Credit providers had better watch out: the overcharging of initiation fees, the overselling of credit insurance, and the practice of denying high-risk consumers secured credit only then to sell them unsecured credit are “undesirable market practices” and they will not be tolerated.

This hard-hitting warning comes from Nomsa Motshegare, chief executive officer of the National Credit Regulator (NCR).

Motshegare this week added her voice to the national debate about the rapid and ongoing growth in unsecured lending and the risk of a credit bubble should this growth persist.

The NCR is investigating “multiple credit providers”, she says.

“The NCR is investigating the manner in which unsecured lending is conducted, with specific concern as to whether the market approach could or is giving rise to the provision of reckless lending and over-indebtedness of the consumer.”

At the conclusion of the investigation, the NCR will advise the Minister of Trade and Industry if there is a need for specific intervention, she says.

Motshegare labelled “undesirable” the following market practices:

* When a credit provider denies a consumer secured credit only to sell unsecured credit to the consumer. The credit provider does this to mitigate its risk – it need not concern itself with the asset being purchased and can often secure a higher profit margin because, under the National Credit Act, a credit provider can charge a higher maximum interest rate for unsecured credit than it can charge for secured credit. Motshegare says although this might not be illegal, it is ethically questionable.

* When consumers are offered repeated disbursements on personal loans and repeatedly charged initiation fees. “In essence the consumer is not being newly contracted at each disbursement point and should only pay one initiation fee.”

* When there is overselling of and incorrect contracting for credit insurance, “with little real protection for consumers who take up these offers in an attempt to secure themselves and their families”.