CONSUMER
STUDIES
The consumer
Grade 11
Name: ________________________
INCOME AND EXPENDITURE OF SOUTH AFRICAN HOUSEHOLDS
Sources of Income of South African Households
The total amount of money that a family has available to spend every month is the combined
income of all the members of the household.
There are a variety of sources of income.
Income Sources
Salaries or Wages
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Everyone who is employed or has a job will receive either a salary or a wage.
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Salary: A fixed amount of money paid in fixed intervals.
o Pension, medical aid, UIF and other contributions are deducted from the gross
amount before the employee is given his or her take-home salary.
o Individuals earning a salary are allocated specified numbers of days of leave and
sick leave per year.
o Office workers, professional people and managers usually receive salaries.
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Wage: Earners are paid according to the number of hours they work each week.
o Their wages are usually paid weekly as well. If they work overtime, they will receive
more money at the end of the week.
o However, if they do not work, they do not get paid.
o Wage earners are usually factory employees, builders, technicians, seamstresses,
hairdressers and so on.
Government Social Grants and Pensions
A large portion of the population is dependent or partially dependent on financial assistance
from the government.
Who is eligible for a Social Security Grant?
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Elderly People,
Disabled People,
Poor Families with Children,
War Veterans And
Households Taking Care of Children and People in Need.
Grants can be received in cash at designated pay points.
Family and Friends
People who live in other parts of the country often support poorer rural relatives financially.
Business Profits or Investments
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Entrepreneurs earn an income from their business every month (as long as the business
is successful).
People who own shares in businesses receive a portion of the business profits every
year.
The amount of money they receive depends on how much of the business they own and
how well the business did during the year.
Casual Wages
Casual wages are paid according to skill levels required for the work they do and at an hourly
rate to people who are employed part-time or for temporary work, for example,
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Shop Assistants,
Waitrons,
Gardeners and
Car Guards.
Casual wage earners:
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are not permanently employed by the business and
do not receive benefits such as pension or medical aid.
Rental Income
If you own a dwelling and rent it to tenants, you will receive a monthly amount from them
called rent.
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Most tenants pay rent as well as the water and electricity costs.
he owner of the dwelling is responsible for paying the property rates from the rental
money received.
If the property has a mortgage bond, the rent may not be sufficient to cover the bond
as well as the rates and the owners will have to make up the difference from his or her
own income.
Pension
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If you have worked in a job where pension contributions by your employer were part of
your benefits, you will receive this every month on retirement.
People generally retire between the ages of 60 and 65.
However, pensions do not always increase at the same rate as inflation. This means that
each year, the pension is effectively worth less money.
Unemployment Insurance Fund
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All workers who are employed for more than 24 hours a month must contribute to the
Unemployment Insurance Fund (UIF).
Both the employer and the employee pay a contribution of 1% of the wage or salary.
If they have contributed to the fund, the fund provides some relief for workers who are:
o Retrenched,
o Fired or
o Unable to Work.
Payments are limited.
The amount payable and the length of time for which the benefit will be paid depend
on the period for which the worker contributed to the fund.
Expenditure Patterns of South African Households
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South Africans tended to have the bad habit of spending everything they earn on
whatever catches their fancy. For example,
o spending too much or going into debt during the festive season to pay for holidays,
gifts, and entertainment.
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The recessions changed this:
o People have learned to change their spending habits just to survive.
• There are major differences in spending patterns of different income groups as well as
different cultural groups.
Statistics South Africa
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A national census is conducted every five years by Statistics South Africa (Stats SA).
The government uses this information to plan the way forward for the country.
The information gathered about the people in the country includes:
o How many people live in South Africa,
o Where they live,
o What they spend their money on,
o What their home language is,
o How much their income is,
o The type of homes they live in,
o Whether they have access to water and electricity, etc.
Other organisations use the results for different purposes, for example,
o Marketing or Advertising.
Stats SA also conducts regular income and expenditure surveys.
Changes in Income Patterns of South African Households
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Inequality in income continues to be high between population groups and within
population groups.
Although there are increases in all income groups, increases are uneven.
The incomes of people in the lowest-income and highest-income groups receive aboveaverage increases.
Government and social grants are still the main source of income for people in the
lowest-income group.
People in the middle-income group receive the bulk of their income from salaries,
wages, or business profits.
South Africa has a growing middle-income group, largely because of changes in the
country’s labour laws.
The new labour laws require businesses to provide opportunities for previously
disadvantaged groups at all levels of business.
Factors Influencing Expenditure Patterns of South African Households
There are FIVE main factors that affect the expenditure or spending patterns of South African
households.
1.
Household Composition
Spending patterns of the household are affected by:
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How many people live in the household and how many of them earn an income.
A family with dependents who need additional help or medical assistance have expenses
that affect the family’s disposable income.
Families with a single earner may struggle financially.
A second income earner can act as back-up if the other earner is retrenched or loses his
or her job.
A family’s disposable income will be affected by dependents who need additional help
or medical assistance and other additional expense.
2.
Financial Resources and Disposable Income
Disposable Income = The amount of money that a person has left once all fixed expenses
have been paid.
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Fixed Expenses:
o Rent,
o Insurance,
o School Feels,
o Medical Aid.
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Variable Expenses:
tend to change from month to month.
o Electricity and Water,
o Rates,
o Credit-Card Bills.
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The more a person earns and the lower his or her fixed expenses are, the more money
he or she, has to spend.
3.
Needs
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Physical needs (for food, clothing, and shelter) are the first needs that must be
satisfied before other needs can be met.
Wants and Needs vary according to the income bracket you belong to.
What members of your household consider to be needs will determine their
spending patterns.
