Brian Kantor argues that scrapping the National Credit Act would allow consumers and lenders freedom to contract and help transform the economic prospects of consumers in the informal economy (Scrapping the credit act would change the lives of millions, July 7).
He argues for a completely unregulated credit market, but clearly has no clear understanding of the hardships that vulnerable consumers suffered during the era when the credit industry was unregulated.
Before the introduction of the National Credit Act there was widespread exploitation of consumers by lenders with opaque charges and high interest rates. The interest rate under the exemption notice issued under the Usury Act was unregulated and millions of low-income consumers were charged rates as high as 360% a year on small loans. Many opaque fees and charges were added to interest, which pushed some consumers into a debt spiral. It was almost impossible to pay off the debt as the cost of credit kept on rising.
Competition and the reputation of lenders did not lower the cost of credit for consumers, contrary to Kantor’s claim that they would. Consumers were left to the mercy of the lenders. Many consumers are now saddled with multiple emolument attachment and administration orders.
The regulation of the credit market has brought immense benefits for consumers.
Consumers now get to know the cost of credit they will pay as this is disclosed to them in a quotation. They can use the quotation to shop around for the best deal.
Competition has improved, for example, among mortgage lenders and vehicle financiers, to the benefit of consumers.
Access to credit under the National Credit Act has remarkably improved over the years across different sections of the population. Mortgages and vehicle finance are now available to the previously disadvantaged sections of the population. So are credit facilities such as overdrafts and credit cards. We also have a strong microlending sector that provides access to credit to the low-income population.
The regulated interest rate caps are wide enough to allow lenders to price appropriately for risk. There is no need for lenders to introduce new charges and fees above those provided for in the National Credit Act covering various aspects of their credit provision.
Unregulated credit markets are breeding grounds for financial crises. The 2008 global financial crisis is an example. Fortunately, SA had introduced the National Credit Act, which cushioned us from the effects of the financial meltdown.
Lesiba MashapaCompany secretary, National Credit Regulator