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There are still two areas in the unsecured lending market that need attention, says Capitec CEO Gerrie Fourie.
One is that credit life cover must be charged on a reducing balance in all cases. Currently, the Draft National Credit Amendment Bill allows credit providers to charge credit life cover either on a reducing loan balance, or on the initial amount for the full term of the loan.
Capitec follows the reducing balance approach, says Fourie, since it makes a difference to the cost clients have to bear over the period of paying off a loan. Applying for cover for the full amount when the client has already repaid a large portion of the loan is not in the best interest of the client.
Many consumers do not realise the difference this makes to the total cost of credit, Fourie believes.
Draft National Credit Amendment Bill
The Draft National Credit Amendment Bill proposes that people with an income of R7 500 or less, and with unsecured credit of R50 000 or less, can apply for debt intervention. Fourie said the National Credit Regulator (NCR) already has guidelines in place and Capitec lends money according to those. If the new proposal introduced by the bill is accepted, it could overturn the status quo and then a bank like Capitec could start asking itself whether it wants to continue being active in the low-income market. That is people earning below R7 500 per month net.
"We have seen that when we started to pull back in this market segment, a lot of micro lenders started to come back in and they are more difficult to regulate than big business," said Fourie.
"It is also unclear what criteria will be applied to determine the result if a person who earns less than R7 500 says he or she cannot repay the money. There is still a lot of work to be done on the bill and we will wait and see what comes out in the end."
In Fourie's opinion it would be better to rather lift the expenses level required for lower-income people in terms of the NCR guidelines. Then everyone will be assessed on the same basis when a credit test is done.
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