credit-active consumers on credit bureaus database, 85% have entirely positive record.
“Most people don’t know it, but they should actually want to be listed on credit bureaus because having a positive record there is one of the best, objective ways to prove your credit-worthiness,” Lauren says. 
But be aware that your business must have the permission of the customer to access his or her credit record with the bureaus.
Also, while the credit bureau will tell you that a customer has a track record of good payments and the amount of debt to which the customer is exposed currently, it can’t always tell you whether the customer can afford the new debt he or she {or the small business you’re dealing with}is about to incur you.
So you will need to ask the customer directly for information about his or her income as well as monthly expenditures. In the case of a customer, the expenditures would include items such as bond or rentals, school fees, groceries, medical aid, and taxes. For businesses it would include salaries, taxes and other regular, measurable costs that are not related to credit agreement.
“Only at this point can you make a realistic assessment of the affordability of the credit you want to grant to the customer,” Lauren says. “And it is at this point that you could adjust the repayment schedule-most likely by extending it, so that the customer pays smaller monthly amounts over a longer period of time. Interest-wise, it’s more expensive for the customer, but it does allow him or her to make immediate lifestyle improvements that would otherwise be impossible.”
Remember that the regulator will deem the credit to have been recklessly granted if you don’t do the affordability check. The fine can be up to a million rand or 10% of your turnover, whichever is the greatest.

Credit increases

When it comes to increasing credit limits, the Act limits you to the one automatic increase a year-and the rate of interest on the credit is capped.
Also, you may not offer unsolicited increase in credit. The customer must ask you for an increase and you are obliged to explain the implications of the increase as well as any new terms or interest rates that will accompany it. And even then the deal is not done unless the customer signs an agreement with you for such an increase.
In other words, the onus is on you to ensure that the customer understands fully what he is asking for and how his behavior will have to be modified to get what he wants.

In fact, consent is the basic component even of entirely new credit agreement. And, again, the onus is on you, the business person, to ensure that the customer understands everything about his or her obligations under the agreement. The customer must be made to read the small print-and it must be explained in detail by the sales person involved.
This implies, of course, that your sales people will have been educated not only on the small print in the agreement but also on the underlying principles of the Act and of the rights of the consumers or customer.
Brian Taylor, general manager of Forms Independent, adds another warning: anyone who signs a surety ship included with a credit agreement might well be signing it in his or her personal capacity-and can be sued in that capacity.
So, be very cautious about the ways in which you grant or give credit-and to whom.

Not to scary

That’s not to say that granting credit needs to be too scary.
As Lauren Kleynhans says, it’s simply a matter of finding other, perhaps more mature, ways to make credit available.
Cecily McNamara, group credit manager for Antalis, agree-particularly when a customer decides to buy more stock than usual to prepare for an anticipated increase in demand or to replenish products on which there has been a sudden run.
“Previously, most businesses would just have ridden out the situation with the customer. Now, what we’re going to do is immediately send a letter to the customer alerting him to the fact that he has, in effect, asked for a new credit limit-and stipulating the new credit limit, interest rate and repayment period.
“That way you stay on the right side of the law because the increase was initiated by the customer-and you keep the customer officially informed of the implications of his increase.”
Unavoidable price increase that will push customers over agreed limits seem to be a grey area in terms of the way you handle what is, in essence, a credit increase initiated by the business rather than the customer.
Cecily’s suggest that the best way to keep your nose clean on that one is to notify the customer of the fact that the increase in price will probably make the customer’s credit limit inadequate and to ask the customer how he would like the situation handled. In this way, the customer has the option of formally requesting more credit. If you want something more iron-clad, best you take formal legal advice.

Liquidations-the dodgy side of credit-granting

One of the big problems of allowing customers to increase their credit limits too much is, of course, the risk of liquidation of those customers. Which brings us back to the issue of affordability and your checking that customers have the means to make payments.
Brian Taylor says you can usually tell when a retail business is setting itself up to cash shortages by the size of its margins. “With today’s rising interest rates and rental space as high as R500 a square meter, the only way for a retailer to stay cash flush is through sizable margins. So if you see that a retailer’s margins are very low, be cautious of providing him with excessive credit. In the long term, he’s not going to have the cash to pay you.”
Brian also takes a tough line on customers who don’t pay their accounts, particularly if the customer is a business.
“Never be afraid of putting that account on hold-because it is costing your money. There’s no value for you in hanging on to customers that can’t or won’t pay.
“And if you’re worried about offending the customer by putting his account on hold remember that, in a lot of businesses, the person who orders the goods is not the person who pays the account. So you’re not embarrassing the buyer with whom you have a relationship. You’re simply forcing the person who pays the accounts to ensure that you get the money to which you are entitled.
“Besides, your customer is not your master and you are not his slave. The exchange of money for a product or service is an exchanged of equals. These are rights and obligations on both sides. If you honor yours, he must honor his.” 

The National Credit Act (NCA) is a new South African law that comes into effect on 1 June 2007. This legislation is intended to protect consumers against over-indebtedness by tasking companies providing credit to consumers to carry out additional affordability checks before granting them new or additional credit. The Act will be applicable to all institutions which provide credit either to consumers or to their suppliers
The Act introduces new rights for consumers, as well as measures that allow consumers to make informed decisions before buying goods and services on credit. 
It also places a greater responsibility on credit providers to refuse to give you credit if you cannot afford it and, for the first time in South African history, it will regulate the way credit bureaus do business.
The reckless granting of credit is prohibited under the Act. 
Reckless credit is when a credit provider gives you a loan or other credit without assessing whether you can repay the loan and even if you do not understand or appreciate the risks, costs or obligations under the credit agreement or if the granting of the credit leads to you becoming over-indebted.

Credit providers will need to review their existing credit agreements if these will be used in the future as some of the normal contractual terms used by attorneys in these agreements will not longer be allowed. Credit providers will also have to review their existing debt collection and enforcement procedures by 1 June 2007.
Which transactions fall under the Act?
• Banks: 
• Loans 
• Mortgages (home loans) 
• Overdrafts 
• Credit cards 
• Vehicle finance 
• Any other personal finance
• Retailers:
• Furniture finance 
• Clothing accounts 
• Any other type of credit from retailers

• Other categories: 
• Micro-loans and pawn transactions are also included 
• Any other type of credit or loan provided to a consumer

What does this mean for West Coast Office National?

• By virtue of the fact that Office National offers and grants credit to customers, it is required to be registered as a "credit provider" with the National Credit Regulator. 
• All credit providers are required to comply with the provisions of the Act. 
• The Act imposes great demands on credit providers to ensure that customers understand the nature of their credit agreement and that they can afford to repay their loan. 
What does the Act mean for me as a consumer?
• The Act introduces new rights for consumers, as well as measures that allow consumers to make informed decisions before buying goods and services on credit. 
• It also places a greater responsibility on credit providers to refuse to grant you credit if you cannot afford it.

What does this means to me as an account holder of West Coast Office National?

Because of the new regulations of the National Credit Act (NCA), we were forced to evaluate all our existing accounts, and have made the following changes:

• Interest on overdue accounts.
• All account terms are strictly 30 days
• Increased credit will require 
• Each client has been given a credit limit, either according to your credit application or according to your account history
• New credit application forms will need to be completed in due course.
• All company details must be correct and upto date.

Web site for the National Credit Regulator. http://www.ncr.org.za/

We hope this information was informative and look forward to being of service to you.

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