Location
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specific, regular amounts.
Where you live and work will determine your spending patterns.
The more rural a person lives the greater their cost in transport will be because the
distance to work and shops is much greater than if they lived in an urban area.
People living in rural areas usually spend a higher proportion of their income on
public transport.
Preferences
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Where you want to shop, and the type and quality of goods you want will affect
your buying patterns.
For example, if you prefer organic fruit and vegetables, you will pay more than if
you purchased fruit and vegetables produced by non-organic commercial farms.
THE HOUSEHOLD BUDGET
It is possible to run your personal finances without a budget, but you will achieve your
financial goals and manage any debt much more efficiently by using a budget.
The Household Budget as an Instrument for Managing Financial
Resources
What is a Budget?
A budget is an estimate of income and spending for a set period.
OR
A detailed breakdown of all your income and planned expenses for a specific period.
It is an itemised money plan of your:
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Expected Income
Expected Expenses
Savings
for a set period.
Why Should you Budget?
It will allow you to:
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See exactly how much money you have available
Stay in control of your money
Track your spending
Create a savings plan
Reach financial goals
Pay off debt
Live within your means
What are the potential consequences of not budgeting?
It will allow you to:
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If you are blacklisted, your name will be placed on a list that shop owners, and even
potential employers can access. You will not be able to obtain credit.
You have to pay interest on your debt.
You may lose control on how your money is spent.
You may waste money on unnecessary expenses that do not add value to your life or to
the lives of family members.
You may lose control of how much credit you have used, IE credit card, and end up
unable to pay off this debt.
Principles of Budgeting
Assess Needs and Objectives:
• Determine your needs and wants.
• Needs must be satisfied before wants.
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Prioritise the family’s most basic needs.
Set Realistic Goals and Objectives:
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A goal is something you want to achieve and are willing to work for.
The budgeting decisions you make depend on your needs, your wants and the goals you
set for yourself.
Goals can be SHORT-TERM OR LONG-TERM.
o SHORT-TERM Savings Goal:
These are goals you want to achieve within days, weeks or a month or two.
e.g.:
New Shoes
o LONG-TERM Savings Goal:
These are goals that take longer to achieve. They can span several months or even
years.
e.g.:
New Car
Overseas Holiday
To reach these financial goals, you will need to set yourself objectives.
Goals should be SMART:
S
• Specific
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• Measurable
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• Attainable
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• Relevant
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• Time-Related
For example, if you wish to go on an overseas holiday you may have to save a specific amount
of money monthly to meet travel costs, accommodation expenses and spending money.
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Most people have several goals.
Values often affect how we prioritise these goals and assist us in ranking them in order
of priority.
Control and Record Spending
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The most difficult habit to learn is to control your spending so that you stick to your
budget.
One way of doing this is by keeping an accurate record of all money spent and what it
was spent on.
This will allow you to compare your actual spending and your planned expenses at
regular intervals.
Keeping the following documents in a safe and accessible place can help with practicing
good financial control:
o Monthly Bank Statements
o Receipts
o Purchase Slips with Guarantees
o Proof of Interest Received
o Tax Returns and Information about Payments for the Previous Five Years
o Proof of Credit Card Purchases
o Monthly Credit Card Statements
o Assessment Certificates for Insurance Claims
o Contracts for Instalment Sales and Hire-Purchases Agreements
o Insurance Policies, Birth and Marriage Certificates, Will, Funeral Booklet, Title of
Property
o Proof of Investments
o Proof of Personal Loans Taken or Granted
o Deposit Slips
Spend Less than You Earn
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Spending less than you earn allows you to:
o Avoid Excessive Debt
o Save Money
Prepare for Unexpected Incidents
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Every household must allow for unexpected expenses such as:
o Car Repairs
o Unplanned Household Maintenance
If you have not put money aside to cover these costs, you may have to borrow money
or use credit to pay for them.
Steps in Preparing a Household Budget
Regardless of the budget you are preparing you should follow these steps.
1.
List Income
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Write down how much money you earn and where it comes from.
Estimate Expenses
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Expenses are all the items, goods or services that you pay for.
List the expenses and how much you have to pay for each one.
Fixed Expenses
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Expenses paid at regular intervals such as weekly or monthly, and that do not
change much.
Examples:
o Mortgage or Rent Payments,
o Insurance and
o Car Payments.
Variable or Day-to-Day Expenses
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Change monthly according to the needs of the family. For example, your
electricity bill will vary depending on how much electricity the household uses
each month.
Examples:
o Water and Electricity Bills,
o Clothing Costs,
o Entertainment Expenses,
o Grocery Bills And
o Petrol.
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It is possible to control these expenses to some degree. For example, if you think
the electricity bill is too high, make sure everyone in the household switches off
the light when they leave a room.
Essential Expenses
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Costs that must not be adjusted when the budget is changed because you cannot
do without the goods and services that these expenses cover.
Examples:
o Food,
o Clothes,
o School Fees,
o Transport,
o Water.
Non-Essential Expenses or Luxuries
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Items that you do not really need.
3.
Compare Income and Expenditure
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It is important to use a budget to ensure that your income is always greater than
your expenditure.
When your income exceeds your expenses, you can put the balance towards
achieving your goals.
Evaluate the Budget
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You need to be disciplined so that you stay within the spending limits that you
have set for yourself.
Evaluate your budget regularly by comparing your planned spending with your
actual spending.
Here are some guidelines to follow when evaluating your budget:
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Make sure that you have listed all your income.
Keep track of how often you withdraw cash from automatic teller machines
(ATMs).
Check your budget to make sure that you have listed all expenses. Both Fixed and
Variable.
