SECURITY. HEALTH. PEACE.
protect the present and plan for the future
AUGUST 2008
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TOP 10 STORIES |
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1. Make high interest rates work in your favour |
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2. Banks, government want to bag your savings rand |
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3. Scheme accuses doctors of milking PMBs |
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4. Don’t sneeze at this scenario |
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5. FSB tells the life industry it must ensure it complies with the law |
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6. Home truths about retirement villages |
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7. How to decode disability assurance |
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8. 10 things you should know about giving |
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9. Why inflation feels worse than it is |
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10. Policy payouts expose gaps in medical cover |
| 10 things you should know about the National Credit Act | ||
| By Charlene Clayton Consumers snap up credit contracts – from microloans to hire purchase agreements – every day, but on the whole they are ill prepared to sign on the dotted line. The government has stepped in with far-reaching new legislation to protect the unwary from unscrupulous moneylenders, shops and banks. We highlight 10 things you need to know about the new National Credit Act. If it were not for the ability to obtain credit, you would have to pay cash upfront for your home, your car and your lounge suite, and it is highly likely that you would live in a much cheaper property, probably drive a very dated second-hand car and make do with a cast-off lounge suite from your parents until you accumulated enough money for a new one. For many South Africans, access to credit is even more vital and determines whether they can put food on the table and send their children to school. The important role of credit in the life of consumers is undisputed. However, few consumers make informed decisions when entering into a credit agreement and many credit providers have cashed in on this lack of knowledge. According to a report by Reality Research Africa following its research into the consumer credit market in South Africa in 2002, "consumers appear to walk into stores, banks, car dealers and estate agents as lambs to the shearer, ignorant and innocent, prepared to be fleeced". The research was commissioned by the Department of Trade and Industry (DTI) as part of the review of credit laws in South Africa. The researchers conclude that across all income groups and all categories of credit, consumers are affected by a lack of information about their rights, hidden costs and interest rates. Many consumers are so excited about their purchases that they sign anything, anywhere, just to have access to the credit, vehicle or home they want, the report states. The DTI introduced draft legislation to Parliament in 2005. On March 15 this year, the new National Credit Act was signed into law. It replaces three pieces of legislation: the Usury Act, the Exemption Notice (to the Usury Act) and the Credit Agreements Act. The Usury Act governs leasing, credit and money-lending transactions. It applies only to loans of less than R500 000 and lease agreements up to R100 000. The Credit Agreements Act applies to credit agreements on items listed by the Minister of Trade and Industry in a government notice. The Exemption Notice to the Usury Act exempts microloans (loans of less than R10 000) from the Act and allows microlenders to operate outside certain requirements of the Usury Act. For instance, micro-lenders do not have to abide by the interest rate limit in the Usury Act. This limit, which is adjusted from time to time, is 20 percent for loans of less than R10 000 and 17 percent for loans over R10 000. These provisions of these Acts will continue to apply until the entire National Credit Act comes into operation in June next year. The National Credit Act introduces new rights for consumers, as well as measures that allow consumers to make informed decisions before buying goods and services on credit. It also places a greater responsibility on credit providers to refuse to give you credit if you cannot afford it and, for the first time in South African history, it will regulate the way credit bureaus do business. All credit transactions – home loans, car loans, microloans, and clothing and retail accounts – fall under the new legislation. Gabriel Davel, the chief executive of the new regulatory body, the National Credit Regulator, says loan agreements are frequently complex and difficult to understand, with many of the fees and obligations hidden in the fine print. Credit providers frequently exploit people’s vulnerability. "On the one hand, consumers must accept responsibility for their actions and we must resist the growing trend of people acquiring goods that they cannot afford, and then seeking to escape the responsibility for paying for these obligations," Davel says. But, he says, the credit industry has been far too willing to participate in the credit frenzy. "More honest disclosure by both the credit provider and consumers, and harsh penalties on credit providers that approve loan