THE cost of credit is too high‚ says the Department of Trade and Industry‚ which wants regulations providing for caps for various products and services to be finalised within six months.
The regulations would be drawn up by Trade and Industry Minister Rob Davies with Justice Minister Jeff Radebe.
The cost of credit relates not only to the interest rate charged but also the monthly service fees‚ initiation fees‚ default administration charges‚ collection costs and credit insurance.
The department’s chief director of policy and legislation‚ MacDonald Netshitenzhe‚ briefed the portfolio committee on trade and industry on Friday on the department’s responses to public submissions on the National Credit Amendment Bill.
He said noncompliance with the caps should be regarded as an offence and be punishable.
At present all elements of the cost of credit are capped‚ with the exception of credit insurance which is simply governed by a section in the act which says its cost must not be unreasonable.
Mr Netshitenzhe said caps had to be introduced on credit insurance by the National Credit Regulator and the product regulated as the cost of credit insurance tended to be “excessive”‚ while claims ratios were low.
He urged that collection costs under other laws also be capped to ensure alignment. This was where collaboration with the Department of Justice was needed.
Department of Trade and Industry deputy director-general Zodwa Ntuli also highlighted the need for the department to keep a watch on the fees imposed by debt counsellors‚ payment distribution agents and debt collectors to ensure the process was cost effective. There were many players in the sector‚ all of whom added their own costs.
Another issue raised in the briefing was the selling of loan books‚ which Mr Netshitenzhe said “continues to be an area of abuse towards consumers”‚ though it did not fall within the ambit of the act.
“The practice of collecting or selling debts … should be prohibited and made an offence in the National Credit Act. All actions activating prescribed debts must be null and void‚” he said.
Mr Netshitenzhe said that changes could be made to strengthen this aspect of the law to protect consumers.
An amendment will be introduced into the bill requiring that anyone involved in the business of lending money be registered‚ but Mr Netshitenzhe said compliance requirements and fees could be set down in a manner “that takes into account the minimising of the cost of doing business for smaller operators”. The threshold would be lowered so that no credit provider was left out of the legislative net.