Tucked away in the Budget speech was a government promise to address the alarming growth in the unsecured small loans industry, which some estimate to be as large as R140 billion.
Finance Minister Pravin Gordhan said: “We are concerned by the abuse of emolument attachment orders that has left many workers without money to live on after they have serviced their debts every month. We are in discussion with the National Credit Regulator, the Department of Justice and banks to ensure that the lending market remedies its behaviour.
“In the meantime, all employers, including the public sector, can play a role and assist their workers to manage their finances and to interrogate all emolument attachment or garnishee orders to ensure that they have been properly issued.”
What the minister did not say was that the unsecured loan business is the unacceptable face of capitalism. Nor did he say, what many believe, that reckless lending is probably an underlying cause of the wave of strikes in the mining industry, and possibly those in the Western Cape as well.
What justifies the description of the unsecured loan industry as unacceptable is that it targets the poor – those who are least able to resist the temptation to borrow easy money, ignorant of interest and not educated enough to understand the debt trap they risk by doing so.
That the government is planning to do something about this situation is welcome, but in one sense it is its own fault. Those election posters promising “A better life for all” have not been taken as meaning houses and electricity, but as access to fridges, stoves, new furniture and a decent bed to sleep on. Unable to buy them with their wages, the poor have seized their better life by borrowing money in amounts many have no hope of ever repaying.
The scale of this indebtedness, as the Budget speech alluded to, is so great that there is often little left over for food. The only solution is to demand more pay and, if it is not given, to strike. If the union does not help, then form a new union, as happened in both Rustenburg and De Doorns.
Employers and particularly their human resources departments are as culpable as those dishing out unsecured loans. They should keep an eye on the number of garnishee orders their workers are paying.
While garnishee orders can only be made with the consent of a magistrate and then only under strict conditions, officials of the National Credit Regulator found – when they investigated the situation in Rustenburg – that some small loan operators take bank cards from borrowers and ID books as security, demand signatures on blank, magistrate-approved garnishee orders and routinely double the loan amount without the recipient being aware of it.
What is being done about all this? Well, the Treasury and the Banking Association of SA are belatedly reviewing lending affordability rules. The Treasury wants more consumer education and fewer garnishee orders. As indicated in the Budget, this task is to be laid on the private sector. And, the National Debt Mediation Association wants mining companies to review requests for garnishee orders.
The situation is dangerous and merits strong regulatory action as unsecured loans were a major cause of the poor state of the world economy. Our economy may be threatened too, perhaps not in the same way, but threatened nonetheless. Truly, those who extend multiple loans to people who clearly cannot afford them deserve the sobriquet “the unacceptable face of capitalism”.
Keith Bryer is a retired corporate communications consultant.