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.