NCA progressive and laudable
Since its implementation in June this year, the National Credit Act (NCA) has been blamed for numerous trends evident in the economy. From the decline in motor vehicle sales and property sales, to the fact that housing is becoming less affordable, the NCA has been portrayed as the scapegoat in many media reports.
The current trends in the property market cannot be solely attributed to the NCA. They are the result of a number of factors, including the winter season, the increase in interest rates, and the NCA. These factors cannot be seen in isolation, nor can one factor be singled out.
Although the procedural issues relating to the NCA has caused some disruption in the market, and it may be more difficult for consumers to obtain credit and finance they cannot comfortably afford, the NCA will benefit the country and the credit industry as a whole.
In preventing reckless lending, the NCA will compel homebuyers and investors to motivate their applications for finance thoroughly and accurately. By preventing finance being granted to those who cannot afford it, consumers in general, the borrower and the financial institution are protected from the expensive and unpleasant process of defaulting and repossession.
The recent subprime crisis in the US indicated just how wrong things can go when reckless lending is allowed. The South African financial institutions and regulatory authorities deserve acknowledgement for their responsible approach to credit lending, which will go a long way protect our industry from a US meltdown situation.
Expectation is that the impact of the NCA will seem quite extreme in the beginning but will temper in the medium term. Credit lending will revert to what we today consider normal.