applications knowing clients cannot afford the repayments, would help create an environment in which people can benefit from access to credit, without being damaged by credit." The National Credit Act covers a range of issues. These include: 1. Better disclosure The DTI-commissioned report states that organisations that extend credit to consumers disclose only selective information about the nature of the loan. Consumers are often not informed about: Common to all income groups in the survey is that consumers were exposed to the full impact of their credit decision only once they received their first statement, the report states. The lack of explanation or understanding of the loan contract leaves most consumers believing they will pay a certain instalment each month. The problem is that the hidden costs are generally not explained, and consumers are not aware of them until they receive the first statement. In short, most people – in the survey’s hire purchase, vehicle finance, store card, home loan and personal loan categories – feel cheated after receiving their first statement, the report states. After having blindly entered into contracts, most consumers feel that the store, the microlender, the bank, the car dealer, or the estate agent has cheated them and that they are paying far more for the credit than they thought they would. To counter this problem, the National Credit Act specifies that a credit provider must give you a quotation or pre-agreement disclosure before you enter into a credit agreement. This quotation must be valid for five business days. This means that the credit provider will not be able to push you into signing up for the credit at your first meeting with a threat that it will cost you more if you come back on another day. For agreements classed as small credit agreements – where the amount of credit is below R15 000 – the quotation must be given to you in a form prescribed by the National Credit Regulator. Quotations on intermediate (from R15 000 to R250 000) and large (above R250 000) credit agreements, such as home loans, may be either on a prescribed form or in another form, as long as all the required information is disclosed to you. All quotations must disclose the full cost of the credit to you and not only the minimum monthly instalment. This includes details such as: agreement and the manner in which such default charges will be calculated; If the amounts that must be disclosed are not quantifiable, the credit provider must disclose the amounts to you based on estimated information, provided that such estimates are reasonable. In cases where the fees are not quantifiable, the credit provider must provide you with the method by which such fees will be calculated. The Act also requires that you be given, without charge, a copy of the document that records your agreement and that the agreement must be in clear, concise and plain language. 2. Consumer information held by credit bureaus The lack of regulation of the credit bureau industry was raised at the National Economic Development and Labour Council (Nedlac) – the government, union and business negotiating body – in 2002 as one of the problems within the financial sector. Nedlac called for the regulation of credit bureaus to ensure that they provided reliable and appropriate information to lenders. The information that credit bureaus keep about consumers is regulated for the first time. The National Credit Act places obligations on credit bureaus regarding the accuracy and retention periods of credit information. It also places obligations on credit providers, who forward information on your payment and credit habits to the bureaus. The Act requires the following: Adverse information includes information that you are a delinquent or slow payer, that you are in default on your accounts or that you cannot be contacted. It also includes enforcement actions taken by credit providers, such as if the provider has handed over your loan to attorneys for legal action. In certain instances, you must give your consent for your information to be accessed. A prospective employer who wants to appoint you in a position of trust and one that requires you to handle cash or finances may check on your credit information at a bureau, but must obtain your prior consent. 4. Marketing practices 5. Reckless credit According to the DTI report, there is mounting evidence of reckless lending by credit providers and of exploitation of consumers by microlenders, intermediaries, debt administrators and debt collectors. The Act has mechanisms to deal with debt and to create a safety net for those with too much debt. Reckless credit will be prohibited under the National Credit Act from June 1 next year. A credit provider would be reckless in three instances: The Act also places an onus on you, the consumer, to be truthful about your debt obligations and your ability to take on new debts when applying for credit. If a court finds credit was granted to you recklessly, the court may make an order setting aside all or part of your rights and obligations under the agreement. The court may also refer you to a debt counsellor to assess your financial circumstances. The counsellor will have to report back to the court on your situation. If the court then finds that you have too much debt, it can order that your debt be restructured. If this happens, you will not be allowed to enter into any further credit agreements other