Davies hails court ruling
SCA dismisses interest rate challenge
TRADE and Industry Minister Rob Davies has welcomed the Supreme Court of Appeal (SCA) dismissing Micro-Finance South Africa’s (MFSA) application challenging regulations reducing the interest rate on shortterm loans.
Davies said MFSA challenged the regulations in the South Gauteng High Court that were introduced by the department and the National Credit Regulator (NCR) to provide relief for over-indebted consumers.
The regulations reduced the interest rate on a short-term loan from 5% per month on the first loan to 3% per month on subsequent loans in a calendar year.
MFSA had argued that the reduction of the interest rate would, among others, drive micro-lenders out of business and consumers to loan sharks.
The high court had ruled in favour of the MFSA.
The SCA granted the department leave to appeal against the judgment to the full bench of the high court.
The full bench then ruled in favour of the department and the NCR, and accepted that the reasons for the reduction of the interest rate were rational.
The court found that the regulations should be allowed to stand so that millions of consumers of shortterm loans obtain relief from higher interest rates.
“The interest rate was reduced in order to, (a) reduce the cost of credit for consumers, (b) prevent consumers from falling into a debt spiral or trap, (c) prevent the roll-over of shortterm loans, and (d) curb the overindebtedness of consumers,” Davies said.
The MFSA applied for special leave to appeal the judgment to the SCA, but the SCA dismissed the MFSA’s application.
“The reduction of the interest rate on short-term loans is benefiting millions of consumers, many of whom are in the low-income group of the population.
“This group of consumers has been exposed to over-indebtedness and the high costs of credit.”