Consumer credit in SA: a legacy of exploitation
There was not much in the way of consumer-protection legislation back then. Consumers would sign a contract to pay off an item over, say, two years, without being fully briefed on the small print and its implications. Apart from high interest rates, other charges were mercilessly piled onto the monthly repayments.
Woe betide someone who missed a repayment, perhaps through the loss of a job. Debt collection agencies would swoop in, charging exorbitant fees, repossessing goods, and leaving the poor consumer with an even larger debt burden and nothing to show for it. A debt may have eventually been written off, but not before the “victim” was squeezed for everything he or she had. Many probably even landed up in jail.
You’d have thought that these practices would have been brought under control with the advent of democracy in 1994. But no - a twisted logic prevailed that granting credit to the previously disadvantaged would miraculously lift them out of poverty.
Financial institutions climbed in on the act, because good profits were to be made. Banks started handing out unsecured, personal loans as if they were dishing out sweets to kids. But there was a big price to be paid down the line. For a penetrating study on this subject, read Money from Nothing by Deborah James, professor of anthropology at the London School of Economics, published by Wits University Press.
(A quick digression here. There are only three instances that I know of where credit can be beneficial: to fund a small business, to fund your or your child’s education, and to buy a property. In each case, you are using credit as “leverage” to gain something more valuable than the amount you have borrowed.)
The truth began to dawn. The authorities realised that credit was being used mainly to buy consumables, keeping people trapped in poverty rather than benefiting them. The National Credit Act, and with it the National Credit Regulator (NCR), came into force in the mid-2000s.
They were designed to curb the excesses of the credit industry and promote responsible lending. Lenders were obliged to check that borrowers could afford what they were borrowing by doing an affordability assessment.
The Act also established the debt review system, which gave the heavily indebted a way to expunge their debts and resume a normal existence.
Several milestones in the fight against ongoing unsavoury practices have occurred over the past few years, mostly through the actions of concerned citizens and NGOs. These have resulted in court judgments restricting the use of emoluments attachment orders on workers’ wages (commonly known as “garnishee” orders) and, recently in December, imposing limits on the total debt, including collection charges, a consumer would be liable for on any single credit agreement.
Credit (no pun intended) must go to the Law Clinic of the University of Stellenbosch and Summit Financial Partners, which brought this latest action.
And what has the regulator been doing? Some, like Clark Gardner of Summit Financial Partners (see "Is the NCR fulfilling its mandate to protect consumers?"), believe far too little.
It has had some success in fighting reckless lending. Last month, the Pretoria High Court ruled in the regulator’s favour against Shoprite, which was found by the National Consumer Tribunal (NCT) to have lent recklessly.
According to a statement by the regulator, in September 2017, the NCT ruled that Shoprite had, on a number of occasions, failed to conduct proper affordability assessments before granting credit to consumers. Shoprite had to pay a R1 million fine and was ordered to “appoint a debt counsellor to assist affected consumers and determine whether to suspend or restructure consumers’ obligations under the reckless credit agreements”.
Shoprite appealed the NCT’s ruling in the Pretoria High Court. On December 18, a full bench of three judges unanimously dismissed the appeal with costs, and confirmed the NCT’s ruling almost in its entirety.
The NCR says consumers who believe they may be a victim of reckless credit granted by Shoprite should lodge a complaint with the NCR by emailing it to [email protected].