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IOL News
2 days ago
- Business
- IOL News
Rising debt: calls for greater consumer vigilance
The National Financial Ombud Scheme South Africa (NFO) is concerned about high levels of debt exposure in the wake of the release of TransUnion's Q1 2025 Industry Insights Report, which confirms a troubling trend: credit products commonly used by lower- and middle-income consumers are experiencing rapid growth in both uptake and default rates. Image: File With the dramatic shifting of credit from a tool for upward mobility to a survival mechanism for necessities like food, rent, electricity and transport, alarm bells are being sounded about unsustainable debt levels of consumers. The National Financial Ombud Scheme South Africa (NFO) is concerned about high levels of debt exposure in the wake of the release of TransUnion's Q1 2025 Industry Insights Report, which confirms a troubling trend: credit products commonly used by lower- and middle-income consumers are experiencing rapid growth in both uptake and default rates. With many households relying on credit just to meet basic needs, the NFO has warned of a surge in retail and non-bank loan defaults and urges consumers to beware of reckless lending, which can only place them deeper in debt. FINANCIAL STRAIN According to TransUnion, which explores financial trends in South Africa, non-bank personal loans now reflect the highest rate of serious delinquency in over three years, with 41.3% of account holders falling three months or more into arrears. This represents a sharp 520 basis point year-on-year increase and outpaces the default rate for bank personal loans by over 15%. The statistics for other retail credit products are equally concerning for the NFO. Default rates now stand at 27.1% for retail instalment accounts, 25.9% for clothing accounts, and 14.9% for retail revolving credit. The TransUnion report shows that while more consumers are taking up loans, retail instalment credit is up 16%, clothing credit 7.6%, and revolving credit 5.4%. The simultaneous rise in missed repayments signals growing financial strain on households. Kwanda Vabaza, Manager - Adjudication at the NFO's Banking and Credit Division, said: 'These figures are not just statistics. They reflect the reality of households using credit to survive rather than to grow. When nearly half of all non-bank loan holders are behind on their payments, the system is under serious strain. KNOW YOUR CREDIT RIGHTS 'Many consumers remain unaware of their rights under the National Credit Act (NCA), particularly when it comes to reckless lending.' The Banking and Credit Division of the NFO, led by Nerosha Maseti, has jurisdiction on non-bank credit disputes, covering credit agreements such as store and furniture accounts, microloans, non-bank credit cards, non-bank vehicle finance, non-bank home loans and other forms of credit not issued by banks. Vabaza said: 'We continue to see cases where credit was granted to consumers who clearly could not afford the repayments. This is classified as reckless lending and is prohibited by the NCA. In such instances, consumers are entitled to relief, which may include restructured terms or, in extreme cases, a recommendation by the NFO for the cancellation of the debt. 'The NFO also frequently receives complaints relating to clothing accounts, furniture and appliance credit, store cards, and non-bank personal loans. ''These disputes typically involve issues such as prescription (legally expired debt), incorrect balances, credit bureau listing disputes, fraud, and affordability assessments that were either not conducted or done improperly, leaving consumers burdened with unsustainable debt. 'Consumers have the right to receive credit only when it is affordable and in their best interests. They are also entitled to clear explanations of the total cost and legal consequences of any credit agreement they enter into.' Fortunately, for those who must contend with credit woes, they need not suffer in silence when things go wrong - the NFO is ready to help consumers with their challenges, ensuring financial fairness, transparency and justice in credit-related matters. The NFO offers free alternate dispute resolution, thus protecting and empowering credit-active consumers. 'Where rights are violated, consumers should contact our office. Our services are free and impartial, and we aim to resolve disputes in a way that is fair to both the credit provider and the consumer,' said Vabaza. CREDIT APPLICATION TIPS The NFO encourages all consumers to keep the following tips in mind when using or applying for credit: Only borrow what you can afford to repay, and do not misrepresent your affordability prospects. Before accepting any credit, check your income and monthly expenses to make sure you can manage the repayments comfortably. Avoid using credit for day-to-day expenses: Relying on credit to buy food, fuel, or airtime can quickly lead to debt spirals. Credit should be used wisely, not for survival. Understand all the terms and costs: Ask for a Pre-Agreement Statement and Quotation, which contains a full breakdown of interest rates, monthly repayments, and total costs before signing a credit agreement. Know your rights under the National Credit Act (NCA): You are entitled to fair treatment, proper affordability checks, and clear communication from any credit provider. If these are not followed, you may have a valid complaint. Pay on time and keep track of your accounts: Set up reminders or debit orders to ensure you never miss a payment. Keep a record of all your credit agreements and statements to avoid surprises 'If you are struggling or believe your credit agreement may not have been fair, contact the NFO. We are here to help ensure accountability and to protect your rights as a credit consumer,' Vabaza concluded. The National Financial Ombud Scheme of South Africa
The Citizen
