Here is a brief overview of some of the new legislation and how it affects buyers and sellers alike. There were three acts promulgated in parliament during 2007.
- FICA (Financial Intelligence Centre Act)
- FAIS (Financial Advisory and Intermediate Services Act )
- NCA (National Credit Act )
What is the difference between these acts?
- FICA - Fica is about protection against money laundering and tax evasion in SA
- FAIS - Is about consumer protection on insurance products and to enhance integrity of that segment of the insurance industry.
- NCA - Is about consumer protection in respect of finance agreements and to make credit available to all South Africans
FICA - Money laundering in South Africa is estimated to be between R20 billion and R85 billion per annum. FICA provides for the establishment of 2 independent state bodies:
- Money Laundering Advisory Council
- Finance Intelligence Centre
The most important control measure for any dealership is “to know your client”. Therefore car dealers must carefully check:
- Proof of identity document
- Proof of residential address
Tax evasion and money laundering is a serious offence. Any person convicted of such an offence is liable for imprisonment not exceeding 15 years and a fine not exceeding R10 million.
For the dealership not implementing these rules, imprisonment not exceeding 5 years and a fine for a maximum of R1 million.
For example if you came to me with R 110,000 cash to buy a car, I would be obliged by law to ask you where you got the money from. If you then told me you have been keeping it under your mattress, I have to complete a form with your answer, which you must sign. If I have the slightest suspicion that the cash could have come from an illegal source (eg. drug money) I have to inform the Financial Intelligence Centre. Their office is linked via computer to SARS, SAPS, NATIS, INTERPOL and property registration offices nationally. They can trace all your activities simply by having your ID number.
FAIS - This act completely changed the minimum requirements for any person wanting to be an F&I (Finance & Insurance) business manager. This act validates the F&I and dealership to consult on value added products and protect the consumer against unlawful practice and advice.
Minimum Qualifications for a business Manager is:
- Level 4 NQF qualification (i.e. Matric)
- 60 Credits from a registered skills program
Value Added Products
- Purchase Protection Insurance (credit life)
- Shortfall Cover
- Mechanical Warranties
- Smash & Grab
- Comprehensive Insurance
- Paint Protection
- Maintenance Plans
NCA - NATIONAL CREDIT ACT 2005
This act became effective in June 2007 and had a major negative impact on the South African vehicle market. An unprecedented number of insolvencies have resulted throughout the retail motor sector. The vast majority of the blame for the current slump in vehicle sales can be laid at the door of the NCA. However, it is not all bad news, the industry did require cleaning up and there are some very positive issues arising from the Act’s implementation.
The NCA is all about flexibility and transparency in financing your asset. The NCA was passed mainly to protect the consumer regardless of personal wealth, colour, race or religion.
Very important
All dealerships must have a qualified and dedicated agent on the premises to process consumer applications and financial transactions. The agent/F&I business manager must identify him or herself by producing an ‘Agent identity card’ before consulting with a consumer.
The NCA provides for the establishment of 2 independent state bodies:
- National Consumer Tribunal (to adjudicate cases where there is a dispute)
- National Credit Provider (to administer the NCA)
The most revolutionary aspect of the NCA is undoubtedly the introduction of controls for “over indebtedness” and “granting of reckless credit”. The NCA made room to prevent reckless credit by introducing the following steps:
- Consumer must fully and truthfully answer any request for information
- Understand the risks involved
- Understand his rights and obligations
- Furnish debt repayment history
- Furnish existing financial means, prospects and obligations
A significant change with the introduction of the NCA is the calculation of affordability.
Prior to the NCA credit providers (banks) approved transactions based on a percentage of gross income irrespective of expenses. I.e. a salary R10 000 per month would qualify a person for R2 500 per month payment based on 25% of gross income.
With the NCA car allowances are now included in your monthly salary and not considered separately. The good news is that credit providers now look at joint incomes even if you are not married but living under the same roof.
Credit is granted based on disposable income. Disposable income is the amount of money that is surplus in your budget after all expenses have been deducted from your joint income. The credit granting policy is now regulated and in the majority of cases, fair credit is granted.
Another important function of the NCA is “disclosure” - limiting the number of items allowed to appear on the credit agreement. In other words no hidden costs! The only items to be permitted:
- Principal debt
- Iniation fee (R1140 once off payment)
- Service fee (R37 pm)
- Interest
- Cost of credit insurance
Settlements: Only on large agreements (more than R250 000) may the credit provider charge interest on settlement amounts. All other agreements may only be for capital balances (unpaid balance of the contract without interest).
Cooling off Period: The goods may be returned after 5 days of signing the contract, provided that the contract was not signed on the Dealer's premises.
Consumer Rights
It is very important that consumers know what their rights are, especially when it comes to reckless credit. Any consumer has the right to:
- Apply for credit
- Protection against discrimination
- To know the reason for refusal of credit
- Receive information in an official language of consumers choice
- Plain and understandable language
- Receive copy of contract
- Protection for consumer rights
- Transparency in the contract
- Confidential treatment
- To receive a Pre-agreement and quote
A reckless credit agreement can be suspended by the court if the credit provider is found guilty of transgressing the NCA of 2005