November has been a month of a change, once again, for the credit industry. As soon as the dust seems to have settled with the new affordability assessment regulations which are now in effect, credit providers must again prepare themselves for further changes to their business models.
The first wave came on 6 November 2015 when the Department of Trade and Industry published the Review of limitations on fees and interest rates regulations in Government Gazette 39379, which will come into effect 6 months after the date of publication (6 May 2015). The following regulations of the Regulations in terms of the National Credit Act of 2005 will be amended:
- Regulation 42(1) – maximum prescribed interest rates
- Regulation 42(2) – maximum prescribed initiation fees
- Regulation 43 – introduction of regulation 43(3) elaborating on when an initiation fee may be charged
- Regulation 44(1) – maximum prescribed service fees
- Regulation 44(3) – introduction of regulation 44(3) elaborating on when a service fee may be charged and what a service fee should cover
For each type of credit agreement, from mortgage to incidental credit, the maximum prescribed interest rates have decreased. Credit providers that offer consumers credit facilities may (from 6 May 2016 onwards) only charge a maximum prescribed interest rate of RR + 14% per year instead of [(RR x 2.2) + 10%] per year. For unsecured credit transactions the maximum will be RR + 21% per year, replacing the [(RR x 2.2) + 20%] per year maximum interest rate. And the list goes on.
The average maximum initiation fee that may be charged has however increase. Interestingly, the amendments introduce an additional provision requiring initiation fees to only be charged when a new credit agreement is established with a consumer and not on a transactional basis. The maximum service fee will also increase from R50 per month to R60 per month and will specifically cover the cost of administering a credit agreement, which the amendments refer to as “the operational cost of the credit provider”.
The second wave reached the shore on 13 November 2015 when the Department of Trade and Industry published the Draft Credit Life Insurance Regulations in Government Gazette 39407, this time for public comment to reach the department before 13 December 2015. In summary, the following draft regulations are introduced:
- a definition for the word “disability” used in relation to credit life insurance products;
- a maximum cost that a credit provider may charge a consumer in relation to credit life insurance including the cost of any commission fees or expenses in relation to that insurance (which will be calculated on the total of the consumer’s outstanding obligations under the credit agreement);
- the minimum cover that credit life insurance should settle in the event of the consumer’s death, permanent disability, temporary disability or in the event of the consumer becoming unemployed;
- where a consumer is not employed on the date that the credit agreement is entered into, no cost relating to the risk of becoming unemployed or being unable to earn an income may be included in the cost of the credit life insurance;
- a credit provider or insurer that wishes to increase its credit life insurance premiums to the new maximum prescribed cost of credit life insurance after the date on which the regulations come into operation must, at the request of the National Credit Regulator or the Registrar, demonstrate that the cost of credit life insurance was determined having regard to the actual risk and liabilities associated with the credit agreement;
- a list of exceptions and limitations for which the credit life insurance may provide (events or circumstances which the consumer’s credit life insurance will not cover – but this must be explained to the consumer on the date that the credit agreement is entered into and at regular intervals thereafter);
- when the credit life insurance may lapse; and
- that consumers may exercise their right to substitute their credit life insurance policy at any time after the credit agreement is entered into if the premium and benefits under the new policy are the same as or better than those under the current policy.