The National Credit Act 34 of 2005 (Hereafter “the Act”) has very clear indications on what credit providers may charge, and the amount of such charges for specific kinds of agreements.

The cost of credit is regulated by Section 101 of the Act, and makes provision for the charging of an initiation fee, a service fee, interest, default administration charges and collection costs, on basic credit agreement. Each will be discussed in more detail below.

To understand the tables below, the following terms need explaining:

 Mortgage agreement:

 Mainly refers to a housing loan secured by the registration of a bond over the house or land.

 Credit facility:

An agreement in terms whereof the Credit Provider:

• supplies goods or services; or
• pays an amount to the consumer; or
• pays an amount on the consumers behalf.

Payment by the consumer is deferred or payments are made periodically, and interest or other charges are incurred. Examples are Clothing store cards, or Credit Card.

Unsecured Credit Transaction:

An Unsecured credit transaction, generally, refers to transactions where payment for goods or services is deferred and interest and other charges are paid for so long as payment has not been made in full, and where there is no security for the loan such as a car or house. If an agreement falls under the definition for a credit facility it will not be seen as an unsecured Credit Transaction.

Developmental credit:

Section 10 of the Act states that the following credit agreements could be regarded as developmental credit:

• A loan of less than R15 000 between a cooperative and its member;
• Educational loans where the monies are paid directly to the institution;
• Agreements with the following purpose:
• Acquisition, rehabilitation, building or expansion of low income housing;
• Development of a small business

Short Term Credit Transaction:

These are loans that amount to less than R8000.00 and are payable within 6 months.

Incidental Credit Agreement

Is an agreement in terms of which an account is rendered for goods and services that are provided to a consumer over a period of time, and; a fee, charge, or interest becomes payable if the account is not paid within a specified time. This means that no interest or extra costs are originally payable, but only becomes payable once the account is not paid in the prescribed time. A good example of an incidental credit agreement is a doctor’s bill, which is not paid on time and the doctor starts to charge interest on the amount outstanding after the due date.

The Act has limited application to Incidental credit agreements.

All these costs are provided for in S101 of the Act and the formulas to work out the specific amounts can be found in Regulation 42 to 48 of the Act:

Maximum Initiation fee:

Regulation 42(2) Table B

 Also remember that an initiation fee may never exceed 15% of the principal debt.

Service fee:

Regulation 44

The maximum monthly service fee, as prescribed in S105 (1) of the Act, is R50.

Interest rate:

The maximum prescribed interest rates are reflected in Regulation 42(1) Table A

Repo Rate: (10.5%) (As it was at the time of writing this article 19 March 2009)

Default administration charges may only be charged once the consumer is in default and may not exceed the prescribed amounts as per the Magistrates' Courts Act 32 of 1944.

Collection costs:

Collection costs can also be charged to the consumer and is charged by the Collectors or Attorneys to the consumer. The Magistrates Court Act also perscribes maximum charges.

The only other cost that could be charged under section 101 of the Act, is the cost of credit insurance as clarified in Section 102 of the act which states that if an agreement is; an

• Instalment agreement; or
• a Mortgage agreement; or
• secured loan; or
• a lease agreement

A credit provider could charge any of the following charges:

1. extended warranty,
2. delivery, installation and initial fuelling charges,
3. connection fees levies or charges,
4. taxes, licence or registration fees,
5. Premiums as stipulated and provided for in Section 106 of the Act.

The amounts for these charges are not predetermined in the Act and are dependent on provision of the Magistrates’ Court Act as well as other external factors.

These guidelines can be used to determine whether a credit provider is overcharging a consumer depending on what type of credit agreement it is, but may not cover all possibilities. The Act should be read as a whole in determining these issues.

Note: The content of this opinion does not constitute legal or financial advice and Summit Financial Partners (Pty) Ltd or any of their staff members in person can therefore not be held responsible for any errors and/or omissions.