Concessions for unsecured lenders

UNSECURED lenders have won concessions on interest rate caps from the Department of Trade and Industry‚ but fear that new regulations will push consumers to loan sharks.

The department has published its final interest caps‚ which takes effect early next year.

However‚ some lenders – including MicroFinance SA (MFSA) – say they are disappointed‚ arguing that the new regulations will leave consumers with less choice‚ forcing high-risk consumers to seek credit from loan sharks.

The organisation‚ which represents 1 300 registered micro-financiers‚ has scheduled an urgent meeting tomorrow to talk about the department’s final regulations. Trade and Industry Minister Rob Davies softened his stance on the maximum interest rate for unsecured credit agreements and has raised it to 27%.

This is above the 25.2% proposed in draft regulations published in June‚ calculated at the current repo rate of 6%. Interest rates for all other credit categories remain as set out in the draft regulations‚ except for credit facilities and developmental credit agreements‚ for which caps have been lowered a further 0.2%.

Department spokesman Sidwell Medupe said the regulations would come into effect in May to allow credit providers to make changes to their systems.

MFSA chief executive Hennie Ferreira, said it was unclear whether the department – or the national credit regulator – had performed an impact assessment of the regulations.

“MFSA expects the final regu in conjunction with other changes‚ will impact the credit market‚” he said.

Consumers would be left with less choice‚ and the informal market would continue to grow as a practical alternative‚ Ferreira said.

The MFSA was particularly concerned about consumers in rural areas and smaller businesses registered with the national credit regulator.

The department has launched an aggressive campaign to rein in rogue operators and tighten loopholes in the credit market.

Its credit affordability test requirements came into effect last month. It has also set maximum fees that distribution agencies can charge to collect cash from people under debt review and pass it on to creditors.

Payments below R100 must be distributed free of charge.

Consumers now have the option to bypass these agencies and can pay their creditors directly.

The Banking Association of SA‚ which represents the country’s largest banks‚ said it was unable to comment as it was preparing presentations to parliament on two bills affecting the industry.

Capitec head of corporate affairs Carl Fischer said the bank had always charged below-the-ceiling interest rates.

“The [new] rates will have no effect on us‚” he said.

Standard Bank chief financial officer Simon Ridley said: “The final version is slightly better than the draft‚ but we remain concerned that this could in the longterm limit access to credit for many South Africans.

“At this stage we retain our initial view that this should not have a significant impact on Standard Bank due to our low level of activity in higher-risk unsecured lending.” — BDLive