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NCA Introductory Workshop for BANKSETA and with Institute of Bankers . February – March 2006. SESSION 2. Dr. Penelope Hawkins F E A S i b i l i t Y. Sales and marketing practices Pre-agreement, quotes and contracts Interests rates and allowable fees and charges

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nca introductory workshop for bankseta and with institute of bankers

NCA Introductory Workshop for BANKSETA and with Institute of Bankers

February – March 2006

SESSION 2

Dr. Penelope Hawkins

F E A S i b i l i t Y

2 credit provision agreements and marketing
Sales and marketing practices

Pre-agreement, quotes and contracts

Interests rates and allowable fees and charges

Reckless lending and over-indebtedness

Unlawful agreements and unlawful provisions

2. Credit Provision: Agreements and Marketing

NCA Workshop: Session 2

2 1 marketing practices
Aim is to:

“curb undesirable marketing and sales practices (including door-to-door solicitation) and regulation of credit intermediaries.”

Sections 74-76; 89(1)b; 119(4)

2.1 Marketing Practices

NCA Workshop: Session 2

2 1 1 sales and marketing practices prohibitions
2.1.1 Sales and Marketing Practices: Prohibitions
  • “Negative option marketing” prohibited
  • Automatic increases in facility limits prohibited (except for annual increases subject to consideration of monthly cash advances / credits)
  • Telemarketing and sale of client information prohibited (unless with consent)
  • Agreements at home only if invited; at workplace only if agreement with employer or union

NCA Workshop: Session 2

2 1 2 sales and marketing practices advertising
2.1.2 Sales and Marketing practices: Advertising
  • Prescribed credit statements; disclosure of cost
  • Unregistered providers prohibited from advertising
  • Personal solicitations must include prescribed information
  • Prescribed cost of credit disclosure where goods sold on credit

NCA Workshop: Session 2

2 2 pre agreement statements quotes and contracts
2.2 Pre-agreement statements, quotes and contracts
  • Pre-agreement statement must cover terms and conditions
  • Quote is binding for 5 business days
  • Form and content prescribed for small agreements; more flexible for intermediate and large agreements (content not form prescribed)
  • Small agreements: pawn and small transactions
  • Intermediate agreement: credit facilities (such as credit card) and mid-size transactions
  • Large agreement: mortgages and large transactions

NCA Workshop: Session 2

2 3 interest rates fees and insurance
2.3 Interest rates, fees and insurance
  • Minister to impose limits on whole market or sub-sector
  • Interest rate: Initiation fee
    • Capped, depending on the nature of the credit, and the size of the transaction
    • Must be disclosed as a % per annum
    • Level: slightly higher than usury – but no exemptions
    • “in duplum rule”: default interest limited to settlement value at time of default. Outstanding interest and costs can never exceed outstanding capital

NCA Workshop: Session 2

2 3 1 fees
2.3.1 Fees
  • Initiation fee
    • Will be prescribed and limited
    • Only applicable if application results in a credit agreement
    • Likely to vary by type of loan e.g. micro loan vs. mortgage
  • Service fee
    • Will be prescribed and limited
    • In most cases a monthly or annual fee will apply
    • In the case of credit facility (like a credit card), may be per transaction

NCA Workshop: Session 2

2 3 2 fees cont
2.3.2 Fees (cont.)
  • Allowance made for cost recovery of:
    • Default administration charge
    • Collection costs
    • Extended warranty
    • Delivery installation and fuelling
    • Taxes
    • Charges unrelated to credit provision

NCA Workshop: Session 2

2 3 3 insurance
2.3.3 Insurance
  • Only credit life insurance and insurance cover against loss or damages of property pledged as security housing insurance compulsory, rest optional
  • To cover outstanding debt
  • Must allow for consumer choice (own or credit providers)
  • Only recovered via monthly charges (except for large agreements – where an annual charge may be imported)

Section 100-106

NCA Workshop: Session 2

2 4 reckless lending
2.4 Reckless lending

“Focus to shift from price control to protection against over-indebtedness and regulation of predatory lending practices”

Section 78-88; S130

NCA Workshop: Session 2

2 4 1 reckless lending
2.4.1 Reckless lending
  • Reckless credit
    • Failure to take reasonable steps to assess repayment history and “existing financial means, prospects and obligations”
    • Extending credit where the “consumer will be unable to satisfy in a timely manner all the agreements to which the consumer is a party”
    • But: protection only available when consumers disclosed accurately + ‘unjust enrichment’ prevented

NCA Workshop: Session 2

2 4 2 reckless lending
2.4.2 Reckless lending
  • Criteria for recklessness
    • No assessment of the consumer’s circumstance
    • Consumer did not understand his/her obligations
    • Agreement concluded when consumer already over-indebted
  • Assessment based on information when agreement made; consumer required to “fully and truthfully disclose”
  • Over-indebtedness applies to individual – reckless lending to the debt

NCA Workshop: Session 2

2 4 3 reckless lending
2.4.3 Reckless lending
  • If reckless:
    • Magistrates may not issue court orders for debt recovery – but will refer to debt counselor for debt restructuring (and may then approve them)
    • Agreement may be suspended or obligation reduced by Court or Tribunal (e.g. in extreme cases all fees and interest written –off)
    • Provider may be prosecuted by National Credit Regulator

NCA Workshop: Session 2

2 4 4 reckless lending
2.4.4 Reckless lending
  • Regulated debt counselors to assist consumers
    • Assess financial position, may recommend restructuring, suspension of reckless loans … within defined rules
    • Cannot be approached if debt recovery instigated
  • Enforced through consent orders by the Tribunal or debt restructuring orders by the court
  • Credit record “cleaned” if consumer meets commitments

NCA Workshop: Session 2

2 5 unlawful agreements
2.5 Unlawful agreements
  • Unlawful agreements (pawn transactions excluded)
    • When: minors; mentally unfit; under administration and administrator has not consented; unregistered provider; “negative option credit”
    • Except if credit provider “induced” or “mislead” into entering into agreement

NCA Workshop: Session 2

2 5 1 unlawful provisions
2.5.1 Unlawful provisions
  • Unlawful provisions
    • When: Deceitful; Fraudulent; Defeat Act; Waive prescribed “common law rights”; Automatic increases in credit limit; Alterations without consent; Retains bank Card ID or PiN; Representative is agents of consumer; Pre-authorisation to enter premises for repossession; Power-of-attorney; consent to payment prioritisation; allow general set-off; interest variations

NCA Workshop: Session 2

2 5 2 unlawful agreements and provisions
2.5.2 Unlawful agreements and provisions
  • Agreement becomes void:
    • Effect: void
    • Consumer payments to be refunded and either
      • (i) cancel all rights of credit provider to recover the outstanding monies or
      • (ii) forfeit to the State if canceling rights would unjustly enrich consumer

NCA Workshop: Session 2

session 2
Session 2

Question and Answer

Session

NCA Workshop: Session 2