The Invitation for the Public to Comment on the Review of Limitations of Fees and Interest Rates

The Invitation for the Public to Comment on the Review of Limitations of Fees and Interest Rates

 The Minister of Trade and Industry, Dr Rob Davies, has published for public comment a Notice regarding limitation on fees and interest rates applicable for borrowings. The Government Gazette Notice No. 38911 proposes changes to maximum rates for Unsecured Credit from 32.65% to 24.78%, Mortgage agreements from 17.65% to 17.75%, Credit Facilities from 22.65% to 19.78%, Developmental Credits from 32.65% to 32.78% and other credit agreements from 22.65% to 22.75%. Incidental credit agreements remain unchanged at 2%. The public is invited to comment in writing on or before 5 August 2015.

Research studies and statistics show that South Africa has a worrying high level of over-indebtedness. Factors identified as contributing to this include weak affordability tests by credit providers, lack of honest disclosure by consumers, and generally high costs of credit caused by abuse of credit insurance, especially credit life insurance, extension of unsecured lending, as well as costs related to collection of debt and resale of loan books for further collection. The National Credit Act (Act. 34 of 2005) was promulgated to facilitate access to credit in a fair and equitable manner, while it put controls in place to ensure that credit extended to consumers is affordable and not too expensive.

Due to gaps identified in the implementation of the National Credit Act, amendments were introduced to address these concerns, with the highlight being the strengthening of the affordability tests requirements.   Following the amendments, the dti was required to look at the credit insurance as well as the interest and fees charged to consumers.

As per Regulation 45 of the National Credit Act, the National Credit Regulator (NCR) must perform a review of interest rates and cost factors at intervals of no more than three (3) years and advise the Minister of any changes that may be required. The NCR has since conducted the review and concluded that changes must be introduced to the limitation on fees and interest rates. The NCR made its recommendations to the Minister, who has, after consideration, published the proposed changes in the Government Gazette for comments. the dti is currently scheduling sessions with affected stakeholders as part of the consultative process during the month of July 2015. 

The proposed changes have taken into account various scenarios after the sensitivity analysis was conducted to determine the impact of changing the maximum allowable interest rates and fees. The proposed changes in maximum interest rates would affect types of credit providers in different ways. It is therefore always important to consider fees and rates in their collectivity in order to determine and balance the possible impact on the credit market.

Submissions from the affected stakeholders during this commentry period will enrich the process and enable the Minister to come out with a final determination. the dti urge stakeholders to take up the opportunity to clarify any aspect relating to this in the consultation sessions that will be held, and further provide the dti with their written submissions with alternative proposals, where necessary.

The Minister will publish the regulations relating to the capping of credit insurance soon after the consultation process with the Minister of Finance has been completed, as part of the measures to minimise the cost of credit.