than an agreement in which all your debt will be consolidated, until you have meet your obligations under the restructured or consolidated agreements. Your creditors may not enforce any litigation process against you while you are paying off your debts under a debt restructuring arrangement. If you find yourself in too much debt you can apply to a debt counsellor, who, if he or she concludes that you are indeed over-indebted, will make arrangements with your creditors to have your debts restructured after it has been ratified by a court. You are considered to be over-indebted if your total monthly debt repayments exceed your net income (take-home pay) and after deducting the cost of your minimum living expenses. Your minimum living expenses will be based on a budget that you must provide to the debt counsellor, who will adjust your living expenses according to guidelines issued by the National Credit Regulator. Debt counsellors may charge you fees for restructuring your debt, but these fees are laid down in the regulations to the Act. The fee for applying to a debt counsellor for debt restructuring may be no more than R50. 6. The contract According to the DTI report, consumers generally assume that contracts are legal documents that make both parties aware of the conditions under which credit is extended. Consumers further assume that the contract will protect lenders as well as themselves. But, the report states, despite the fact that consumers understand the role of the contract, many borrowers do not read – or, importantly, understand – the contracts they sign. Consumers appear to be caught up in the excitement of obtaining the items they were attempting to buy rather than the details of the contracts. Ignorance, laziness and the legal jargon used in contracts are other reasons for consumers not reading their contracts. It has been found that sales people and consultants are not concerned whether or not clients read and understand the documents, and applicants for credit are therefore bound to something they often do not understand. It is sometimes so easy for consumers to get credit that it is granted telephonically that they do not see any documentation. Another reason consumers do study contracts is that, in many cases, they trust the people they deal with not to cheat them, particularly if it is a bank they have been dealing with for some time. Some consumers indicated in the report that the fear of losing the deal made them rush to sign and not query the contract too much, as they needed the loan or the credit urgently. Contributory factors to consumers not reading their contracts is the fear of being thought foolish and of being embarrassed to ask questions to which they thought they should know the answers. The researchers came to the conclusion that consumers who apply for credit need to be educated about the advantages of reading the contract. Under the National Credit Act, the National Credit Regulator – apart from enforcing the Act – has the task of educating consumers about their rights. In addition, the Act gives consumers extensive new rights. From June 1 next year, you will be protected from discrimination in the granting of credit. This means that a credit provider may not unfairly discriminate against you on the basis of your race, gender or other grounds set out in the Constitution. You will also have the right to receive: 7. Interest rates According to the report, consumers are generally aware that buying on credit involves interest, which increases the cost of the items being bought. Although consumers do not work out the final cost of buying most things on credit, consumers are aware that they will pay several times the advertised cash price. In cases where consumers calculate the final price, they are shocked and horrified. "The price of the fridge was R3 000. Now, with hire purchase and all those things, it’s came to about R5 000," is the comment from one participant in the survey. "You borrow, say, R6 000. After 18 months you check your statements; you realise that you have paid close to R8 000," is another. The report states that in many cases consumers do not query their repayments because they feel their repayments have been set, they signed the contract and so do not have the right to question or complain because it was their own doing. Another reason for not complaining is that the monthly repayments are affordable, and since consumers did not have the cash in the first place, living on credit is the only way they can make ends meet. They are resigned to paying and paying, almost indefinitely in some cases. They have become willing victims of the system, the report says. Most people do not know they have the right to negotiate interest rates. They accept the rates they are given, in some cases not knowing even what the interest rates are. Others simply cannot be bothered to shop around or negotiate for better interest rates, and others mention that the practicality of going to a lender that does not know them is a problem. The National Credit Act considerably beefs up the disclosure of interest rates, fees and ancillary charges, and lays down a maximum rate of interest that you may be charged. These provisions come into effect from June 1 next year. Under the new legislation a credit provider may charge you an interest rate that varies during the term of the agreement, but only if the variation is linked to a reference rate – for instance, the