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WHAT HAPPENS TO MY DEBT WHEN I LOSE MY JOB?

If there is one thing that causes anxiety to consumers with existing credit it’s losing their job while there are outstanding debts that need to be paid. Many times, when consumers lose their jobs, they have no clue what steps to follow to ensure they maintain a positive credit record while in the process of looking for work. Some consumers try negotiating a lesser instalment amount with credit providers. That’s according to Mr. Nicky Lala-Mohan, the Credit Ombud who says that many consumers only take action when things go pear-shaped.

“If you have ever purchased anything on credit, chances are, you have also bought credit life
insurance,” says Lala Mohan.

Credit life insurance is the insurance cover consumers take out in the event of their death, disability, terminal illness, unemployment, or other insurable risks that are likely to impair the consumer’s ability to earn an income or pay their monthly installments under a credit agreement. “It sometimes happens that consumers with existing credit agreements are unaware that they have credit life insurance,” adds Nicky. This means that in the event of their death, disability or retrenchment there may be a claim. If these benefits are not claimed the families of consumers often take on the burden of paying off these debts, or in cases of retrenchment, consumers default and find themselves listed negatively at the credit bureaus.

Regulations were published in August 2017, setting out price caps on how much credit providers could charge for credit insurance as well as allowing for consumers to change their credit life insurance to one of their own choice.

The Credit Ombud has recently dealt with a case from a consumer who approached our offices for assistance regarding her credit life insurance. The consumer entered a credit facility a few years ago and at this time, credit insurance was not required by the credit provider. Subsequent to this, the consumer did not request or pay any credit insurance on the account. A year ago, the consumer was retrenched and submitted a retrenchment claim which was repudiated on the basis that there was no credit insurance taken. The consumer’s dispute was that she received a letter from the credit provider advising that the terms of the current credit insurance policy had changed, and it was on these grounds that she assumed that she was covered. Unfortunately, there was no credit life insurance taken and the consumer was not covered. The Credit Ombud was consequently unable to find in favour of the consumer. It is of vital importance that consumers consider credit insurance upon entering a credit agreement to cater for situations like retrenchment, disability or death. A consumer should also assess what credit insurance they have, if any, and be aware of what events are covered.

In a further case dealt with, a consumer purchased a vehicle 2 years ago and credit insurance was mandatory and accepted by the consumer. The complaint was that he was overcharged on fees and interest. Upon investigation, the issue of the credit insurance charges arose in that it was disputed by the credit provider that the insurance charges did not fall part of the cost of credit, as the insurance was supplied by a third party. The result of our investigation was that the credit provider conceded that the insurance did qualify as credit insurance in terms of Section 106 of the National Credit Act and did fall part of the cost of credit. Consumers must always ensure that they understand what ‘cost of credit’ means, and what is included as well as what does the credit policy cover. This is crucial to ensure if an event will be covered or not. The regulations set out the maximum prescribed costs a credit provider may charge a consumer in respect of credit life insurance which must be calculated on the deferred amount:

Type of Credit Agreement
Maximum Prescribed Cost
Mortgage agreements R2 per R1 000
Mortgage agreements (affordable housing) R2 per R1 000 (consumers below 55 years) R2.50 per R1 000 (consumers over 55 years)
Credit facilities R4.50 per R1 000
Unsecured credit transaction (personal loans) R4.50 per R1 000
Short term credit transactions R4.50 per R1 000
Development credit agreements R4.50 per R1 000
Other credit agreements (vehicles-secured) R4.50 per R1 000

Lala Mohan cautions that the selling of products such as retrenchment benefits for individuals that are self employed or pensioners have come under scrutiny as the consumers are unable to claim these benefits, yet they are set out as a condition of the credit agreement. Lala Mohan goes on to warn that credit providers found guilty of this could be ordered to refund the consumers, as well as pay a fine.

The Credit Ombud, offers consumers the following advice regarding credit insurance:

  • Ensure that your family are aware of your accounts as well as the credit life insurance that you pay for, as this will ensure that in the event of your death or disability, a claim can be submitted timeously.
  • Do not purchase any insurance product that you do not fully understand.
  • It may be that you already have enough insurance to cover the debt in the event of your death, disability or retrenchment, but you will have to provide the necessary proof of same at the time of entering into the contract.
  • Always read the fine print of any loan agreement to determine whether credit life insurance is required/included and what exactly it covers.
  • It is important to note that the credit insurance cover, for death, disability or retrenchment etc., will no longer be in force if the account is in default.
  • You may shop around for credit life insurance which is suitable to you.
  • If you decide to purchase credit life insurance from the credit provider, make sure you understand the total costs involved.
  • As your account balance reduces, so too does the premium for the credit life insurance.

Consumers can contact the office of the Credit Ombud for FREE assistance if they experience any issues relating to credit agreements with non-bank credit providers such as the clothing and furniture retailers as well as micro-lenders, fraudulent listings, emolument attachment orders (“garnishee orders”) or general complaints about their credit bureaux listings. The office can be contacted on 0861 66 28 37; on the website www.creditombud.org.za; email us at
ombud@creditombud.org.za or send a sms to 44786 and we will call you.

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