Youth entering into the world of credit
You need to be careful and aware of your rights when entering the credit market.
Members of the youth inevitably find themselves at some stage entering into the workforce. As a result of this new exciting journey and earning an income, they often find themselves overwhelmed with store and credit card offers from various credit providers. It is important for members of the youth to be aware of their rights when entering into these transactions. This will assist in avoiding exploitation of their rights in the credit market, as well as bad decisions that may impact them well into their adulthood.
What is a credit facility?
> A credit facility is an agreement where a credit provider supplies money, goods or services to a consumer for up to a certain value (“credit limit”), depending on the consumer's affordability.
> A consumer's payment obligation is then postponed by the credit provider into monthly installments based on the consumer's use of the credit facility. This means that a higher monthly instalment may be due as a result of making more use of the credit facility.
> Examples of credit facilities include petrol cards, credit cards, overdrafts and store cards.
Who can apply for a credit facility?
> In terms of the National Credit Act 34 of 2005 (“NCA”), an adult person or business has a right to apply for a credit facility. However, this is not a right or guarantee that the consumer will be granted the credit facility.
> A credit provider will need certain information to assess the consumer's affordability and risk profile before deciding whether to grant the credit facility or not. The credit provider may request proof of income, such as the past three months' payslips or bank statements.
> In addition to this, the credit provider may request a consumer's consent to access his/her credit report from a credit bureau in order to assess the consumer's existing financial obligations.
With the above background in mind, consider the following scenario:
Mary has a store card with a credit limit of R3 000. She received her monthly statement and noticed that there are extra charges that she were not aware of. She also wants to know whether the credit limit can be reduced or increased, and how she can go about to cancel the credit facility.
What charges may be charged on a credit facility?
> Apart from the monthly payments due by the consumer, a credit provider may charge the following:
- initiation fee: a once-off amount for entering into the credit facility;
- service fee: a monthly or yearly amount that covers the administration costs of the credit facility; and
- interest: a percentage charged on the part of the credit limit already used (outstanding amount).
- A consumer must ensure that s/he reads the terms and conditions of the agreement carefully, which will also explain the abovementioned charges. It is also possible for the agreement to refer to credit life insurance, which is an optional choice and covers the credit facility in the case of death, retrenchment or disability by the consumer.
Can a consumer request to reduce the credit limit?
> A consumer may at any time and in writing, request the credit provider to reduce the credit limit under a credit facility and stipulate a preferred credit limit.
> The credit provider must then provide written confirmation to the consumer of the new credit limit.
> A credit provider is not allowed to charge the consumer a fee for reducing the credit limit.
Can a credit limit be increased?
> A credit limit can be increased by written agreement between the credit provider and the consumer.
> A credit provider can temporarily increase a consumer's credit limit at the consumer's request, for example, to accommodate a particular transaction that will exceed the consumer's credit limit.
> A credit provider can also increase a credit limit without it being requested by the consumer, if the consumer agreed to such an increase when applying for the credit facility. This highlights the importance of reading the terms and conditions of the specific credit facility.
> Although a consumer can request an increase of the credit limit, the credit provider will have to conduct an affordability assessment of the consumer again before granting an increase.
How can credit facility be cancelled?
> A consumer may at any time request a settlement statement from the credit provider.
> After receiving the statement, a consumer has five business days to make payment of the settlement amount.
> Once the settlement amount is paid, a consumer may make a request to the credit provider for a letter confirming that the account has been closed.
> A consumer cannot be charged for any other amount besides the unpaid balance of the principal debt, the unpaid interest already charged, and all other permitted fees, for example, monthly service fees payable by the consumer at the time the settlement statement is requested.
Whereto can a consumer complain if his/her rights are infringed?
> A consumer who is a party to a credit facility and believes that his/her rights have been infringed can lodge a complaint in the following manner to resolve the dispute with a credit provider:
- Try to resolve the dispute directly with the credit provider. During this step, it is important to keep record of all communications with the credit provider, as well as any relevant reference numbers.
- If not satisfied with the outcome of the credit provider or if the credit provider does not assist within a reasonable time, such as 20 business days, the dispute can be referred to the Credit Ombud for investigation (a complaint form can be obtained on their website: https://www.credit ombud.org.za/).
- Please note that the Credit Ombud only deals with disputes against credit providers that are registered as members of the Credit Ombud. A full list of its members can be obtained on their website.
- As an alternative, the dispute can directly be referred to the National Credit Regulator for investigation (a complaint form can be on their website: https://ncr.org.za/act/list-of-forms/category/31-complaint-forms ).
Did you know…Credit facilities are the most popular form of debt in South Africa.