Following in the footsteps of the Competition Act, the National Credit Bill is a new piece of legislation that aims to set up a similar regulatory framework and infrastructure to regulate the granting of credit to consumers.

In short, the Bill tabled before Parliament in mid June and publicly debated in early August 2005, aims to regulate the granting of consumer credit by all providers of credit, including micro-lenders, banks and retailers. The Bill seeks to redress the debt trap in which many uneducated South Africans find themselves as a result of reckless lending by credit providers.

This new legislative framework repeals the Usury Act and the Credit Agreements Act. It creates formal bodies, referred to as the National Credit Regulator and National Credit Tribunal, which will work hand in hand with credit bureaux and debt counsellors to provide an administrative framework within which the Bill will function. Credit bureaux are required to be registered with the National Credit Regulator. This will help prevent individuals from being arbitrarily 'blacklisted' and consequently, refused credit.

The Bill obliges credit providers to take measures to ensure that borrowers can afford the credit being extended. If credit is refused, borrowers will be entitled to know why and must also be given an explanation (in any of the official languages) of the credit agreement and the cost of credit. Consumers will be entitled to all the information held by the credit provider on their credit records.

One of the most alarming provisions of this Bill for credit providers is the enforceability of credit agreements. In certain circumstances credit providers will be 'penalised' for granting credit to an individual who cannot afford it. The right to recover the debt will be seriously compromised and may even be revoked.

While the purpose of the Bill is clearly to protect the lower income sector who rely on micro lenders for their credit, it will regulate the entire lending industry. There are those that feel that the increased administration costs could increase the cost of credit generally. Of concern is that the Bill purports to place a cap on the minimum interest rate chargeable. That rate will be determined by the Minister in regulations to be promulgated after the Bill's enactment.

The Bill sounds a warning to all credit providers: comply with the provisions of the Bill or face extended litigation and debt write-offs.

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