SCA upholds regulations slashing interest on short-term loans

Trade and Industry Minister Rob Davies has welcomed the Supreme Court of Appeal’s decision to dismiss Micro Finance South Africa’s (MFSA) application challenging regulations reducing the interest rate on short-term loans, the department said yesterday.

In 2016, MFSA challenged the regulations introduced by the department and the National Credit Regulator (NCR), which sought to provide relief for over-indebted consumers, in the high court.

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, Davies said.

MFSA argued that the reduction of the interest rate would put micro-lenders out of business and drive consumers to loan sharks.

The high court initially ruled in favour of the MFSA and the department appealed the judgment in the Supreme Court of Appeal (SCA).

The SCA granted the department leave to appeal before a full bench of the high court.

The full bench of the high court accepted that the reasons advanced by the department for the reduction of the interest rate were prudent and rational and ruled in favour of it and the NCR.

The court found that the reg- ulations should stand so that the millions of consumers taking short-term loans obtained relief from high 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 short-term loans, and (d) curb the over-indebtedness of consumers,” Davies said.

The MFSA applied for special leave to appeal the judgment to the SCA, but the SCA dismissed the 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,” Davies said. – ANA