Adjust your budget, as necessary.
Remember to save at least 10% of your income.
Corrective Steps to Balance a Budget
Here are some ideas that you can use to correct and balance your budget:
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Make Tough Decisions:
Cut out unnecessary expenses that are unaffordable to you.
Remember the difference between wants and needs.
Set Realistic Financial Goals:
Trying to save too much in too short a period could put a strain on your finances.
Rather save a little less over a longer period to reach the same goal.
Keep Accurate Records:
Every little thing you buy should be tracked.
Make Sure You Set Aside Money for Unexpected Expenses:
This will remove the need to go into debt should something unforeseen arise.
BANKING
What are Banks?
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Banks are private financial institutions that offer services to the public such as: car loans,
home loans, cheque accounts, credit cards, etc.
They are agents between people who want to save money and people who want to
borrow money.
Functions of Banks
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Banks make money by charging interest on loans they grant to clients.
They also pay interest to clients who invest with them.
The rate paid to customers who invest is lower than the rate charged to those who
borrow money.
Types of Bank Accounts:
1.
Current Account / Cheque Account
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2.
Savings Account
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3.
These are transactional bank accounts that provide you with more functions than
a normal savings account.
Generally higher monthly fees but include electronic transactions including
internet and cell phone banking and some even have free cash withdrawals and
deposits included.
Account holder usually receives a debit card and a credit card, which are all linked
to the account.
You can apply for an overdraft.
The bank charges fees on all transactions.
They are safe, short-term investments.
The minimum opening deposit ranges from R0 to R50, depending on the bank.
You can deposit or withdraw money from your savings account whenever you
want.
Banks pay a low interest rate on the money in the account.
Money Market Account
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These accounts usually earn more interest than savings accounts.
Some banks do not charge a monthly fee to manage this account.
You need to keep a large minimum balance in this type of account.
Money can be withdrawn or deposited any time, but as it is meant to be used as
an investment account, money should preferably not be withdrawn.
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Fixed Deposit Account
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Money is deposited for a fixed period at a fixed or set interest rate.
These accounts earn much higher interest than savings accounts because the bank
can lend your money out to other people for longer periods.
No regular deposits can be made.
If you withdraw money before the specified time, a penalty is paid.
Call Account
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No fixed investment periods.
Account can be used as security for applications for credit.
Easy access to your funds.
Additional deposits can be made any time.
Earn competitive interest rates.
How to Choose the Best Bank Account?
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Determine your money habits.
Decide if location is important to you.
Consider your ATM usage.
Decide the importance of customer service.
Decide if e-banking is a priority.
Compare fee and interest rates associated with each bank.
Research the banks financial stability.
Research the banks financial ethics.
Look at investment options available.
Visit local banks before finalising your decision.
How to Open a Bank Account?
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Strict laws for opening bank accounts apply to stop financial fraud such as money
laundering.
Must be over the age of 18 to open bank accounts.
The Financial Intelligence Centre Act (FICA) stipulates the following necessary to open
account:
o A South African ID document.
o Document with person’s initials, surname, and physical address to confirm the
residential address.
What are Bank Charges?
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They differ from bank to bank and cover the following:
o Cost of a cheque book, monthly charges for managing the account.
o Charges for depositing or withdrawing money, calculated according to the amount
and whether it is done over the counter or at the ATM.
o Charges for exceeding overdraft limits.
o Penalties for dishonoured cheques.
o Cost for using stop orders and debit orders.
o Monthly lost-card protection fees.
How to Keep Bank Charges Down?
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Keep transactions to a minimum. Fees are charged per transaction.
Use ATM’s, telephone or cell phone banking, or online (internet) banking rather than
going into a bank branch.
Use EFTPOS (electronic funds transfer at point of sale) by using a cheque card, debit card
or credit card instead of paying cash as it is safer, cheaper and more convenient.
Use your own bank’s ATM whenever possible as additional fees are charged when using
another bank’s ATM.
Plan cash withdrawals do not make a lot of small withdrawals.
Use Internet banking as staff-assisted transactions usually incur additional fees.
Study your bank statements over time to get a sense of the fees you are paying.
Ask your bank about cheapest transaction costs.
Link your accounts to transfer money between them make sure you always have enough
money in your account to cover debit orders to avoid paying penalties.
Methods of Purchasing Goods and Services
Cash Transactions:
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Cash transactions involve a direct exchange of money for goods.
When you make cash purchases you are entitled to ask for a cash discount.
ADVANTAGES
o You are free to shop at any store and not
only where you have an account.
o You think twice before making a
purchase as the impact of the purchase
is felt immediately.
o Stores that sell only for cash can charge
less for their goods so you can save.
o You can save your credit for
emergencies.
DISADVANTAGES
o Carrying large amounts of cash can be
unsafe.
o You need to be disciplined about keeping
track of all your expenses.
o Some shops are unwilling to refund cash
for returns.
o You do not build up a credit record,
which can be vital in emergencies and
when making large purchases such as a
car or house.
o If cash is lost, it cannot be replaced.
Types of Cash Transactions and Means of Payment
1.
Notes and Coins
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2.
Cheques
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You can use notes and coins to settle almost any transaction.
It is impractical to pay large amounts with cash.
It is unsafe to carry large amounts of cash.
A cheque is a promise from a bank to
pay money from the account
holder’s bank account to the person
who has been given the cheque.
The person writing the cheque is
called the drawer.
The drawer writes the transaction
details on the cheque and signs it.
Postal Orders
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Postal orders are purchased at a post office for a specific amount of money.
It is payable to a specific person or company and can only be redeemed at a post
office or bank.
It can be posted to the receiver but can be lost or stolen in the post.
