Regulator’s moves to sanction ‘unscrupulous’ credit providers are welcomed by experts
BUSINESS REPORTER firstname.lastname@example.org
EXPERTS have welcomed the National Credit Regulator’s referral of “unscrupulous” credit providers who extended credit recklessly to consumers.
The regulator announced on Friday that it has referred 13 credit providers to the National Consumer Tribunal.
The referrals follow the regulator s investigations across the country into micro- lenders for unlawful behaviour, including extending credit recklessly to consumers, failing to provide them with pre-agreement quotations, charging interest in excess of the prescribed maximum rates, overcharging of service fees and unlawfully retaining pension cards, bank cards, identity documents and the PINs of their clients as surety.
Jacqueline Boucher, the NCR’s manager for investigations and enforcement, said the regulator was intensifying its effort to detect reckless lending and the retention of consumer bank cards and IDs.
“The NCR will continue to take enforcement action against entities who extend credit recklessly to consumers and reminds credit providers that keeping pension cards, bank cards and IDs is a criminal offence.”
The regulator has asked the tribunal to refund affected consumers, interdict the credit providers from continuing with their unlawful conduct and impose an appropriate administrative fine.
Clif Johnston, vice-chairman of the South African National Consumer Union (Sancu), said the union appreciated the ongoing work of the regulator in protecting consumers against the illegal practices of credit providers.
“This is especially important in the current difficult economic climate in which consumers desperate for credit are often driven to questionable lenders after having been turned away by the more established credit providers.
“Consumers need to learn that taking on more debt than they can repay, or worse, taking on more debt in order to repay debt, is simply not sustainable.”
Johnston said credit providers who exploited consumers illegally by lending recklessly and overcharging, exacerbated the situation and tarnished the reputation of the industry.
He said they deserved censure from the tribunal to serve as examples in order to rid the country of such practices.
“Most commentators agree that consumers are in for a tough time this year in making ends meet.
“This presents an opportunity for unscrupulous operators to exploit increasing numbers of consumers eager to get deeper into debt without fully appreciating the consequences.”
Ian Cruickshanks, chief economist at the South African Institute of Race Relations, said service providers who charged exorbitant interest rates should not be in the industry and any credit provider must enforce the rules endorsed in the National Credit Act.
Neil Roets, chief executive of debt management firm Debt Rescue, welcomed the action taken against credit providers who extend reckless credit.
Roets said is was time the regulator acted against these credit providers because of the growing role they played in exacerbating over-indebtedness.
He said lack of education on how the credit system worked was a problem the private sector and the government should address to promote financial literacy.
“Until such time as financial literacy has become a reality, bodies like the NCR have a hugely important role to play to protect consumers.”
Wendy Monkley, head of marketing at DebtBusters, said this year had signalled a financial crisis for consumers as food prices had begun to rise as a result of the drought, and anyone with debt has had to absorb increased debt repayments.
She said as finances became tighter, more people turned to credit providers for loans.
Monkley said according to the latest Consumer Bureau Monitor Report by the NCR, 54 percent of credit active consumers were experiencing or had experienced financial problems with their accounts.
She said it was concerning that the number of loan applications had increased 17 percent year-on-year, while the number of loan applications rejected had risen by 25 percent in the last quarter to 6.8 million.
“This was the first sign that credit providers, particularly the banks, were declining more applications, but as we know, if consumers have a loan application rejected, they just go to another credit provider, with less stringent affordability tests and probably higher interest rates and fees.
“These typically are expensive short-term loans.”