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MicroFinance goes to court over service fee cap

Mar 17 2015 07:58

Cape Town – MicroFinance South Africa (MFSA) has issued an urgent application in the Gauteng High Court against the National Credit Regulator (NCR) and the Minister of Trade and Industry (DTI) Rob Davies, declaring them to be in contempt, or alternatively in breach of court over service fee caps.

This comes after the National Credit Act came into effect on Friday, nearly nine months after President Jacob Zuma signed it into law.

In the act, credit life insurance charges have not been capped meaning that unscrupulous lenders can exploit the loophole.

The maximum service fee was set at R50 in June 2006 and despite provisions in the NCA that this amount must be reviewed at intervals of no less than three years, to date no such review has been conducted and the service fee has instead remained R50 for nine years, according to MFSA.

“Accordingly the respondents are in contempt of court or at the very least in breach of the court order,” said Hennie Ferreira, Chief Executive Officer at MFSA.

The application follows the 4 June 2014 Bitline SA case, in which Justice Potterill ordered a review of the service fees, which credit providers were entitled to charge on a credit agreement in terms of the NCA within nine months of the court order, which date expired on 4 March 2015.
 
“As the recognised voice of reputable microfinanciers in South Africa, the MFSA strongly believes in the rule of law as a foundational value of the Constitution and as responsible citizen cannot idly stand by whilst a court order which affects the entire country is being disregarded.
 
“It is of great concern to the MFSA that despite the fact that the NCR is aware of the fact that Regulation 45 is invalid because it has never been reviewed for nine years, the NCR still prosecutes its members with impunity on the invalid regulations.

“For these reasons the MFSA was compelled to bring this application as the outcome of the application will affect the entire credit industry in South Africa – consumers and credit providers alike.”

Vague engagement with NCR
 
Concerning for Ferreira is the fact that during the past nine months the MFSA’s attempts to engage with the NCR on this review process were met with vagueness.
 
“As the representative body of registered microfinance credit providers operating within the ambit of the NCA, the MFSA has no idea as to whether or not a genuine and bona fide attempt has been made to comply with the order. Here the lack of detail which has been given to the MFSA by the Respondents has left the MFSA with the impression that there has been limited progress,” he said.
 
Ferreira said it was critical for the MFSA to formally gain clarity on how the rates and fees pertaining to both short term and unsecured credit were set, as well as the costs that these rates and fees are intended to cover.

“These queries are relevant to ensure a proper understanding of the requirements and obligations of the Credit Provider in terms of the NCA, as well as to ensure compliance by MFSA members,” he said.
 
MFSA has been in existence since 1996 and represents more than 1200 microfinance credit provider offices, providing short term and unsecured credit, registered with the NCR.

“MFSA recognises that in order to maintain a sustainable microfinance industry, to the benefit of consumers and credit providers alike, credit providers must be able to financially sustain and grow their businesses.”
 
“In order to do so, rates and fees, as prescribed by the NCA must take into consideration and reflect the real costs of credit provision, in order to ensure a competitive, fair and transparent industry,” said Ferreira.
 
The application will be heard on an urgent basis in Gauteng Division of the High Court in Pretoria on 7 April 2015.

* The NCR and the DTI have been contacted for comment and Fin24 will publish their response as soon as it is received.

rob davies  |  national credit act  |  debt
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