On 6 May 2016, the Limitations on Fees and Interest Rates Regulations (Final Regulations) in terms of the National Credit Act, 2005 (NCA) will come into effect. The Final Regulations effectively amend interest rates and fees, which credit providers can levy on, inter alia, consumers’ home loans, credit cards, store cards and unsecured credit transactions.
Given our current economic climate, the proposed changes could be viewed positively as many consumers are over-indebted and the interest rate cycle is predicted to start trending upward. The repo rate and the prime rate both increased in January 2016 and these were only the first of many interest rate hikes, with economists predicting further increases later in the year. Consumers need to understand the maximum interest rates and fees that are allowed and check that charges levied are legitimate before accepting credit quotations.
The maximum interest rates based on the current repo rate of 6.75%, which may be levied by credit providers in respect of:
- home loans will be 18.75% per year;
- credit cards and store cards will be 21,48% per year; and
- unsecured credit transactions will be 26,48% per year.
The maximum initiation fees which credit providers may levy on in respect of:
- home loans will be R5 250;
- credit cards and store cards will be R1050; and
- unsecured credit transactions, short term credit transactions and other credit agreements will be R1050.
Lastly, the maximum monthly service fee will be increased from R50 to R60.
Although, consumers should be financially healthy and protected from over-indebtedness, these proposed changes do not take into account the financial realities required to serve lower income clients. For this reason, the Portfolio Committee on Trade and Industry (Committee) recently requested a legal opinion on whether it has the power to amend the Final Regulations. The Committee is of the opinion that the Final Regulations require further amendment in order to ensure that the rights of consumers and businesses are protected. Further, the Committee chairperson said that the constitutional principle of equity must be observed, second degree human rights in the Constitution must be taken into account and in complying with the Constitution it is necessary to take into account the economic environment to avoid negative externalities.
Whether or not these Final Regulations will be amended is yet to be seen, for now, consumers and credit providers should be aware of their rights and obligations when entering into new credit agreements.