21-07-2025
- Business
- The Citizen
Credit providers must not delete your whole credit history after debt review — NCR
Credit providers are less likely to grant credit to someone with no credit history, as they cannot assess whether the person will be a reliable payer. Debt review has helped many consumers to get their finances back on track, but consumers often complain that their complete credit history is deleted after they complete the process to pay off their debt, compelling the NCR to issue a guideline to correct this. The National Credit Regulator (NCR) has now issued a new guideline to provide guidance to credit providers on how they must update consumers' payment information at the credit bureaus after debt review. The NCR says it became aware that some credit providers do not submit payment profile information of consumers who are under debt review to credit bureaus as required by the National Credit Act. This means that consumers who receive clearance certificates after completing the debt review process do not have any payment profile information recorded on their credit bureau reports. Consumers who do not have payment profile information recorded on credit bureau reports find it difficult to be considered for new credit applications because credit providers do not have any payment profile information to conduct credit risk assessments on them to see if it would be risky to grant them credit. The NCR states that these consumers are incorrectly classified as thin-file consumers by credit providers. A 'thin file' refers to the credit report of someone with little or no credit history, which can make it difficult to get credit. ALSO READ: Credit and the law: Here are the rights you must know about Credit providers must give consumers this information when they get credit However, section 69(2) of the National Credit Act states that credit providers must, when entering into or amending a credit agreement, other than a pawn transaction or an incidental credit agreement, report directly within the prescribed time to the national register or credit bureau within the prescribed time the following information: The credit provider's name, principal business address and registration number the name and address of the consumer The consumer's ID number or passport number if the consumer is not a South African citizen, or in the case of a company, its registration number The credit limit if the agreement is a credit facility and the expiry date of the agreement, if there is one If the agreement is a credit transaction or credit guarantee, the principal debt, the particulars of any previously existing credit agreement that was terminated or paid off as condition for the new agreement, the amount and schedule of each payment due under the agreement and the date when the consumer's obligations will be fully satisfied if the agreement is fully complied with. In addition, regulation 19(13) of the Act, read together with guidelines issued under this regulation, states that a credit provider must submit credit information to the credit bureaus in the manner and form the National Credit Regulator (NCR) prescribes through conditions of registration and any guidelines the NCR issues from time to time. ALSO READ: Everything you need to know about credit bureaus Credit providers must use this consumer credit information Section 70(1)(a), read with section 70(2)(d), states that 'consumer credit information' means information about: Someone's credit history, including applications for credit, credit agreements the person is or was a party to, the pattern of payment or default under any of these agreements, debt re-arrangement in terms of the Act, enforcement actions regarding these credit agreements and the circumstances of termination of these agreements Someone's financial history, including the person's past and current income, assets and debts and other matters within the scope of that person's financial means, prospects and obligations, as defined in section 78(3) Someone's education, employment, career, professional or business history, including the circumstances of termination of any employment, career, professional or business relationship Someone's identity, including the person's name, date of birth, identity number, marital status and family relationships, past and current addresses and other contact details. A registered credit bureau must retain any consumer credit information reported to it for the prescribed period, irrespective of whether that information reflects positively or negatively on the consumer. ALSO READ: Debt Review: The good, the bad and the ugly What credit providers must do when it receives a clearance certificate According to section 71(5) of the Act, a credit bureau or the national credit register must, when it receives a copy of a clearance certificate, delete from its records: The fact that the consumer was subject to the relevant debt rearrangement order or agreement Any information about any default by the consumer that may have caused the debt rearrangement or was considered in making the debt rearrangement order or agreement Any record that a particular credit agreement was subject to the relevant debt rearrangement order or agreement. The NCR points out that only this information must be removed from the credit bureau records when a clearance certificate is issued for a consumer: The fact that the consumer was subject to the relevant debt rearrangement order or agreement Any information about any default before the debt rearrangement is considered, before the debt review process starts Any record or information that a particular credit agreement was subject to debt review. In addition, no payment profile information or history must be removed from the credit bureau records of a consumer, except as prescribed by the retention periods in terms of Regulation 17 of the Act. This guideline is effective immediately.