4.
Cash with Order (CWO)
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Cash on Delivery (COD)
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COD is when the money for the goods is paid when they are delivered at the
customer’s door or store.
Goods can be ordered by telephone, post or online.
This type of payment allows the seller and buyer to reduce the risk of fraud or nonpayment.
Debit Cards
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CWO is when the money for a product or service is paid when the order is placed.
Business can plan its production according to the orders received.
There is a possibility that the order may not be delivered if it is a scam.
Payment is made without seeing the product so you may not want it when it
arrives.
A debit card /bank card/cheque card allows a customer access to his/her bank
funds immediately through electronic means.
The bank immediately deducts the amount from your account and gives it to the
business where you made the payment.
A debit card can also be used to draw cash from an ATM.
Business is guaranteed payment once the card
has been accepted.
Debit cards can be used for mail-order or online
purchases.
It is cheaper than withdrawing cash.
Fraud is a problem. New cards have a chip and
a pin number to try to solve this.
Internet Payments
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If you have access to the internet your account can be linked so that you can make
payments from the security of your home, at your leisure.
The service can be used to pay accounts.
Goods and services can be purchases, payments can be made at any time of the
day/night, they can be purchased over the Internet and be delivered to your home.
Disadvantage: Phishing schemes occur where criminals use the Internet to obtain
private information that they use to commit crime and pay using electronic fund
transfer (EFT’s).
8.
ATM Payments
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Money is transferred immediately.
ATMs are available at any time of the day or night and every day of the year.
It is not necessary to keep cash available as ATMs can be used to draw money.
They are usually located in public areas, and you can be seen drawing cash, this
creates a security risk.
There are high fees charged for using ATMs belonging to other banks.
Thieves stand close to some ATM users and steal their cards and their personal
identification numbers (PIN) and access their accounts illegally.
Bank charges for using ATMs can be high if not controlled and monitored.
Cellphone Payments
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Cellphone payment is the same as telephone banking.
It allows you to make balance enquiries, transfers and pay accounts.
The bank gives you a PIN that you put into the phone at the voice prompt.
Beneficiaries have to be logged on before you can make payments to them.
Banking transactions can be done at any time from any place.
It allows you to interact with a person and ask questions that you cannot do via
internet banking.
Telephone banking is not always available 24 hours a day or on specific public
holidays.
Credit Transactions
Credit transactions take place when goods or services are received but the payment is only
made later.
1.
Hire Purchase or Instalment Sales Agreements
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Hire purchase agreements are also called instalment sales agreements because the
selling price is paid off in small portions over a specific period.
The monthly payment depends on the period over which the debt will be repaid.
The business charges interest, which means the customer pays a lot more than the
original selling price.
This method of payment is generally used for buying large items such as furniture,
appliances, and motor vehicles.
ADVANTAGES
DISADVANTAGES
o Payments can be spread out when
purchasing expensive items, such as a
home or a vehicle. This allows customers
to purchase expensive items they would
not otherwise be able to afford.
o Some businesses offer interest-free
credit for a few months to promote
sales.
o The customer has the product he/she
does not own it until the final payment
has been made.
o Goods can be repossessed if the
payments are not made.
o High interest is paid.
o All instalments must be paid, even if you
no longer possess the item or if it is
broken.
2.
Lay-Bys
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Buying on lay-by is when a customer pays deposit for goods purchased and the
store keeps the goods.
Each week or month, the customer pays off some of the outstanding total.
When the full amount has been paid, the customer takes possession of the goods.
ADVANTAGES
DISADVANTAGES
o The goods are kept for the customer
until the last payment has been made.
o Interest is not usually charged for this
service.
o It is convenient for people who does not
have access to credit or bank accounts.
o The goods may not be kept safe or may
have been damaged by the time the last
payment has been made.
o It is difficult to prove how many
payments have been made especially if
cash has been used.
o Problems arise if all the payments cannot
be made.
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Credit Account
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Some stores allow customers to buy goods on credit up to a specific amount
depending on their credit worthiness.
The customer takes the goods.
At the end of the month, he or she receives a statement of account reflecting the
total amount owing and the minimum that must be paid.
The customer is not charged interest or fees, but the selling price of the goods are
increased to cover the cost of offering credit to customers.
ADVANTAGES
DISADVANTAGES
o Ownership of goods is immediate, even
though they will only be paid for at the
end of the month.
o A business buying on credit can try to
sell the goods before they must pay for
them.
o Customers can pay monthly towards
what they want.
o The selling price is higher so that the
store or business can cover the cost of
offering credit facilities.
o The buyer may be tempted to take on
more credit.
o The seller may have bad debts if buyers
cannot pay.
o Stores can add interest on accounts that
are overdue.
4.
Credit Cards
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A credit card can be used at any store that has credit facilities.
The customer purchases the goods and receives it.
The store receives cash less a percentage from the financial institution that issued
the credit card.
The customer receives a statement from the financial institution at the end of the
month with the total owing and the minimum amount that must be paid.
The customer is charged bank fees and interest.
ADVANTAGES
DISADVANTAGES
o Businesses are guaranteed payment.
o Credit cards can be used for mail-order
or online purchases.
o The card holder can use budget facilities
on the credit card and pay the amount
to the bank in instalments.
o The bank deducts a percentage of the
purchase amount before paying the
business.
o High interest rates are charged, making
credit cards an expensive way to borrow
money.
Cash and Credit Transactions Comparison
CASH TRANSACTIONS
CREDIT TRANSACTIONS
Purchases are dependent on the amount of
available cash the customer has.
Purchases are not dependent on the amount
of available cash the customer has.
