The introduction of the National Credit Act in June 2006 intended to transform the credit industry in South Africa through tighter legislative controls on the sector. Rapid credit extension had fuelled growing household debt in the previous years, leaving South Africans in a position of low savings and high consumer indebtedness.
The introduction of the National Credit Act in June 2006 intended to transform the credit industry in South Africa through tighter legislative controls on the sector. Rapid credit extension had fuelled growing household debt in the previous years, leaving South Africans in a position of low savings and high consumer indebtedness.
While the Act and the National Credit Regulator have had a large effect on encouraging transparency throughout the credit provision sectors, the consumer may be just as helpless as before.
The man or woman on High Street is most affected by two of the sectors defined within the provisions of the Act.
These are the credit facilities sub sector, which include credit cards, clothing accounts and firms which offer furniture on credit or hire purchase.
The unsecured credit sub sector includes any form of personal loan offered by these institutions, a micro-lender or a bank. How do these different groupings affect the consumer?
On your basic clothing or furniture credit transaction, the maximum rate of interest applicable will be the current repo rate in South Africa multiplied by 2.2 and then 10% further interest added.
The current maximum interest rate that can be charged per annum compounded monthly is thus 24.3%. This maximum interest rate is evident when we look through the credit offerings of clothing and furniture stores down High Street, where bright pamphlets advertise enticing deals at “low” monthly instalments, the governing rate of interest however is 24.3%.
The maximum interest rate fee on anything within the unsecured credit subsector would be the same calculation as in the credit facilities sub sector with a 20% extra charge in place of the 10% stated.
The highest possible interest rate charge would therefore be 34.3% on this form of credit. What the National Credit Act has helped to do is provide rulings enforc- ing that credit terms state the total cost of the credit pur- chase after instalments and the governing interest rate. A brief example of this helps to better illustrate my point.
A Telefunken 32” LCD TV currently on sale for R5 999.99 is on offer for instalments of R442 over 30 payment periods with a deposit of R600. The total cost after interest and 30 payment periods?
Your R6 000 brand new LCD TV has cost your wallet R13 860. It is this all-in cost that retailers are now regulated to state to consumers.
The assumption that the National Credit Act has cut down on consumer credit extension may be naive, as the availability of credit is still far to easy to acquire by a South African citizen with a valid ID book and a cellphone contract.
What is evidently missing in the cycle of credit and consumer debt is transparency and consumer education.
Browsing through a Woolworths credit application form the average applicant would most likely bypass the small print and legal jargon of contractual obligations they would be opting for.
Just a perusal through the “Interest and other Charges” informs the hopeful applicant of their duties in perfect legal statements which may bypass the consumer in meaning and seriousness.
Consumers biggest shortfall? The proper understanding of compound interest. Compound interest has the unfortunate habit of snowballing, that is the further behind on payments you fall, the greater the amount you have to pay off.
This form of interest across multiple accounts can soon swamp the unwary shopper who falls behind on payments.
The current big credit sell scheme used by retailers is their “six months no interest” policy. The darker side of this is hidden behind an asterix and a phone call to head office.
The six months no interest condition will only be applicable if every monthly instalment is made timeously. If not your bill will reflect a new cost based on the original date of purchase including instalments and backdated interest compounded monthly to the current payment period.
While steps made by government to protect consumers from unscrupulous credit ‘farmers’ has reshaped the industry into a more accountable one, the next step is to further refine consumer education and highlight the ever present pitfall that is credit.
| Cash Price | Hire Price | |
| TV | 5999.99 | 13860.00 |
| Deposit | 0.00 | 600.00 |
| Instalments | 0.00 | 13260.00 |
| %Markup | 0% | 231% |
Should you have any queries related to credit terms or the National Credit Act their contact number is 0860 627 627.
