Relief for the indebted as court rules to reduce interest on short-term loans
CAPE TOWN – The Minister of Trade and Industry, Rob Davies has welcomed the Supreme Court of Appeal’s decision to dismiss Micro Finance South Africa (MFSA) application challenging the regulations reducing the interest rate on the short-term loans.
Minister Davies in a statement on Sunday that that in 2016, MFSA challenged the regulations in the High Court that were introduced by the department and the National Credit Regulator (NCR) to provide some relief for over-indebted consumers.
These regulations reduced the interest rate on a short-term loan from 5 percent per month on the first loan to 3 percent per month on subsequent loans in a calendar year.
MFSA argued that the reduction of the interest rate would, amongst others, drive micro-lenders out of business and consumers to loan sharks.
The High Court originally ruled in favour of the MFSA and the dti appealed the judgment to the Supreme Court of Appeal (SCA). The SCA granted the dti leave to appeal the judgment to the Full Bench of the High Court.
The Full Bench of the High Court ruled in favour of the dti and the NCR and accepted that the reasons advanced by the dti for the reduction of the interest rate are prudent and rational. The court found that the regulations should be allowed to stand so that millions of consumers of short-term loans obtain relief from higher interest rates.
According to Davies, “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”.
The MFSA applied for special leave to appeal the judgment to the SCA, but the SCA dismissed the MFSA’s application for special leave to appeal.
“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 have been exposed to over-indebtedness and the high costs of credit, says Minister Davies.”
Minister Davies stated that the judgment would go a long way in advancing the efforts of the government to bring relief to over-indebted consumers.
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