The setting aside of the regulations that cap what microlenders can change you is a “blow to consumers” and confirmation that the National Credit Regulator (NCR) is “inept”.
This is according to Clark Gardner, the chief executive of Summit Financial Partners, who was commenting on the judgment handed down this week in the Pretoria High Court in the matter between Micro Finance South Africa (MFSA) and the Minister of Trade and Industry and the NCR.
Gardner is also the complainant in a case against the NCR and the National Consumer Tribunal that is being investigated by the Public Protector, according to information obtained by Personal Finance this week. He addressed Parliament’s portfolio committee on trade and industry yesterday on debt-relief measures.
This week’s judgment stems from an urgent application brought by MFSA, which represents about 500 individuals or companies that deal in microloans. MFSA launched the application in response to regulations introduced in May that slashed the maximum interest rate that microlenders can charge for short-term credit agreements (or microloans). The National Credit Act (NCA) defines a microloan as a “short-term credit agreement”, which is a loan of up to R8 000 repayable within six months.
Before the regulations were issued earlier this year, microlenders could charge interest of five percent a month, or an annualised rate of 60 percent, in addition to an initiation fee, a monthly administration fee and credit life insurance.
In terms of regulations under the NCA, the regulator “must” review the interest rates and costs that can be levied on borrowers at intervals of no more than three years and advise the Minister of Trade and Industry on any changes that may be required. The regulator failed to do this: it reviewed the interest rates and fees once in 10 years.
MFSA argued that, in light of the regulator’s failure to review the rates and fees regularly, microlenders were finding it increasingly difficult to do business. And when the NCR did eventually review – and reduce – the rates, it had the effect of bringing the microlending industry to its knees.
MFSA argued that, in reviewing the rates and fees, the minister and the regulator failed to consider, among other things, conditions in the credit market, the impact on low-income consumers, the cost of providing credit, and the choice of credit available to consumers. Therefore, the decision to publish the new regulations was reviewable in terms of the Promotion of Administrative Justice Act.
Justice JW Louw agreed, stating that the minister and the NCR have not addressed “in any meaningful way” the contention that the amended fees and interest rates will lead to businesses closing and prevent those who need microloans from accessing credit. And, apart from the regulator stating in general terms that research was conducted, it did not provide evidence of how the research was considered, the judge said.
The court’s decision means that the cost of all microloans entered into after the November 22 judgment must be in line with the previous regulations, the NCR said yesterday.
Geordin Hill-Lewis, a member of the committee that oversees the NCR, agreed that the judgment was a blow to consumers and said the DTI “must appeal” it.