The National Credit Act: what it protects when you borrow

What is the National Credit Act and who enforces it?

The National Credit Act 34 of 2005 is the national law that regulates the South African credit market. It covers loans, store accounts, credit cards, vehicle finance and home loans, and it sets rules for the people who provide and the people who use credit.

The National Credit Regulator, or NCR, was established under the Act. It registers credit providers, credit bureaus, debt counsellors, payment distribution agents and alternative dispute resolution agents, monitors their conduct, investigates complaints and educates consumers. The NCR works toward a credit market that is fair, transparent, accessible and dynamic.

The NCA does not stop a lender from saying no. Every person may apply for credit, but a lender may decline an application. If it does, you are entitled to be given reasons.

Do lenders have to be registered?

Yes. The NCR states that everyone giving out credit must be registered with it and must apply the rules in the NCA. Registered credit providers are listed on the NCR website, where you can search by company name or by registration number, which starts with NCRCP.

Registration is a basic first check. It tells you the provider is on the regulator's register. It does not tell you the loan is right for you, so you still need to read the quotation and agreement. Our guide on checking that a lender is NCR registered shows the steps.

What is an affordability assessment, and what is reckless lending?

Before extending credit, a lender must assess you. The NCR describes the assessment as covering your understanding of the risks and costs of the credit, your rights and obligations under the agreement, your history of repaying credit, and your existing financial means, prospects and obligations.

The Act regards a credit agreement as reckless if the lender failed to carry out the required assessment, whatever the outcome of that assessment might have been. A lender must not enter into a reckless credit agreement. This is the legal reason a registered lender asks for payslips, bank statements and details of your expenses.

The duty runs both ways. The NCR asks consumers to be truthful and to give the correct amount for household expenses, and warns that false information can cost you the protection of the NCA. Honest answers lead to a loan you can carry.

What must a lender tell you before you sign?

A credit provider must give you a pre-agreement statement and quotation before you sign. The NCR says this document must show the amount borrowed, any deposit, the number of instalments, the interest payable, any additional charges, credit life insurance, and the dates of the first and last payments.

You are also entitled to documents in an official language you understand and in plain language. If a clause is unclear, ask the lender to explain it and wait for the answer before you sign. Never sign a blank credit agreement, because you lose control of what is added afterwards.

Once the agreement exists, the lender must deliver a copy to you without charge, on paper or in a printable or electronic form. Keep it somewhere safe, together with your payment receipts.

How does the NCA regulate interest, fees and insurance?

The Act limits what a lender may charge. It prohibits charging interest above what the Act and its regulations allow, and the regulations set maximum rates and fees for different kinds of credit, including short-term credit. Those limits are updated from time to time, so we do not print figures that could go out of date. Check the current limits with the NCR before you compare offers.

Credit life insurance has its own rules. A lender may require cover that does not exceed what you still owe under the agreement, and it must not demand insurance that is unreasonable or unreasonably priced. If the lender proposes a particular policy, you have the right to decline it and substitute a policy of your own choice, provided the replacement meets the regulations.

Our guide on the cost of a short-term loan shows how interest, fees and insurance combine into the total you repay.

Can a lender keep your ID, bank card or PIN?

No. It is a criminal offence under the NCA for a person to retain personal instruments such as an identity document, a bank card or a licence to secure repayment of a credit agreement. The NCR has carried out operations with the police against providers who held SASSA cards, bank cards and ID books.

If a lender asks you to hand over your card, PIN or ID as security, decline and report it to the NCR at its complaints email address or on its call centre.

What are your rights over your credit record?

Credit bureaus keep your credit record. Under the NCA you have the right to be told before a credit provider reports negative information about you, to receive a copy of your record when you ask for it, and to challenge information you believe is wrong. The NCR states that you can get one free credit report a year from each registered credit bureau.

Your information must be kept confidential and used only for purposes the Act allows. Checking your report once a year is a good habit, because errors are easier to fix early.

What help does the NCA give you if you cannot pay?

The first step the NCR recommends is to contact your credit provider and negotiate an affordable repayment plan. If you cannot reach agreement, you may approach a debt counsellor registered with the NCR. Debt counselling, also called debt review, is a formal process for over-indebted consumers that can lead to your debts being restructured.

Before a lender can take you to court over a debt, it must send you a written notice, known as a section 129 notice, telling you about your options, which include a debt counsellor, an alternative dispute mechanism or bringing your payments up to date. Do not ignore that letter. Our guide on what to do if you cannot repay a loan has more detail.