What should stores tell you before opening an account?

Many stores offer consumers the option of opening an account. This access to credit allows you the ability to buy items you otherwise would not have been able to purchase. However, stores still need to carry out affordability assessments, and provide you with information pertaining to fees and interest rates before you sign on the dotted line and start shopping.

What information must a credit agreement contain?

Reana Steyn, deputy Ombud at the office of the Credit Ombud, highlighted that the National Credit Act (NCA) stipulates a number of requirements for a credit agreement. This includes the issuance of a pre-agreement quotation as well as a copy of the credit agreement.

“The quotation must spell out information such as the period, the interest rate, the cost of insurance and other fees, as well as the total cost of credit. The point is, the information should be made available before the contract is concluded, but not necessarily in the application forms,” clarified Steyn.

The National Credit Regulator (NCR) concurred, stating: “Credit providers are supposed to provide consumers with a pre-agreement statement and quotation. This outlines the cost of credit and the terms and conditions of the agreement before a consumer signs the actual agreement.”

In addition, the NCR emphasised that a credit application form must “contain clauses allowing consumers to submit all the necessary information pertaining to the consumer’s financial position, to enable a credit provider to conduct proper affordability assessment.”

What happens if you are not informed of interest rates and fees?

If you are not informed about interest rates and any relevant fees prior to taking out a credit agreement, Steyn emphasised that you will have recourse.

“It could be that a consumer wants to rely on the lack of knowledge and understanding in this regard to rely on reckless credit. If a court or the Tribunal find that the agreement was indeed reckless, the normal consequences of recklessness will follow – i.e. all or part of the consumer’s rights and obligations under the agreement may be set aside – depending on what is just and reasonable in the circumstances. Or, the court/Tribunal may suspend the force and effect of the agreement until a later date,” said Steyn.

The NCR added: “Failure to fully inform consumers about the costs of credit as required by the NCA is unlawful and consumers have recourse under the law, and may lodge complaints with NCR.”

What is the maximum you can pay?

The NCR stressed that the maximum a store can charge in interest is 21%. This is calculated using the limitations on fees and interest rates regulations which came into effect earlier this year. The maximum prescribed interest rate for credit facilities such as store cards, is repo rate* plus 14% per year.

The maximum initiation fee that can be charged for these types of agreements is R165 per credit agreement, plus 10% of the amount in excess of R1,000, but never to exceed R1,050. This fee is only payable when a new credit agreement is established and must not be charged on a transactional basis where there is no new credit agreement being entered into.

In addition, the maximum monthly service fee is set at R60. This covers the cost of administering the credit agreement and any other costs associated with the administration of the credit agreement.

Determining your credit amount

While the maximum credit amount available to you will be determined by your risk profile and affordability, you do have some say in the matter. Steyn pointed out that in terms of the NCA, at the inception of the credit agreement, you can select an automatic limit increase or not. “If a consumer picks yes, the automatic increase will happen on the anniversary date- with an amount that is equal to the average amount spent on the facility.”

If you select ‘no’ to an automatic increase, you will still be able to ask for a credit increase at any time. However, the necessary affordability checks will need to be conducted under both circumstances.

Steyn added that a credit limit decrease is also available upon your request.

What should you ask before taking out a credit agreement?

Before signing on the dotted line, there are a few things you should ask the credit provider. Steyn noted that the most important question relates to cost. This includes the interest rate, monthly fees (including insurance), as well as any other costs that may be charged.

You should also request a copy of the quotation and agreement, as well as information on where you can complain should you have a problem.

Lodging a complaint

If you have a problem with a credit provider, there are a number of avenues which you can follow. Steyn explained: “A consumer may complain to the NCR about any act or omission on the part of a credit provider that is in breach of the requirements of the NCA. A breach also constitutes prohibited conduct.”

The Credit Ombud can also deal with complaints regarding most credit providers who issue store cards, as Steyn highlighted that many of them are members of the Credit Ombud. “Our services are of course free of charge. When we receive a complaint, we aim to resolve [them] to the satisfaction of both parties, in a manner that is fair and equitable. We also apply the NCA requirements, but we also look at fairness. In other words, we do not only have to apply the strict wording of the NCA, but we also look at the circumstances around the contract and the parties, to agree an outcome that if fair to both parties.”

*As at 25 October 2016 the repo rate is seven percent.

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