Remember the National Credit Act? It came in about two years ago and was meant to prevent reckless lending by banks and other institutions that offer credit.
The idea was that in order to get any sort of credit, you would have to prove your income and expenses. Simple in concept, but more complex in reality.
As it was explained to me, the Act requires that companies assume you have maxed out your other lines of credit. So, instead of asking what your monthly credit card bill is, they should ask what it would be if you had treated the limit as a target to aim at.
This does not seem to be happening. A colleague recently related a car-purchase tale. The salesperson ran through his list of expenses and then glibly said the dealer should have sold him a more expensive car.
Another colleague sat in a car dealer's office and recited her expenses off the top of her head. What if she forgot something? Like a clothing account that was paid up, but still open. That's a line of credit.
In neither of these situations did anyone once ask what each person would have to pay if they borrowed from the bond, bought clothes ad nauseam and went on a shopping spree, maxing out every available line of credit.
What would happen? Easy. Someone would not get paid.
All inclusive
I put the theory to the test when I applied for a new cellphone contract on Sunday. The jury is out as to whether cellular companies are credit providers.
The [National Credit] Act requires that companies assume you have maxed out your other lines of credit.
Nicola Mawson, group financial editor
As far as I know, they don't have to register as such, and then don't have to worry about reckless lending and the consequences. But, I still think they should behave as if they are registered credit providers.
Vodacom is offering the new BlackBerry Curve on a Weekender package for R149 a month. This looked like a sweet deal, so off I went to the local mall. On the form, there are two questions pertaining to salary: total package and gross income.
That's it. I wasn't asked how much the bond repayments are, nor about my lines of credit, and the question as to whether I had a car and was paying it off never came up. And, as contracts are post-paid, I do believe they should fall under the ambit of the Act.
I handed over bank statements printed off the Internet, and a copy of my Edgars account as proof of residence, to comply with the new SIM card registration Act - RICA.
Join the club
On Tuesday, the cell shop phoned and said I had been approved for the deal. I doubt a credit check was even done, especially as I think credit bureau ITC still has me down as Nicola Kopping, after Home Affairs decided on a whim to change my surname. Vodacom certainly didn't query this.
Despite the fact that cellular companies don't really have to make sure that I - and everyone else - can afford the deal entered into in accordance with the Credit Act, I still think they should.
What if I run up a phone bill of thousands by entering into some stupid SMS competition? There is no limit on my new, or old, account. So, if there isn't enough money in the bank to pay them, they'll have to sue me.
Granted, for the first four months, there is a cap on the account. But this cap is R530, and that is more than three times the subscription fee, and still quite a bit of cash to pay if the customer runs into trouble. And that still leaves another 20 months of the two-year contract in which to run amok and run up huge bills.
Either the company will pay a lot in court fees to get its bucks, or it will write it off. And that's lost profit.
But the car dealer certainly is a registered credit provider, and must comply with making sure the people it sells cars to can afford to pay for them.
What happens if it doesn't? If either of my colleagues defaults, the dealer cannot prove it lent the money responsibly, and that's it - the dealer will have to carry the can for the contract - not the purchaser.
It makes sense to follow the rules, even if you strictly don't have to.
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