prime lending rate or base home loan rate. The new Act has also legislated the common law principle called the in duplum rule, which caps all the charges and interest you owe under the agreement when you fall into arrears on your loan or credit agreement. The Act states that all costs and interest (which includes default charges and collection costs) may not exceed the unpaid balance of the principal debt under that credit agreement at the time you go into default. Furthermore, you must be notified in writing five days in advance of any changes to interest or credit fees or charges. In the case of an agreement with a variable rate, such as a home loan, the credit provider must give you written notice of the change in your interest rate no later than 30 business days after the day on which a change in the variable interest rate takes effect. The Act lays down maximum initiation fees and interest rates. The maximums, which vary depending on the type of credit agreement, will apply from June next year. Maximum interest rates The maximum interest rates will be linked to the South African Reserve Bank’s repurchase (repo) rate, which is currently 7.5 percent a year. This means that the ceiling rates will change each time the reserve bank announces a change in the repo rate. The formula for each type of agreement will incorporate the ruling repo rate. The following are examples of the maximum interest rates (based on a repo rate of 7.5 percent in June this year) that lenders will be able to charge you from June next year: The limits under the old Usury Act, which has been replaced by the National Credit Act, were 20 percent a year for loans not exceeding R10 000 and 17 percent for loans over R10 000. In practice, lenders give their best-risk clients a 2.5-percentage point discount off the prime lending rate (which is now 11 percent a year – in other words, these clients pay 8.5 percent a year), but higher-risk client can pay as much as prime plus four percentage points (about 15 percent at a prime rate of 11 percent a year). 8. Fees The National Credit Act specifies what you may be charged for when you enter into a credit agreement. These provisions all kick in at the beginning of June next year. Broadly, a credit provider can require you to pay: Maximum initiation fees The maximum initiation fee on: A further proviso is that the initiation fee may never exceed 15 percent of the principal debt. Maximum service fees The Act sets the maximum service fee at R50 a month. Under one of the provisions of the Usury Act which remains in effect until June next year, banks were limited to a monthly administration fee on home loans of R5 a month (R5.70 including VAT). 9. Cost of insurance The National Credit Act seeks to regulate credit providers that sell insurance. There is the potential to over-sell insurance or over-insure to your detriment, and you, the consumer, are sometimes limited in your choice of insurance products. The concept of credit life assurance is not well known, and it is frequently confused with other types of insurance, such as personal accident insurance. According to the DTI report, the majority of consumers who don’t know what credit life assurance is believe it is compulsory and do not know of their right to shop around for credit life assurance. They do not know who holds the insurance policy, and the policy is not explained to them. The report concludes that credit life assurance is not always applied responsibly by all lenders, that credit users’ rights are disregarded and that credit life insurance appears to be exploited by many lenders. The new legislation states that a credit provider may require you to take out credit insurance for the duration of your credit agreement, but the amount of insurance may not exceed your total outstanding obligation to the credit provider under the agreement. In the case of home loans, the bank may not require that you take out more insurance than the full asset value of the property. A credit provider may offer you additional insurance cover, but it cannot make it obligatory. Furthermore, if the credit provider proposes a particular policy to you, you must be informed of the right to waive that proposed policy and to provide a policy of your own choice. Should you choose your own policy, the credit provider has the right to pay any premiums due under the policy during the term of the credit agreement and to bill you for such premiums. Where the credit provider arranges the insurance for you (in other words, you waive your right to choose your own policy), the credit provider may not charge any additional amount over and above the actual cost of the insurance. The credit provider must also disclose the cost of the insurance to you, as well as any commission or fee that it earns in arranging such insurance for you. And the credit provider must explain the terms and conditions of the policy to you. On any insurance policy, the billing may be done only monthly for small and intermediate agreements, and either monthly or annually for large agreements. The credit provider may also require that you give the credit provider first right under the policy when it pays out so that the debt with the credit provider may be settled first. If the premiums on the policy are paid annually, and you settle the outstanding amount on your credit agreement, you are entitled to a refund of the unused portion of the final year’s premium. 