The customer does not incur any additional
costs when paying cash.
The customer pays interest when using the
credit cards.
Customers can negotiate a discount for
paying cash.
Selling prices are increased to cover the cost
of offering credit.
Cash can be lost or stolen.
The customer does not have to carry cash
when shopping.
A record must be kept of purchases so that
the consumer knows what the money was
used for.
The statement of account is an accurate
record of all credit purchases.
The customer will never incur debt.
It is easy for a customer to spend too much.
Guidelines for Managing Credit
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Plan your expenses.
Manage your credit responsibly.
Avoid making more credit purchases and taking out more loans if you are struggling
with repayments.
Do not borrow money for daily expenses, such as groceries.
Your credit repayments should not normally amount to more than 20– 30% of your
income.
Shop around for credit facilities that can provide you with the best loan options and
credit costs.
Pay your accounts in full and on time each month.
Do not exceed your monthly budget.
Borrow money from reliable institutions that will ensure that you only borrow what
you can afford to pay back.
Read documents carefully before signing agreements.
Keep proper account of all credit transactions.
Know what to do and act promptly if you encounter any financial difficulties with paying
back your credit.
CONSUMER PROTECTION POLICIES AND PRACTICES
1. The National Credit Act
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The National Credit Act (No. 34 of 2005) (NCA) took effect on 1 June 2007.
Created to regulate the credit industry in South Africa.
The Act protects consumers from poor credit practices and unscrupulous lenders,
shops and banks.
It aims to prevent over-indebtedness and to encourage credit providers to lend
responsibly.
What Does the NCA Do?
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Simplifies and standardises how information is disclosed in credit agreements.
Regulates credit bureaux and the information they keep on record about consumers.
Ensures that all credit providers handle credit products in the same way.
Helps over-indebted consumers to restructure their debt.
Provides for one regulator to regulate the entire credit market – The National
Credit Regulator (NCR).
Establishes the National Consumer Tribunal (NCT) to judge matters relating to the ACT.
CREDIT PROVIDERS
CREDIT AGREEMENTS
Banks.
Mortgage Bonds.
All businesses, companies, close
corporations and individuals who do
business on credit, provide loans, or charge
interest on overdue accounts.
Credit facilities such as store cards, bank
overdrafts, credit cards, garage cards,
personal loans, instalment sales, leases,
pawn and discount transactions.
Retail Outlets Such as Clothing and
Furniture Stores.
Development Credit.
Micro-Lenders.
Incidental Credit.
Credit Bureaus and Debt Counsellors.
Credit Guarantees.
Types of Credit Covered by the Act
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Credit Cards.
Bank Overdrafts.
Loans and Mortgage Bonds.
Store Accounts for Items Such as Furniture and Clothing.
Hire Purchase.
Vehicle Finance.
Micro Loans and Pawn Transactions.
Credit Process
According to the NCA, the process described below must be followed by a credit provider
before granting credit to the consumer.
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The credit provider must do a full analysis of the income and debt responsibilities of the
consumer.
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The credit provider must give the consumer a quotation and pre – agreement that is
valid for five working days.
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These documents must include the amount of credit, the costs, any terms and
conditions, and any other charges.
The National Credit Regulator
The NCA established the National Credit Regulator (NCR) to regulate the South African credit
industry and ensure that the credit industry complies with the NCA.
Functions of the NCR
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Register credit providers, credit bureaux and debt counsellors.
Educate consumers by making information available.
Report to Parliament on the availability of credit market practices, access to credit and
level of consumer over-indebtedness, to help with policy development.
Investigate complaints and illegal actions.
Promote an accessible credit market.
The National Consumer Tribunal
The National Consumer Tribunal is an informal court that the NCA established. It has the
power to act throughout South Africa. The NCR, consumers, credit providers, credit bureaux
and debt counsellors can take complaints about breaches of the NCA and CPA to the National
Consumer Tribunal. Consumers now have their rights protected and a court to go to if the
credit, product or service provider does not comply with the law or laws and does not address
their complaints.
Consumer Credit Agreements
Credit Agreements
A credit agreement is an agreement between a credit provider and a consumer in which:
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The credit provider supplies goods or services or lends money to the consumer.
The consumer pays for the goods or services / repays the money in instalments / the
consumer needs to make one single payment this payment is made on a future date
agreed by the consumer and credit provider.
The consumer pays interest and fees charged on outstanding balances.
Credit Agreements Not Covered
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The credit provider and the consumer are related.
A member of a Stokvel borrows money from the Stokvel.
The director of a company lends money to his company.
A government institution lends or borrows money from any source.
Consumer Rights Relating to Credit Transaction
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The right to apply for credit.
The right not to be discriminated against when applying for credit.
The right to be given reasons for credit being declined.
The right to be given documents in an official language that the consumer understands.
The right to be given documents in plain language.
The right to be given documents in a way the consumer chooses.
The right to confidential and treatment.
The right to access and challenge information held by a credit bureau.
The right to receive statements.
Credit Agreement Regulations
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NCA prohibits certain provisions or clauses in credit agreements.
NCA states that changes to credit agreements that a consumer has already signed will
have no effect unless the change is in writing and signed again by the consumer.
Consumers can instruct the credit provider to increase or decrease their credit limit in
writing.
Consumers must agree in writing to an automatic credit limit increase.
Like banks and micro-lenders, credit providers have responsibilities:
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Can only lend money if they are registered with the NCR.
Must provide a pre-agreement statement and quotation.
NCA states credit agreements are unlawful if:
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The consumer is a minor and was not assisted by a guardian.
If a consumer has been declared mentally unfit.
Result of negative option marketing.
The credit provider is not registered with the NCR.