IOL News
15-07-2025
- Automotive
- IOL News
Pietermaritzburg High Court judge rules on fairness in repossession case
A judge refused to grant a summary judgment in a case where a credit provider claimed a vehicle owner fell in arrears with his monthly payment Image: Supplied The purpose of credit regulation must be seen as encouraging good faith engagement and promoting consumer rehabilitation, not as punishing transient default that has been remedied. This was the message of the Pietermaritzburg High Court in an application by BMW Financial Services (applicant) in which they wanted to repossess a vehicle as they claimed the owner had fallen in arrears with his monthly payment. The financial service provider wanted a summary judgment to be issued against Ndlangia Funeral Services and its owner Lungisani Ndlanga (the respondents). A summary judgment is a request for a court to rule in favour of one party without a full trial. This is usually when the court finds that there are no genuine disputes. But by the time the application had served before the court, the respondents had already paid the arrears. The financial service provider, however, still wanted an order allowing it to repossess the vehicle, as it argued the respondents had breached the sale agreement by falling into arrears in the first place (although this is no longer the situation). Judge Mokgene Masipa remarked that courts must remain alert to credit providers who weaponise technical breach for swift asset recovery, even where the rationale for enforcement has fallen away. Video Player is loading. Play Video Play Unmute Current Time 0:00 / Duration -:- Loaded : 0% Stream Type LIVE Seek to live, currently behind live LIVE Remaining Time - 0:00 This is a modal window. Beginning of dialog window. Escape will cancel and close the window. Text Color White Black Red Green Blue Yellow Magenta Cyan Transparency Opaque Semi-Transparent Background Color Black White Red Green Blue Yellow Magenta Cyan Transparency Opaque Semi-Transparent Transparent Window Color Black White Red Green Blue Yellow Magenta Cyan Transparency Transparent Semi-Transparent Opaque Font Size 50% 75% 100% 125% 150% 175% 200% 300% 400% Text Edge Style None Raised Depressed Uniform Dropshadow Font Family Proportional Sans-Serif Monospace Sans-Serif Proportional Serif Monospace Serif Casual Script Small Caps Reset restore all settings to the default values Done Close Modal Dialog End of dialog window. Advertisement Next Stay Close ✕ The judge noted that at the time the application for summary judgment was launched, the respondents had brought their account up to date, but this was after the default and the issuance of summons. In opposing the application, the respondents relied on the absence of arrears and their efforts to make payment to resolve the matter. The applicant told the court that prior to turning to court, a notice in terms of the National Credit Act was issued to the respondents, and thereafter summons. The core of the applicant's case rests on the enforcement of cancellation and return of the vehicle based on the respondents' failure to timeously meet their payment obligations under the agreement. Judge Masipa said while it is true that default initially occurred, the agreement was effectively reinstated when the respondents paid the arrears and brought their account up to date. He added that the matter is not one deserving of the stringent remedy of summary judgment. The continued pursuit of cancellation and repossession in these circumstances raises serious concerns about fairness and proportionality, the judge said. He added that it would be contrary to public policy for a credit provider to persist with enforcement action, particularly repossession, in circumstances where the defaulting party has rectified its breach prior to the matter being heard. 'Enforcement in such circumstances serves no purpose other than to punish the consumer, and is entirely at odds with the rehabilitative and equitable principles that underpin both the NCA and public policy.' The judge said the public interest in this matter is real and not incidental. 'The applicant is a financial service provider inherently tied to serving vulnerable members of the public. In this case, it would be contrary to public interest and policy considerations to permit the applicant to enforce its rights strictly on the basis of past default, when the underlying indebtedness has been cured.' He turned down the application for summary judgment and said the matter should be ventilated through evidence.
