Maximum interest rates under the National Credit Act today

What they mean

The National Credit Act says a credit agreement’s interest rate, expressed as a yearly rate, must not exceed the maximum prescribed for its type (section 101(1)(d)). Regulation 42 sets those maximums in Table A: for five types, the repo rate (“RR”, the ruling Reserve Bank repurchase rate) plus a fixed margin; for short-term and incidental credit, a fixed rate a month.

• Mortgage agreements: credit secured by a mortgage bond over property, such as a home loan.
• Credit facilities: credit you draw on and repay as you go, such as a credit card, an overdraft or a store account.
• Unsecured credit transactions: loans with no security, such as most personal loans.
• Developmental credit agreements: credit for developing a small business (4.1) or for low income housing (4.2).
• Short-term transactions: small, short loans, of up to R8 000 repaid within six months: 5% a month on the first loan and 3% a month on later loans in the same calendar year.
• Other credit agreements: credit that is none of the others, for example an instalment agreement such as most vehicle finance.
• Incidental credit agreements: for example, interest or charges on an account for goods or services that’s paid late.

The credit types are Table A’s own words; the examples are ours. Which type an agreement is depends on the Act’s definitions.

When they change. On the day the repo rate changes. The regulation has no delay and needs no notice, so we date each cap from the day the new repo rate took effect, as the Reserve Bank announced it: usually the day after its decision.

Which agreements. These caps came into effect on 6 May 2016 and apply to agreements made on or after that date, at the cap in force when each was made. Agreements made from 1 June 2007 to 5 May 2016 fall under the 2006 formulas below.

An agreement already in force. The regulation doesn’t say whether its cap moves when the repo rate does. The Act lets a rate vary during an agreement only by a fixed relationship to a reference rate stated in the agreement (section 103(4)).

Fees and arrears. Initiation and monthly service fees are capped too (regulations 42 to 44). And the in duplum rule in section 103(5) limits arrears: the interest, fees and charges that build up while a consumer is in default may not, together, exceed the unpaid balance of the principal debt when the default began.

No official table. The National Credit Regulator doesn’t publish the current caps. We work them out from Table A and the repo rate.

Short-term loans. Table A allows 5% a month on “the first loan” and 3% on “subsequent loans within a calender year” (sic). It doesn’t say whether that means later loans from the same lender or from any lender.

Developmental credit. Table A lists “4.2 Low income housing” without the word “unsecured” that the 2006 table and the 2015 fee table use. It’s probably only a drafting difference; we keep the Gazette’s wording.

This isn’t legal advice.

Sources

The caps: regulation 42(1), Table A, of the National Credit Regulations, as substituted by GN 1080 (Government Gazette 39379, 6 November 2015), in effect from 6 May 2016; what RR means, and the 2006 table: the National Credit Regulations (GN R.489, Government Gazette 28864, 31 May 2006). The Act: the National Credit Act 34 of 2005, sections 101, 103 and 105. That the caps apply to agreements made from 6 May 2016: the National Credit Regulator’s media release of May 2016.

The repo rate: each Monetary Policy Committee announcement, recorded as it was made public. Each cap is worked out by us from Table A; this page shows the latest release of our reference rates dataset. See also the repo rate and prime and the prescribed rate of interest.