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MFSA Force NCR to Obey National Credit Act

The National Credit Regulator (NCR) has been ordered by the North Gauteng High Court to review service fees on credit accounts by the end of May 2015.

R50/Month

The NCR recently found themselves in contempt of a court order demanding that they review service fees on granted credit accounts. Last year Justice Potterill ordered a review of the service fees within 9 months of a court order (which was made in June 2014) That case also had to do with service fees and was about Bitline. The 9 month deadline expired on the 4th of March 2015. Since June 2006 the amount that credit providers large and small could charge consumers monthly has remained at R50 per month. The NCA makes provision for these fees to be reviewed periodically however the NCR never got around to it. Recently MicroFinance South Africa (MFSA) make an urgent application at court to compel the NCR to do what the Act requires.

The original cause for complaint seems to stem not from the amount itself (only R50/month) but the NCR’s harassing of micro financiers who were overcharging in regard to these monthly fees. The MFSA complained that the NCR “still prosecutes members with impunity on the invalid regulations”It looks as if MFSA have now called the account service fee amount into question which benefits those members who were having problems from the NCR in this regard. The NCR have been quick to point out that their investigations into some MFSA members found faults not only with the R50 service fee but other more serious breaches of the NCA. In all likelihood though this move by MFSA will stall any enforcement by the NCT in regard to matters where this point has been raised.

Will the Fees increase?

Increase

The NCR will now have to review the current service fee allowable and could increase it should they feel it is justified. After 9 years at the same amount it is likely that there would be an increase in these fees even if only a marginal one. This would then involve the DTI etc. MFSA have said that this low fee amount of R50/month has been a contributing factor in around 1000 micro finance creditors close their doors recently. There are, of course, other factors such as tightening lending criteria, poor repayment by lenders and an ever worsening economy which has killed consumers ability to actually repay loans.

 

In the past Debt Counsellors approached the NCR with a similar request and the fee guideline from the NCR was adjusted. At present Debt Counsellors are once again talking to the NCR about the topic. The Debt Counsellors Association of South Africa conducted research and published a paper showing how Debt Counsellors were now taking home a third less than they were in 2009 (and then you still have to factor in inflation etc). Creditors also get to charge other large financing fees and a fairly high interest rate on short term loans which cover their expenses so the R50 fee is just the tip of the iceberg and a tiny factor in whether a mirco financer is viable and profitable. MFSA may well be hoping that the entire fee and rates structure will be reviewed by the NCR. It thus seems that this is more of a strategic move than a financial life or death matter for micro financers.