December 31, 2009
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News: South Africa CC Reform Taking Hold
South Africa is seeing positive results from its sweeping credit card reform legislation, the National Credit Act. The act which was passed three years ago to rein in lenders participating in careless lending practices was aimed at preventing economic downfall that the country previously experienced in 2002. Credit card companies that have violated the law are being met with serious consequences. In some cases, if the credit card company did not take adequate measures to assure the consumer is capable of repaying the debt, the lender is deemed as having participated in reckless lending, the card contract is null and void and the lender is found to be fully responsible for all debt.
Experts say that the issuance of credit cards and other loan products was reduced significantly after the law was enacted because lenders pulled lending practices in line with new regulation. It is also suggested that other countries such as the United States (U.S.) would have benefited a lot sooner if they had followed the lead of South Africa and implemented credit card reform several years ago. The U.S. only recently signed its reform legislation into law and is not scheduled to be effective until February 22, 2010.
Overall, the National Credit Act states that:
• Credit card companies must assess the consumers' ability to repay debt prior to the company issuing credit.• Prohibits penalty fees and interest rates on all consumer loans.
• Implements interest rate caps on all credit card accounts, overdrafts, and mortgages.
• Prohibits lenders from increasing credit card limits and debit overdraft credit without first acquiring the permission of the borrower.
• Called for the establishment of a consumer protection body, the National Credit Regulator who enforces the law.
• Called for the establishment of the National Consumer Tribunal to deal with credit card companies and lenders that do not comply.
Despite the fact that South Africa has begun to see some signs of economic recovery, some analysts feel that in the wake of continued high credit card and mortgage defaults, it is too early to tell if the law is fulfilling its purpose. Nevertheless, most experts recommend that those countries that have not yet done so, would benefit greatly by reform.