Unfair credit practices, borrower challenges and risks, and the role of the National Credit Act in the eThekwini Metropolitan Area

Abstract

The South African government enacted the National Credit Act No. 34 of 2005 (NCA) primarily to increase consumer access to credit markets, protect consumers from unfair credit and credit-marketing practices by credit providers, promote a fair, accessible marketplace, and establish national norms and standards relating to consumer protection, as well as reduce consumer over-indebtedness. Consequently, credit providers are obligated to adhere to strict rules and regulations when determining a credit consumer's affordability prior to granting home loans. Given the importance of the NCA and the absence of support consumers received from the previous Usury Act No. 73 of 1968 and the Credit Agreements Act No. 75 of 1980, this research seeks to investigate unfair debt practices, challenges and risks experienced by borrowers in connection with unpaid debts, and the role and strategies of the NCA in addressing such challenges and risks. The study employed a quantitative research method. Respondents (credit consumers) completed a survey questionnaire (hardcopy or online) by indicating their credit perspective in terms of unfair credit practices encountered within the market; challenges when trying to access credit; risks in connection with unpaid debts; and the strategies of the NCA to prevent such challenges and risks; along with awareness of the Act. The data strongly suggested borrowers encountered multiple challenges and risks, as a direct result of unfair credit practices by providers. An overall analysis revealed borrowers are unclear regarding the NCA and its provisions. However, findings revealed the NCA does play a significant role in regulating the South African credit market. Prior to enactment of the Act, only a percentage of low- and middle-income groups had access to credit; to ensure equal access, a formal, accessible credit market had to be established.