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Credit regulator “shocked” by loan abuse

Will investigate garnishee orders.

JOHANNESBURG – The National Credit Regulator (NCR) has expressed its “shock” at what it views as disallowed legal fees imposed by lawyers in connection with the collection of delinquent debt.

During discussions with Moneyweb on Tuesday Lesiba Mashapa, company secretary and exco member at the NCR, was shown copies of statements issued by a range of legal firms to miners in which apparently excessive legal charges where imposed.

The statements revealed instances where miners had been charged in excess of ten times their outstanding loan in legal fees.

The legal firms defended the charges stating that there was no law to prohibit the net amounts that lawyers may charge in connection with outstanding debt.

Mashapa believes the fees described in the statements to fall within the National Credit Act’s (NCA) in duplum provision which limits the net amount that defaulters may be charged in connection with the collection of debt to the principle amount of outstanding debt.

Mashapa has committed to investigate the garnishees issued stating “we do investigations now and then so if you send me those copies we will look into them and take appropriate action”.

Following further discussion around unproved allegations of widespread irregularity in the unsecured lending market, including reckless lending, abuse of financial illiteracy as well as artificially inflated interest repayments, Mashapa was unwilling to confirm whether the NCR would be conducting a wider investigation into the industry stating “I cannot divulge that … I am not saying we are not going to investigate”.

A Moneyweb investigation into costs associated with the issuance of garnishee orders has revealed a fundamental conflict regarding the interpretation of the applicability of the NCA’s in duplum rule.

The NCR maintains that it is illegal for lawyers to charge amounts which, when combined with interest and other charges, exceed the principle amount of outstanding debt.

Lawyers, including the Law Society of the Northern Provinces, argue that lawyers are exempt from the provision.

According to National Debt Mediation Association (NDMA) CEO, Magauta Mphahlele of SA’s 19 million credit active consumers in the region of 14,3% (2,7 million) have active court judgements and administration orders issued against them.

In the case of unsecured lending such judgements would typically relate to garnishee orders.

SA consumers currently sit with around R1.2trn in outstanding debt, between 8-9% of which is unsecured, says Mphahlele.

“Right now it’s a small percentage of the book but there is concern about its sustainability especially as the loans are becoming bigger and the terms are becoming longer.

Mphahlele also raised concern around currently available statistics relating to the levels of indebtedness amongst SA consumers.

Indebtedness figures are based primarily on data compiled by the Credit Bureau.

However, “there are challenges there where the information is not updated timeously and there are other debts which are not reflected” in the data.

Such debts include municipal debt which forms a “significant portion” of consumer debt as well as bet provided by smaller lenders which are not registered as credit providers.

This could mean that “levels of indebtedness in SA could be much higher than we think” she said.

According to a Moneyweb report, based on figures calculated with reference to Credit Bureau data, as much as 40% of the income of SA’s workforce earning between R3 500 and R10 000 per month is being directed to cover loan repayments.

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