CREDIT WHERE IT’S DUE?

CityPress - - Business -

What the re­port says The Econometrix re­port pro­poses the max­i­mum fees on all kinds of credit agree­ments be given a one-off boost to com­pen­sate for the seven years of in­fla­tion since 2007 – and they then be au­to­mat­i­cally ad­justed for in­fla­tion in the future.

This in­cludes the “ini­ti­a­tion fee” that is capped at R5 000 for mort­gages, R1 000 for ve­hi­cle loans and up to R1 000 for six­month per­sonal loans.

It then pro­poses the in­ter­est rate scheme be changed by rais­ing the max­i­mums and mak­ing the al­lowed rates less tied to the SA Re­serve Bank repo rate.

The max­i­mum rate for al­most all credit prod­ucts is set by mul­ti­ply­ing the repo rate (cur­rently 5.5%) by 2.2, then adding an ex­tra per­cent­age of between 5% (on mort­gages) and 20% (on non­short-term, un­se­cured loans). Only short-term loans work dif­fer­ently with an un­chang­ing max­i­mum of 5% a month.

Econometrix says a bet­ter for­mula would be to mul­ti­ply the repo rate by 1.6 then add between 15% and 30% for dif­fer­ent prod­ucts.

The ar­gu­ment is that this would al­low credit providers to make money even when the repo rate was low. It would si­mul­ta­ne­ously re­sult in lower in­ter­est rates when the repo rate was high. What is MFSA?

MFSA claims a mem­ber­ship of 496 en­ti­ties with 1 519 of­fices across the coun­try.

This is the bot­tom end of the credit in­dus­try. It is con­cen­trated, with 11 com­pa­nies own­ing about half of those of­fices.

There are also 385 MFSA mem­bers that con­sist of only one of­fice each.

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