Public Interest Credit Agreement
“Unsecured credit transactions” are agreements for which there is no guarantee on debt (such as loans or loans). The amount or time to repay is unlimited. Unsecured agreements over R8,000 and/or repayable agreements of more than six months fall into this category. The maximum interest rate is linked to the South African Reserve Bank `SARB` redemption rate ((return rate x 2.2-20% per annum) and is currently 39.8% per annum (based on the current rest of 9%). This maximum rate is almost twice the maximum allowed under the Usury Act, which applied until May 31, 2007 (20% per year). Furniture sales, for example, could now cost twice as much. A student loan could, for example, be granted to an unemployed consumer who may not have a credit file (so that the lender does not know its payment history). The consumer may not be solvent and there is no security. The nature of these agreements excludes reckless loans. Over-indebtedness is often a disastrous consequence of the high cost of credit. Levenstein sums up this situation: credit contracts can only be changed in specific circumstances, such as reducing or increasing credit limits. This provision helps prevent credit providers from taking abbreviations by simply accepting apparently solvent debtors at face value. A lender can use its own valuation mechanisms, provided they are fair and objective.
The consumer, on the other hand, must provide the requested information in a complete and truthful manner. Otherwise, the credit provider could fully defend the charge of granting reckless credits. A credit provider must not use an identity card, credit or debit card, access card or PIN to obtain a credit agreement or to recover the contract. A violation of this provision is punishable. “Development credit contracts” are credit contracts for the development of a small business, an education loan or a loan for the construction of low-cost housing. The maximum interest rate is 38.8% per year. The creditor must provide the consumer with a free copy of the signed credit contract (on paper or in printable electronic form). The 2004 Ministry of Commerce and Industry policy framework describes credit as a “double-edged sword”: even if a consumer is late in a credit contract and the credit provider has already begun debt enforcement proceedings, this agreement may not be subject to a debt review. This could encourage credit providers to initiate debt collection proceedings earlier than they would otherwise have done. Service charges are defined as a fee that can be charged by a credit provider at regular intervals (usually monthly) in relation to the routine administrative costs associated with maintaining a credit contract. The maximum service fee in the form of regulations is R50 per month or R600 per year.
All categories and sizes of credit contracts are subject to the same maximum “flat rate” tax of R50.