IOL News
07-07-2025
- Business
- IOL News
BASA and major banks appeal court ruling on loan agreements and debt review
The case was initiated by Chantelle Scott, a registered debt counsellor at SS Debt Counsellors, against BASA, the National Credit Regulator, the Debt Counsellors Association, Standard Bank, FirstRand Bank, Nedbank, Absa, and Capitec, as well as ministers of trade and justice. Image: IOL The Banking Association South Africa (BASA) and five major lending banks have filed an application to appeal a recent order by the North Gauteng High Court in Pretoria, in a legal battle that could redefine consumer credit relationships. The court's declaratory order, handed down by a full bench on 12 May, affirmed that an application for debt review, or a debt review order, does not remedy the default status of the original credit agreement under section 103(5) of the National Credit Act (NCA). This section is pivotal for consumers as it caps the total interest, fees, and charges accruing on a defaulted credit agreement, thereby safeguarding borrowers from potential exploitation by lending entities. This ruling positions the notion of 'default' as permanently tied to the original credit agreement, irrespective of whether the agreement is under debt review or has undergone restructuring. The case was initiated by Chantelle Scott, a registered debt counsellor at SS Debt Counsellors, against BASA, the National Credit Regulator, the Debt Counsellors Association, Standard Bank, FirstRand Bank, Nedbank, Absa, and Capitec, as well as ministers of trade and justice. Scott sought clarification on the term 'default', advocating that it inherently links to the original credit agreement's standing and is not negated by subsequent debt review actions. Scott also sought the order that an application for debt review and/or a debt review order did not purge and/or cure the 'default' of the original credit agreement, and that the amounts that accrue during the time that a consumer is in default under the credit agreement may not, in aggregate, exceed the unpaid balance of the principal debt under that credit agreement as at the time that the default occurs. The case dealt with the application of the so-called in duplum rule, designed to prevent lenders from accumulating excessive interests and charges beyond double the amount owed at the time of default—regulations that have seen varied interpretations since the NCA's introduction in 2007. The crux of the court's examination was the application of section 103(5) when an individual's responsibilities under the credit agreement undergo modifications via a debt rearrangement agreement or debt review order. Scott submitted that section 103(5) continues to apply for as long as the consumer is in default of the original credit agreement, whether or not the re-arranged credit agreement or re-arranged credit order was in effect. However, BASA contended that when an over-indebted consumer's payment obligations under a credit agreement have formally been rearranged by agreement or court order and the consumer is meeting his/her rearranged payment obligations, the consumer is not in default as contemplated in section 103(5). BASA unsuccessfully argued that a re-arrangement agreement or order purged the default under the existing credit agreement, with the effect that section 103(5) no longer applied. It also argued that any additional interest that was paid was the cost of enjoying the benefits of a longer period of time, allowing them to charge more interest and other charges. In its court papers for leave to appeal filed by its lawyers Cliffe Dekker Hoymeyr Inc on 30 May, BASA said the court misconstrued that default was required for debt review and did not consider the legal effect of a debt rearrangement credit agreement (RCA) and a debt rearrangement credit order (RCO). 'What the Court did not do is consider, and give effect to, the legal effect of the amendment of the credit agreement's repayment terms and the adjustment of the instalment amount and the repayment term as a result of the RCA or RCO,' BASA said. 'Once there is an amendment of the credit agreement effect must be given to that amendment and that effect is that the consumer is no longer in arrears because parties have prospectively amended the instalment amount and the repayment term to enable the repayment of the full outstanding balance under the credit agreement (including the arrear amounts) over an extended repayment term with reduced instalment amounts. If the consumer is no longer in arrears, he or she cannot at the same time remain in 'default'.' BASA also argues the court failed to correctly engage in the interpretive exercise of the debt review regime and that it mischaracterised the main issue. 'The judgment affects both consumers and credit providers in different ways throughout the country. Its implications reach far beyond the immediate interests of the parties. Importantly, it will negatively impact consumer's access to credit,' argues BASA in its papers. 'It has several unintended consequences as submitted by BASA in relation to the insensible and unbusinesslike results arising from the applicant's interpretation. Long-term repayment plans (e.g., 60 months or more) may no longer be viable. Credit providers may require that the debt re-arrangement agreement or order, by way of payment, purge the default under the credit agreement as soon as possible and not over an extended repayment term.' BUSINESS REPORT
The Citizen
07-07-2025
- Business
- The Citizen
Another slapdown for banks in high court
