Credit Regulations
22 February 2006
Tighter regulatory control over credit bureaux and interest rates in the
micro lending market, as well as more stringent disclosure of terms and
conditions by all credit providers head the list of regulations that will
govern the consumer credit industry when President Mbeki signs the National
Credit Bill into law.
The draft regulations were published today for comment by industry players,
consumer representatives and other stakeholders and provide six weeks for
comments and inputs to be made to the Department of Trade and Industry ("the
dti"). It is anticipated that final regulations will be published in April.
"We believe that consultation is particularly important in this process, as
the regulations will have a significant effect on industry. Community
stakeholders will also wish to engage with us on the proposals. For this,
reason, we have provided adequate time for review and consultation," says
Astrid Ludin, Deputy Director-General for Consumer and Corporate Regulation at
the dti.
Other important aspects of the regulations include a cap on interest and
fees on micro loans that up to now were exempt from the Usury Act, bringing
into the regulatory net such lending operations as pawn shops, and limits on
initiation and other lender fees.
"We hope that through these regulations we will be able to address some of
the abuses in the market. While the ceilings have been set at rates at which
reasonable lenders will be able to operate and at which formal lenders will be
able to make mainstream credit products available to the low income market, we
are aware that we will be making it difficult for some of the peripheral
lenders to operate. I believe that no one will, however, dispute the social
need and the public interest of doing so," says Ludin.
The regulations will amongst other things regulate the retention periods for
information on credit bureaux. Ludin highlights two developments, which will
have a significant impact on consumers.
"At present, credit providers list consumers as slow payers, or bad payers,
for example, with credit bureaux on a fairly arbitrary basis.
That information is kept for three years, but consumers have no way of
redeeming themselves during that period. The new regulations propose that that
information can be maintained for one year only. The regulations also propose
that information on borrowers' payment profile, listing both positive and
negative information, will now be kept for five years, rather than the current
three years, as this information will give a better and more complete picture
of a consumer's actual credit history."
The regulations bring into effect for the first time since 1992 interest
rate ceilings across the board on all credit transactions, particularly in the
low- income market. The dti has two concerns about the proposed maximum
interest rates and fees.
"The first is that there is always the danger that the market does not treat
these rates as the maximum and that all credit providers suddenly start
increasing their fees. The second is that existing products, especially of
mainstream credit providers, are repriced, so that consumers are now faced with
higher prices for the same products. We'll be monitoring prices in the market
very closely. It is within our powers to adjust the maximum rates permissible
quickly, if the need arises".
Ludin believes that strictly applied and monitored standardised disclosure
of credit terms will allow consumers to compare "whereas right now they can't",
she says.
"The credit bill is a significant intervention in the market and will
require a change in practices," Ludin says. "Financial institutions have been
working through the compliance requirements, and there has been close
consultation both with the dti and the Micro Finance Regulatory Council and the
major associations about how compliance obligations can be affected."
For further information please contact:
Dr Johan Erasmus
Project Manager: Credit Law Reform, the dti
Tel: (012) 394 1579
E-mail: jerasmus@thedti.gov.za
Issued by: Department of Trade and Industry
22 February 2006
