The National Credit Act (NCA)
In the face of the global problems associated with predatory
lending practices, South Africa enacted legislation that took
effect in 2007 to protect both creditors and borrowers from
poor or malicious lending decisions. The legislation, known
as the National Credit Act, requires banks to do their due
diligence to ensure that any borrowers seeking mortgage loans
from the bank do not exceed the limits of their credit. This
requirement has forced banks to make dramatic changes in the
way they handle new applications for loans, and has also forced
borrowers to be more concerned with the state of their own
credit.
What the Act changes
Prior to the implementation of the Act, borrowers were only
required to demonstrate that the payment of their mortgage
would constitute less than 30% of their income. The problem
with the old system was that borrowers were under no obligation
to disclose the full extent of their debt, and lenders were
under no requirement to perform an in-depth review of applicants’
credit status. This resulted in many people being allowed
to borrow amounts that were in excess of what they could reasonably
pay back, causing far too many loans to fall into default
and far too many borrowers to see their credit rating plummet.
The new Act in practice
Under the requirements of the 2007 Act, banks are obligated
to ensure that they have access to each applicant’s
entire credit history. Applicants are expected to prove their
income as well as reveal all of their other outstanding debts.
This includes payments they must make for cars, debt on any
credit cards, and other loans. With this fuller picture of
a client’s credit, banks are better able to make sound
decisions about a borrower’s ability to repay any loan
received.
Real benefits
While the impact of the Act may seem overly restrictive to
some, there are real benefits to the legislation. For one,
both banks and borrowers are now held to higher standards
of conduct, and misconduct can be remedied. Take the banks’
responsibilities, for example: if any bank allows a borrower
to exceed credit limits, the bank can not only suffer a fine,
but is now open to legal recovery from the borrower should
they be unable to repay the loan. On the flip side, borrowers
who provide inaccurate or incomplete information to the bank
could suffer repossession of the property upon discovery.
There is no denying that the 2007 National Credit Act has
had a profound impact on the lending and borrowing practices
of both banks and borrowers alike. Though it may be too soon
to properly judge the full impact of the Act , most people
tend to agree that some type of change was desperately needed
to preserve the integrity of lending institutions and safeguard
borrowers from the common predatory lending practices to which
they all too often fell victim. As an individual borrower,
the Act’s impact on you extends no further than to place
what most people consider reasonable requirements upon your
personal financial disclosure when seeking a new loan.
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