Industry association tries to argue that a consumer under debt review has cancelled their original loan agreement, allowing banks to charge even more … The case lays bare the 'abusive and deceptive practices' of South Africa's banks. Picture: iStock A recent high court case in Pretoria ruled that banks have no right to cancel a loan agreement once a consumer goes under debt review. The Banking Association of SA (Basa) tried to argue, without success, that a consumer under debt review has cancelled the original loan agreement. That would allow them to charge more interest and other charges. This is a victory for consumers, says legal consultant Leonard Benjamin. 'While the case dealt with the application of the so-called 'in duplum' rule, it lays bare the banks' abusive and deceptive foreclosure practices and shows that for decades the banks have been selling the homes of people when they are not, in fact, in default.' In duplum ('double') is a common-law principle that says the interest on a loan stops running when the unpaid interest equals the amount of the outstanding capital. Read more This is how Prudential Authority cracked the whip last year This was later written into the National Credit Act (NCA) as a way to stop lenders clocking up interest and other charges beyond double the amount that was outstanding when the consumer first fell into default. Benjamin questions how many homes and vehicles have been repossessed in SA due to the banks' self-serving interpretation of the NCA and the in duplum rule. ALSO READ: Court rules in favour of clients in Standard Bank home loan dispute Debt counsellor takes action The case was brought by debt counsellor Chantelle Scott against the National Credit Regulator (NCR), Basa, and the major lending banks. Scott asked the court for a declaratory order that an application to go under debt review does not mean the original credit agreement has been replaced. She argued that in duplum continues to operate while consumers are under debt review – effectively placing a cap on how much banks can charge on arrears. Basa and the major lending banks joined forces to oppose the granting of the order, arguing that the consumer was no longer in default once placed under a debt rearrangement order (DRO). The banks argued that in duplum, which caps the amount they can charge in the event of default, stops operating the moment a DRO comes into effect. ALSO READ: Court reverses home repo judgment after Nedbank bungled calculations A full bench of the Pretoria High Court agreed with Scott and granted her the order. The banks have taken the judgment on appeal. Benjamin contends that they may not realise they are shooting themselves in the foot if they succeed in reversing the judgment. 'The banks' argument, in fact, relies on arrears capitalisation, a debt relief measure commonly used to eliminate arrear repayments. It involves an adjustment to the existing repayment plan to allow arrears, made up of overdue repayments, to be repaid over the term of the loan as part of an adjusted repayment amount.' Adjusted repayment are commonly used in credit agreements, particularly where variable interest rates are involved. ALSO READ: Gauteng man takes Absa to court over alleged unlawful car repossession 'When the interest rate changes the credit provider is obliged to also adjust the monthly repayment amount to ensure that the outstanding balance, together with interest at the new rate, will be repaid over the remaining term of the loan,' says Benjamin. 'In effect, a new repayment schedule, which supersedes the previous one, is set up each time the interest rate changes. Since the outstanding balance will include any arrears, the arrears are purged, and the consumer will no longer be in default.' The banks argued that a repayment plan that is put into place under debt review typically involves a term extension. A longer term results in a lower, and more affordable, monthly repayment. However, arrears can be purged without extending the term. The debt will also be repaid by increasing the monthly payment amount instead of the term. Arrears capitalisation occurs by adhering to the terms of the agreement when there is a change in interest rates. ALSO READ: Standard Bank told to pay back the money Benjamin says most banks automatically recapitalise any arrears amounts each time there is a change in interest rates, spreading the arrears over the remaining term of the loan. But in many instances, banks continue to hound customers over alleged 'arrears' when in fact the bank has purged the arrears through recapitalisation – spreading the arrears over the remaining term of the loan. What's happened in practice is that customers in arrears are being charged a new, higher monthly instalment while the banks also bring legal action for recovery of the now non-existent arrears – a practice known as 'double-dipping'. In other cases, banks specifically exclude arrears in determining the new monthly repayment method since they appear to be aware of the double-dipping trap. Benjamin says this exclusion violates the banks own loan agreements. 'In the many years that I have looked at loan agreements, I have yet to come across one that allows for this.' ALSO READ: FNB home repossession goes horribly wrong Impact on term extension on monthly repayments Assume a loan agreement says the consumer must pay back a loan of R1 000 over 10 months. In other words, a monthly repayment of R100 is required. The consumer makes the first three payments and then falls into default by failing to make the fourth and fifth payments. The outstanding balance of the debt is R700, leaving an arrears of R200. The debt is rearranged to make the payments more affordable by reducing the monthly repayment to R70, but the term of the loan must be extended by a further five months. This means that the outstanding balance of R700 must be repaid over the next 10 months. The rearrangement means the consumer will no longer be in arrears. In the Pretoria High Court case, the banks tried to argue otherwise. Arrears can also be purged without extending the term. The debt will also be repaid by increasing the monthly payment amount instead of the term. In the above example, if the instalment is increased to R140 a month, the outstanding balance of R700, which includes the arrears of R200, will be repaid over five months. This article was republished from Moneyweb. Read the original here.