10. Complaints Having fabulous new rights is great, but it means little if you cannot enforce them. Previously, complaints about credit transactions or credit providers were handled by different entities: Under the National Credit Act, a new regulator came into being on June 1 this year. The duty of the National Credit Regulator is to monitor credit providers and their compliance with the new law. From September 1 this year a new dispute resolution body, the National Consumer Tribunal, will come into being. The tribunal will function as an informal court to sort out problems that consumers experience with credit transactions, credit bureaus and credit providers. The tribunal will be a separate body from the National Credit Regulator and will consist of a chairperson and at least 10 other members. Decisions of the National Credit Regulator can be appealed to the tribunal. Other dispute resolution bodies, such as the Credit Information Ombud, the Ombudsman for Banking Services and the provincial consumer affairs directorates, will continue to operate and will try to resolve consumers’ credit-related complaints. Three-phase Act The National Credit Act will be implemented in three stages: |
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Insist on confirmation that your vehicle is insured | |
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By Neesa Moodley-isaacs On August 22, 2006, he received the email with instructions to include both the horse and trailer on the policy, Van Rooyen said. It was only at this point that he realised that Van der Walt also wanted cover for the trailer. He immediately started to work on a revised quotation to include the trailer, and he told Van der Walt of his efforts later that day, Van Rooyen said. Van Rooyen said when he spoke to Van der Walt on August 25, 2006, he had told him that insurance cover would soon be in place. Van der Walt then told him that the trailer had tipped over. Van Rooyen denied having told Van der Walt that cover was in place for the trailer. When questioned by Bam, Van der Walt denied having received the written quotation from Van Rooyen, contradicting his own complaint, which referred to the written quotation. In her determination, Bam says Van der Walt referred to his email of June 30, 2006 as the "initial" request for a quotation. She says he failed to mention the earlier telephonic contact with Van Rooyen requesting a quote for a horse only, which was confirmed in the email of June 14, 2006. Bam says Van der Walt did not have written confirmation of cover. "He should have obtained written confirmation that the vehicles were, in fact, covered before putting them to use. Also, he only inquired whether his insurance was 'in order' after the trailer tipped over," she says. Bam says the ombud's office expects parties to a complaint not to withhold important or relevant information. She ruled that "the balance of probabilities about the disputed facts favoured the broker in this case". The case was dismissed. Contact The Ombud for Financial Services is Charles Pillai. Sharecall: 0860 324 766 Telephone: 012 470 9080 Fax: 012 348 3447 Post: PO Box 74571 Lynnwoodridge 0040 Email: info@faisombud.co.za Website: www.faisombud.co.za |
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How the NHRPL affects your benefits | |
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By Laura du Preez
The department is compiling a new NHRPL that schemes will be able to use for their 2009 benefits. The list is expected to more accurately reflect the costs of different healthcare services than was the case before. |
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10 reasons to have a medical scheme |
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Think about a medical worst-case scenario. You’re trapped under a truck, your head is bleeding and you are sure your leg is broken in at least one place. There are sirens, ambulances, the fire brigade, and the last thing you remember before waking up in the ICU is being put on stretchers. This sort of accident scenario is what most people think of when they think of reasons why a medical scheme is necessary. And let’s face it, under these circumstances, good medical care could save your life. And yes, medical schemes and hospital plans are expensive, but it might be even more expensive not having one. But being well cared for after accidents is not the only reason why having a medical scheme is important. Here are some others. The end-of-the month flu bout. It’s three days to payday and you’re down to your last R20. You’re going to be living on potatoes and the smell of an oil rag for the next 72 hours. And then you get ill. Very ill. Your chest is rattling, your head is so sore it feels like it wants to part company with your body, and you have forgotten what it is like to breathe through your nose. And your doctor works on a cash-basis only. Except if the account is sent directly to your medical scheme. Need I say more? Sudden expensive medication. For the same flu bout, you need medication from the chemist – and it doesn’t come cheap. In fact, even with opting for the generics, the total bill for this comes to R237,11. And right now, you just don’t have it. But fortunately your chemist sends the bill to your medical scheme and you end up having to pay a levy of R11,00. Now that you can do. Serious diseases. Cancer, emphysema, diabetes complications, ongoing heart problems – these are things no one ever thinks will happen to them. But when they do, and the onset could be sudden, the cost of things like scans, X-rays, pathology tests, ultrasounds could run into thousands. Not to speak of lengthy hospitalisation and expensive operations. And few people have that kind of money lying around. Most medical schemes and hospital plans will cover these things in full. The young and the old. Few people use their medical schemes much when they are in their twenties, or even thirties. But their contributions make a big difference to funding the medical costs of the older members. And young people get older, and one day their costs will be funded by new and incoming younger members. And no, it is not a solution to join when you retire, as your premiums will be much higher than those of someone who has been a member for twenty years. This is understandable. And a medical scheme is essential for retired people – this is probably going to be when you need it most. Eye problems. Welcome to your forties. Here is your complimentary pair of reading glasses. Not really, but you get the picture. Few people get past middle age without some vision problems. These can range from minor to serious – and prescription lenses (even with cheaper frames) don’t come cheap. And you might need new ones every two years. Not state-of-the-art hospitals. While there are some state hospitals that are fine, in fact, downright fantastic, there are major funding and staffing problems in many of them. In several of the hospitals the actual operations are excellent, but the problems come in with post-operative care of patients. While not all private hospitals are completely fantastic, the level of care you receive and the facilities available to you are likely to be better. And so it should be, because most of them are jolly expensive. If your life is hanging by a thread, the last thing you feel like dealing with are no sheets on the bed or dirty toilets. Or waiting endlessly in a queue while you are bleeding. So pay your medical scheme with a smile. Peace of mind. We spend an inordinate amount of our time worrying about money. If you have a family, and are a wage earner, unless you have won the lottery, you would not be able to foot the bill if your family of five were in the same car accident and all landed in hospital. Whereas medical schemes do have limits, most hospital costs are at least paid for. So now you can sleep at night. Ambulances. If you’ve had a heart attack and are lying on the floor of a restaurant, you want the ambulance to get there without delay. Sometimes state ambulances are very swift, but there are also horror stories about badly injured or ill people waiting four hours for an ambulance. Having a medical scheme entitles you to the use of a private ambulance. Maternity costs. Having a baby is expensive. If there are no complications, you are looking at about R12 000 in a private hospital. Medical schemes will not cover you for your pregnancy if you only join once you are pregnant, so if you are planning to have a family, and you’re not a member yet, make a plan as soon as possible. Check-ups. You know you should go to the dentist, the oral hygienist, the GP or the homeopath for regular check-ups. But you don’t, because it is expensive. You wait until something goes wrong, and then you go. And it ends up costing you three times as much. Prevention is indeed better than cure. And within specific limits, your medical scheme will pay for these check-ups. (Susan Erasmus, Health24, June 2006) _________________________________________________________________________________________ |
Ruan Jooste
The South African Revenue Service (SARS) has taken an interest in the value-added tax (VAT) treatment of these transactions - it says these should be subject to VAT at 14% (or sometimes transfer duty).
According to Jacqui Wierzbowski, a tax director at Deloitte, the sale of shares in fixed property is generally subject to VAT at 14%. "Although the sale of equity shares is generally exempt from VAT because it is a financial service," she says.
The definition of financial services in the VAT Act excludes transactions like the shares in a share block company and sectional title, but most importantly, interests in land other than as a mortgagee. This means that these types of shares are not included in the financial services definition and is therefore subject to VAT or in certain instances transfer duty.
"The question therefore arises as to whether a company can be structured in such a way that it is not a share block company and the Sectional Titles Act or the time sharing rules do not apply," says Wierzbowski.
"If that were the case, and provided that the shares themselves could not be seen as an interest in land, the shares would not be fixed property and they would be exempt from VAT."
It seems clear that regardless of the arguments for and against VAT levied on fractional ownership, there will be a fight which may have to end up in court if SARS believes that VAT is payable. The company will be liable for the VAT if SARS' view proves to be correct and owners of the shares will ultimately be liable for the cost, which includes interest and penalties.
If you have the stomach and the funds for the fight, there are some arguments to be made, but be aware of the risks before investing in this type of structure.
- Fin24.com
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