If a consumer has entered into an unlawful credit agreement, the credit provider cannot sue
the consumer for money owing under the agreement.
Interest Rates and Other Charge Fees
Interest
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Interest is charged on outstanding balance.
Interest rate must be specified.
NCA specifies maximum interest rates.
Initiation Fees
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This is a charge for entering into a credit agreement.
NCA states the maximum initiation fee that can be charged.
It may never exceed 15% of the loan amount.
Service Fee
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These are fees for managing your credit agreement.
Can be charged monthly, annually or per transaction.
Maximum that can be charged is R50.00 per month or R600.00 per year.
Credit Insurance
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Regulated by NCA.
Covers the debt in cases such as death of the consumer.
NCA states that a consumer is not forced to take the one offered by the credit provider
and can use their own insurance company.
Other Costs
These are amounts charged for collecting outstanding debts from
COLLECTION COSTS / a consumer. Many lawyers have collection departments that
FEES
specialise in collecting unpaid debts. Collection fees are paid by
the consumer.
COST OF EXTENDED
WARRANTY
Consumers can be offered an extended warranty when
purchasing equipment and appliances, but they will be charged a
fee.
INTEREST ON
OVERDUE
ACCOUNTS
Businesses may charge customers for unpaid credit accounts. The
percentage interest must be stipulated on the statement and the
customer must be aware that interest will be charged.
The National Consumer Tribunal
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The National Consumer Tribunal, a consumer credit court, is an independent body
established by the NCA whose aim is to achieve fairness and justice for everyone in the
consumer and credit market.
A decision made by the National Consumer Tribunal has the same status as one made
by the High Court of South Africa. Failure to obey and order of the tribunal carries a
sentence of a fine or imprisonment for up to ten years.
The National Consumer Tribunal hears consumer complaints about credit agreements
and credit providers. Credit providers can appeal decisions made by the tribunal.
Debt Counselling
Debt counselling is a process that helps to restructure consumers’ debt obligations and helps
them to meet their debt obligations to their credit providers. A debt counsellor has to be
registered with the NCR and they mediate between the consumer and the credit provider to
reach a repayment agreement. Debt counselling protects the consumer against legal action.
Consumers can access debt counselling in three ways:
1.
2.
3.
They can approach a debt counsellor voluntarily.
Credit providers can refer consumers to a debt counsellor.
If a court finds the consumer over-indebted, they may refer them to a debt counsellor.
A consumer is over-indebted when their income over an extended period is not sufficient to
meet debt repayments at the end of the month after deducting living expenses.
Reckless Lending
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NCA requires credit providers to ensure that consumers can afford the credit.
Consumers are not protected if they do not fully disclose all their debt and expenses.
Only a court can declare an agreement reckless.
The court can suspend the agreement and change the agreement terms and conditions.
No interest or fees can be charged on suspended agreements.
An agreement is reckless if:
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The credit provider does not do a proper credit risk assessment.
The credit provider grants the consumer the loan when the assessment shows they
cannot afford it.
The consumer does not understand their rights and obligations, or the costs involved in
taking the loan.
Micro-Lending
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An agreement in which one person agrees to lend money to another person.
NCA defines micro-loans as loans of not more than R10 000.
Micro-lenders must be a registered credit provider with the NCR.
NCA controls all aspects including the interest charged.
An upfront fee is not allowed for credit application.
Consumers must keep a copy of the forms they have signed.
Pyramid Schemes
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‘Get-Rich-Quick’ money-making schemes that take the form of a pyramid.
Participants receive payment just for enrolling other people.
One person at the top who recruits people to invest money. Each person then recruits
more people.
Numbers of investors grows from a single person at the top through layers to a large
number at the base.
Every person recruited pays the recruiter a fee – this is how they make money
First investor gets paid money from every person’s fee.
Do not last long as only so many people can be recruited and therefore investment
money is lost.
These are unfair trade practices.
They are illegal in South Africa.
CPA states you are not allowed to join a pyramid scheme.
2. Credit Bureaus
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NCA requires the NCR to register and regulate all credit bureaus.
It is an organisation that tracks people’s credit history and related information.
NCA states a consumer has the right to obtain a free copy of their credit report
once within 12-month period.
You should regularly check your credit record especially if you are refused credit.
NCA states what the information can be used for.
Obligations of Registered Credit Bureaus
A registered credit bureau has the following obligations:
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It must accept the filing of any consumer credit information from any credit provider on
payment of the credit bureau’s filing fee.
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It must accept, without charge, credit information sent to it by a consumer who wants
to challenge or correct information that the credit bureau has on him or her.
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It must take reasonable steps to check that any credit information submitted to it is
correct and accurate.
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It should keep all information submitted, whether it is negative or positive, for a
prescribed period.
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It must maintain records according to the rules and regulations laid down in the NCA.
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It must delete any credit information that is not in line with the NCA.
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It can issue credit reports on payment of the prescribed fee, except where the NCA
states that no fees may be charged.
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It may not issue incorrect reports or give reports that are not based on facts.
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It can identify and investigate any pattern of reckless credit granted or overindebtedness.
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It must enforce the rules and regulations of the NCA.
The NCR may require a credit bureau to provide general information on consumer credit
trends.
Credit Information Recorded
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Regulated by the NCA.
Information includes credit history, financial history and personal information.
Personal information that is NOT allowed to be kept includes: race, political affiliation,
medical status/history, religion, thought, belief or opinion, sexual orientation or trade
union membership.
NCA allows credit bureaus to source information from a variety of places.
NCA stipulates how long information can be kept for.
