South Africans borrowing big time

Last year South Africans paid R419 billion in taxes but are indebted to banks and shops twice as much.

As a result, national credit regulator has been tasked with setting up a statutory body that will regulate lending.

The debts include home loans, car lease agreements, credit cards debts and retail accounts.

South Africans owe R522bn on mortgage loans, R135bn on hire purchase repayments and R50bn on lease agreements ‘ a staggering total of R707bn.

Extravagant spending patterns have come under intense scrutiny following last month’s interest-rate hike, the weakening rand, rising oil prices and global economic conditions, factors economists warn could lead to more rate rises.

Against the backdrop of heavy spending in which the ratio of household debt to income has rocketed, Gabriel Davel, the national credit regulator, has been tasked with setting up a statutory body that will regulate lending.

The National Credit Act, which came into effect last month, prohibits reckless lending and automatic increases in credit limits, and regulates interests and fees.

All forms of finance, including bank loans, credit cards, retail store cards, furniture accounts and motor vehicle finance fall within the act.

“Consumers must accept responsibility for their actions and we must resist the growing trend of people acquiring goods they cannot afford, and then seeking to escape the responsibility of paying for them,” Gabriel Davel told journalists.

Davel said credit providers had been too willing to participate in the “credit frenzy”.

Honest disclosure by both credit provider and consumers, and harsh penalties for credit providers who approved loan applications when they knew the client could not afford to pay, would help create an environment in which people could benefit without being penalised.

Studies show thousands of consumers are paying interest on loans, credit cards and shopping accounts, and being caught in debt traps as inflation escalates.

Consumer credit given by banks, insurances and retailers has increased rapidly over the past 40 years.

A study by the Reserve Bank estimated that household debt went up from R3,1bn in 1969 to R166,6bn in 1994 ‘ an annual growth of 17 percent.

A report by the Bureau for Economic Research at the University of Stellenbosch found that consumer indebtedness in the first quarter of this year had risen to 68 percent, compared to 65,5 percent in the same period a year ago.

This has been driven by low interest rates and a stronger rand, particularly since 2002.

The new credit laws, which came into effect on June 1, have left moneylenders and credit bureaus rushing to register with the national credit regulator, the body responsible for implementing these laws, which are aimed at protecting consumers and curbing reckless lending. Credit bureaus and debt counsellors have also to comply with the act.

Nomsa Motshegare, the registration manager at the regulator, said they expected more than 7 000 applications from credit providers and bureaus before the July 28 deadline.

“We are receiving high volumes of applications, but still want to get the message out that service providers not registering with us face the possibility of a R1 million fine or 10 percent of turnover and possible deregistration.

“It would be an offence for anyone practising without registering after July 28,” she said, adding that the new act would protect consumers from microlenders, pawnbrokers and retailers.

July 2006
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