Government responds to ‘home loan crackdown’ critics
Minister of Human Settlements Mmamoloko Kubayi has addressed recent criticisms regarding proposed changes to home loan disclosure laws, emphasising the department’s view of the need for both transparency and fairness in bank lending practices.
The minister responded to critics who have labelled the government’s proposals as being “misdirected” and overlooking crucial housing supply and demand issues.
In late August, the minister alluded to a clampdown on South Africa’s banks and home loan applications—with a particular focus on compelling them to disclose more information about their mortgage-lending practices to boost access to home loans among previously disadvantaged citizens.
Some industry experts reacted to the proposed changes critically, arguing that lenders are primarily profit-driven and that there are no racially motivated conspiracies within banks.
A key argument raised is that credit providers make money by awarding credit, not by denying it, suggesting that the idea of a racially biased lending system is outdated and unfounded.
Instead, critics say that a focus on race is coming from the government, which has not effectively dealt with a housing backlog and is now pointing fingers elsewhere.
However, Kubayi does not agree with the assessment, saying the government’s objectives have been misinterpreted – while doubling down on her initial views.
Specifically, the minister emphasised that discriminatory practices can and do persist in democracies, and South Africa is not magically exceptional.
She pointed to last May when ESSA Bank & Trust in the United States agreed to pay over $3 million to settle allegations of lending discrimination, specifically for redlining majority-Black and Hispanic neighbourhoods in Philadelphia.
Redlining is an illegal practice where lenders deny credit services to individuals in communities of colour based on their race or national origin.
“I am quite certain that ESSA Bank & Trust (ESSA) is profit-driven and…is still in business,” said Kubayi.
“Lest I am accused of unfairly comparing US banks’ practices with the financial institutions in our country, I am merely making the point that to claim that discriminatory lending practices are incompatible with profit-seeking in enterprises is downright ridiculous.”
“In fact, history is replete with examples of enterprises that practised discrimination whilst continuing to pursue profit maximization,” the minister added.
Additionally, the minister said that contrary to the assertions raised, the Department of Human Settlements does not intend to force banks to justify loan rejections.
Kubayi said that this is a ‘strawman’ that keeps getting raised, and critics keep beating them.
“(Critics) make the false claim that we ‘plan to change the law to force banks to explain why they reject loans to any previously disadvantaged person’,” she said.
Contrary to this, she explained that the Home Loan and Mortgage Disclosure Act (HLAMDA), which has been in effect since 2000, aims to enhance transparency by requiring financial institutions to disclose their lending activities.
This information, aimed at promoting fairer lending practices, includes ‘categories of borrowers as may be prescribed’ and ‘geographic areas as may be prescribed’.
The information is disclosed to the Office of Disclosure through the Secretariat, which is within the Department of Human Settlements.
“With the disclosed information, we are able to unravel the race and gender of the people who are accessing the loans and in which areas the properties they are acquiring are located [and] the problem we have faced as a department is poor compliance with the Act by lending institutions,” explained the minister.
To encourage compliance, the Department is considering amendments to the Act in the following areas:
- Strengthen or enhance the powers of the office to be able to investigate home loans consumer complaints;
- Increase the penalty amount from R100,000 to a higher amount for noncompliance;
- Include or strengthen the requirement for auditors to audit the returns in order to improve the quality of information on the returns submitted by banks.
“A discerning reader would understand that we are calling for more transparency in the lending practices,” said Kubayi.
“Data indicates that lending activities in the home loan market remain skewed against previously disadvantaged individuals,” she added.
She reiterated her call for financial institutions to comply with the existing laws to foster a more equitable property market.
In conclusion, Minister Kubayi called for collaboration among stakeholders to address disparities in the housing market, aiming for a united and inclusive South Africa.
“Let us work together to ensure that all citizens can realize their dream of homeownership in a nonracial and prosperous nation,” she urged.
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