CATEGORY
Disputes Lodged
Enquiries
Payment Profile
Adverse
Information:
Consumer
Behaviour
Adverse
Information:
Enforcement
Action
Debt
Restructuring
Civil Court
Judgements
Administration
Orders
Sequestrations
Liquidations
Rehabilitations
DESCRIPTION
RETENTION PERIOD
Consumers' disputes about incorrect
information that were rejected after
18 months
an investigation
Details about people requesting a
2 years
consumer's credit information
Details about consumers' payments on
5 years
their credit agreements
Information about a consumer's
payment behaviour such as whether
the consumer is a slow payer, or
1 year
whether he or she defaulted or
absconded
Information about the action taken
against a consumer to enforce a debt,
such as whether the consumer was
2 years
handed over, had legal action taken
against him or her, or whether the
debt was written off
Details about a consumer who is under Until a clearance certificate
debt review
is given
5 years or until the court
removes it, including
judgements abandoned in
Judgements given by a court
the Magistrate's Court in
terms of s86 of the
Magistrate's Court Act
Orders to put a consumer under
10 years or until the court
administration
removes it
Order given by a court when a
10 years or until the court
consumer is insolvent
removes it
Order given by a court when a
Unlimited
company is insolvent
A court order removing a liquidation or
sequestration after all the debt was
5 years
paid
Missed Payments and Negative Information
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Individuals and companies can have negative information on their credit file.
Any negative information can make it difficult to obtain further credit or favourable
credit interest rates.
If a payment is missed the more time that passes the less negative the impact will be.
Incorrect Listing:
Consumer Rights
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Credit providers have to give the consumer 20 business days’ notices that the
information is being listed.
Consumers must be told what information will be listed so incorrect information can be
challenged.
Once incorrect information notice has been given by the consumer the bureau must
hide it so it cannot be seen, and the bureau has 20 days to prove the information correct.
If the bureau proves the information correct and the consumer still does not agree they
20 business days to request investigation by the NCR.
3. The Consumer Protection Act of 2008
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Came into force on 1 April 2011.
Protects consumers from unfair business practices, inferior products and false or
misleading marketing.
The National Consumer Commission (NCC) is responsible for implementing the Act.
Applies to every transaction.
Consumer Rights under the CPA
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The right to protection against discriminatory marketing practices.
The right to privacy.
The right to choose.
The right to disclosure of information.
The right to fair and responsible marketing.
The right to fair and honest dealing.
The right to fair, just and reasonable terms and conditions.
The right to fair value, good quality and safety.
The right to accountability from suppliers.
Main Areas that the CPA Covers
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Fair disclosure.
Clear labelling.
Product liability.
Cooling – off periods.
Voetstoots.
Contracts, terms and conditions need to be fair and reasonable.
Contract language.
Equal access, quality and service for all.
Marketing and privacy.
Fair and responsible marketing.
Overselling and overbooking are illegal.
Returns, refunds and repairs.
All repairs must be quoted.
Deliveries.
Products bought by mail order must be the same as the original.
Cancellation of lay-by agreements.
Expiry of prepaid certificates, cards and vouchers.
Consumers have a right to be heard and receive compensation if they are unfairly
treated.
4. The South African Bureau of Standards (SABS)
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Operates in terms of the Standards Act, 2008 (Act No. 8 of 2008).
Before 2008 SABS was responsible for standardisation and regulation.
2008 Standards Act split the function of SABS.
Stills develops the South African National Standards (SANS).
SABS remains the only recognised national institution for SANS.
The regulatory functions of the Department of Trade Industry (DTI) are carried out
by the NRCS.
5. The National Regulatory for Compulsory Specifications (NRCS)
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Established 1 September 2008.
Primarily responsible for the administration of three ACTS under its jurisdiction.
Reporting to the minister of Trade and Industry.
A variety of sanctions are applied where products and services do not meet the
minimum safety requirements.
CONSUMER ORGANISATIONS AND CHANNELS FOR CONSUMER
COMPLAINTS
1. Consumer Organisations
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Institutions or advocacy groups that represent consumers’ interests.
Protects people from abuse from businesses or public entities.
Functions of a Consumer Organisation
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Advice
Regulations
Promotion
Investigation
Lobbying
Representation
Identification
Education
Protection
Research
Government Consumer Organisations
The DTI is the government department responsible for creating a competitive, enabling
economic environment. They do this by implementing fair, transparent, effective, and
predictable business regulations. The NCC, NCR, NCT and SABS are who the DTI rely on to
fulfil these functions.
You learnt about the NCR, NCT and SABS in Chapter 5. Below you will find out more about
the NCC.
The National Consumer Commission (NCC)
The NCC became operational on the 1st of April 2011. It is a government entity established in
terms of the CPA. The NCC mandate is to protect consumers from unfair business practices
through complaint resolution, investigations, prosecutions, education, and voluntary
compliance programmes. It does this by:
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Promoting fair trade.
Educating consumers.
Resolving complaints.
Investigating and resolving unfair business practice matters.
Conducting research.
Referring matters to the Tribunal for adjudication.
Provincial Consumer Affairs Offices
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Also called the offices of the Consumer Protector.
Established in all nine provinces under the DTI.
Funded by the provincial government.
Trained staff to advise consumers.
Each province has consumer protection legislation.
They investigate unfair business practices and present cases before the provincial
consumer court.
Public Sector Offices
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Public Protector investigates complaints about unfair treatment of citizens by any
government department, state organisation or parastatal.
Non-Government Consumer Organisations
The National Consumer Forum (NCF)
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Non-profit organisation
Protects and promotes consumer rights and interests in SA.
Monitor and raise vital issues.
Focus on consumption of goods and services.
