Section 129 letters

Although the National Credit Act has done much to protect South African consumers from over-indebtedness and unjust credit practices, and has placed South Africa ahead of most other countries with regard to credit issues, there were some “grey” areas which were open to interpretation and debate. For this reason, it was necessary that some Amendments were made to the Act, in the hopes of reducing confusion and promoting clarity. These Amendments were signed into law in March 2015.

One of these Amendments related to Section 129 letters. These are letters which Creditors MUST send to a consumer before they can proceed with any legal action with respect to a credit agreement (either secured credit e.g. Home Loans and Vehicle Finance, or unsecured credit e.g. Personal Loans, Credit Cards, Store accounts). Despite these letters being a warning of impending legal action, and having to advise the consumer that they could make arrangements (including seeing a Debt Counsellor) to resolve their debt situation, some Courts had ruled that once a Section 129 letter was issued, legal action had commenced. This meant that the specific credit agreement to which the Section 129 letter referred was not eligible to be placed under Debt Review.

The Amendments have not made it clear that a Section 129 letter is NOT the commencement of legal action, and therefore that the credit agreement in question CAN still be included in Debt Review if the consumer applies to a Debt Counsellor. In practise, we have already been able to use this Amendment to ensure that a creditor could not proceed with legal action against a client’s vehicle (despite the Section 129 letter having been issued before the client applied for Debt Review), and that this Vehicle Finance agreement was placed under Debt Review, thereby enabling us to reduce the instalment and help the client meet her debt obligations with an affordable monthly amount.

Credit Life Insurance: What is it?

When you apply for credit (whether a Personal Loan, Vehicle Finance or Home Loan), most creditors will want insurance that, should you die before the loan is settled, the outstanding balance will be paid. They may therefore require that, as a condition of them lending you the money, you also pay a monthly premium towards a Credit Life Insurance policy that covers the outstanding balance. This can cost you a significant amount. For example, if you borrow R20 000 to be repaid over 3 years at 25% interest per annum, your instalment will be around R800 per month. In total, you’ll end up paying back approximately R28 700. However, if that creditor includes monthly premiums of R200.00 for a Credit Life Insurance policy, you’ll end up paying a total of R35 900 over the three years (i.e. an extra 25%). While creditors are entitled to insist on this as a condition of the loan, there are a few ways to reduce this cost and maximise the benefit to you (rather than the creditor receiving all the benefits that you’re paying for).

(1) Be aware that you don’t have to take the Credit Life Insurance policy that the creditor is offering. Shopping around for a policy could reduce your premiums significantly (as much as 70%) ;

(2) Shop around for your credit. At the time of writing, at least one lending institution (Capitec Bank) was offering Credit Life Insurance at NO extra charge to their clients. That’s a 100% saving on insurance premiums. That’s an offer that’s hard to beat! However, be warned that the cover may be less comprehensive than that provided by other policies ;

(3) When considering policies, check on what they’re covering. Many of the policies offered by creditors only cover the outstanding balance if you die, whereas the policies offered by specialist insurers (such as ONE Insurance) cover additional eventualities such as disability, serious disease and even retrenchment.

(4) Remember that your outstanding balance is going to be decreasing every time you pay an instalment. Is the Credit Life insurance premium going to decrease as there’s less for the policy to cover, or are you going to be paying the same premium in the third year of your repayment (when the outstanding balance should be much lower) as you were when you had just taken out the loan and the full balance was outstanding?

(5) Finally, don’t disregard the convenience factor. If you have a number of credit agreements (i.e. different loans and accounts), specialist insurers will give you the same low rate to insure them all. It also means that, should you need to claim, it’s just one claim for all your accounts.

So, although creditors ARE legally entitled to insist on Credit Life Insurance, you (the client) don’t just have to accept what they’re offering. Be a smart credit shopper – get your credit at the most favourable terms you can.