Inform, generate opinion and co-ordinate campaigns.
Increase consumers’ influence in the marketplace.
Protect and promote consumer rights and interests in SA.
Assert the right of all consumers.
Ensure consumer rights are expressed in consumer policy.
The South African National Consumer Union (SANCU)
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Independent, voluntary body that represents the rights of consumers.
SANCU’s mission is consultation before confrontation.
Aims to form a united consumer front.
To resolve consumers’ problems.
Build up consumers’ awareness.
Industry Organisations
Self-regulatory bodies are bodies that groups of companies in related industries set up and
support financially. This happens through a code of conduct that members sign and agree to
abide by its terms when they join the industry association.
INDUSTRY
ORGANISATION
DESCRIPTION AND CONTACT DETAILS
Consumer Goods Council Complaints about products such as furniture. Phone: 0861 242
Of South Africa (CGCSA) 000, fax: 0866 749 929, website: http://www.cgcsa.co.za
Retail Motor Industry
(RMI)
Consumers who experience problems with new or used vehicle
purchases have a better chance of having their problems
resolved if the garage or dealer is a member of this
organisation. Website: www.rmi.org.za
Motor Industry
Ombudsman
Handles problems between consumers and car dealers. Phone:
(012) 841 2945, fax: (012) 348 9303, e-mail:
mi.ombudsman@netactive.co.za, website: www.miosa.co.za
Automobile Association
(AA)
Provides technical and legal advice and aid about any vehicle
problem to its members. Phone: 083 84322, website:
www.aa.co.za
National Home Builders
Registration Council
(NHBRC)
Deals with complaints about building defects and protects
consumers in terms of the Housing Consumers Protection
Measures Act. Website: www.nhbrc.org.za
Estate Agency Affairs
Board
Complaints about the conduct of estate agents. Phone: (011)
731 5600, fax: (011) 880 9831, e-mail: eab@eaab.org.za,
website: www.eaab.org.za
National Energy
Regulator Of South
Africa (NERSA)
Complaints about electricity, gas and petroleum. Phone: (012)
401 4600, fax: (012) 401 4700, e-mail:
complaints@nersa.org.za, website: www.nersa.org.za
Council Of Medical
Schemes.
Complaints about medical schemes. Phone: 0861 123
267/(012) 431 0500, fax: (012) 430 7644, e-mail: [email
address removed], website: www.medicalschemes.com
Advertising Standards
Authority Of South
Africa
Ensures that advertising practices are fair and neither harmful
nor discriminatory. Phone: (011) 781 2006, e-mail:
complaint@asasa.org.za
Direct Marketing
Association
Deals with mail orders and direct marketing through television,
telephone or fax. They also handle complaints about junk mail.
Website: www.dmasa.org
Film And Publication
Board
Complaints about movies, DVDs, CDs, computer games, books
or magazines. Phone: (021) 465 6518, e-mail:
fpbmail@fpb.gov.za
Broadcasting Complaints Complaints about TV or radio programmes. Phone: (011) 325
Commission
5755, e-mail: boosa@nabsa.co.za, website: www.bccsa.co.za
Ombudsmen
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Official appointed to look into people’s complaints against organisations.
Have the power to investigate in their industry.
Professional Associations
Statutory professional bodies are legally sanctioned organisations that aim to help
consumers who have had a bad conduct experience from a member of a professional body.
Consumer Journalism
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Mass media is another channel for complaints.
Use media to become more knowledgeable.
Media sources are good for up-to-date information.
2. What To Do When Problems Arise
The Right to Have a Problem Resolved
Being informed about consumer rights is a proactive way of protecting yourself as a
consumer. As a consumer if you are dissatisfied with a product or service, you have the right,
duty, and responsibility to express that dissatisfaction to the dealer or manufacturer so that
the issue can be resolved. Consumer policies, legislation and organisations all strive to
protect the consumer.
Problems With Unsuitable Products
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Claim your money back or demand replacement.
Claim your money back if an appliance still does not work after you have returned it to
the dealer at least twice for repair.
Durable products should last longer than their guarantee period.
If you suffered a loss due to a faulty product and had to incur costs due to this, you may
claim damages from the shop owner.
You can refuse to take delivery of a product if the product is not delivered on agreed
date.
You can demand the shop owner delivers it at a reasonable date after the date originally
set.
Claim damages if you have suffered losses due to late delivery.
If an ordered item had a price increase while waiting for delivery you can insist on paying
the original price.
Problems With Unsatisfactory Service
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You can discontinue the service, demand better service, or claim damages.
You can complain to a professional or industry body.
If contract work is not up to standard, you may demand that the work be redone at the
contractor’s cost.
You may also choose to pay only for the work that you are satisfied with the contractors.
Procedure For Lodging Complaints
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Act as soon as possible.
Identify the specific problem.
Make sure you have evidence.
Always keep invoices, receipts, or warranties on record.
Decide whether you want a refund, repair, or replacement.
First try resolve the problem with the salesperson.
If it is not resolved with the salesperson take further action.
Start at the level of your first point of contact with the organisation.
If the supplier does not resolve your complaint, complain to the manufacturer or
distributor.
Be polite, fair, sensible but persistent, even if you feel ignored or rejected.
Be willing to compromise if necessary.
Put important complaints in writing.
Give copies of receipts or other important documents to the people dealing with your
complaint.
Explain what you expect to be done.
Allow two to three weeks for a reply.
If you do not receive a reply within two to three weeks, send a follow-up letter to which
you attach a copy of your original complaint.
Allow a reasonable length of time for the settlement of your complaint.
Do your best to settle a dispute yourself.
Only approach official channels of complaint after you have tried to solve the problem.