The South African Reserve Bank (SARB) in collaboration with National Treasury has published a consultation paper on payroll deductions, asking for public comment on the most appropriate regulations it can introduce to stop abuse by collectors.
The consultation paper focuses on addressing issues relating to discretionary or voluntary payroll deductions covering all employees in South Africa from both the public and private sectors.
Examples of discretionary or voluntary payroll deduction include repayments of home, car or other types of personal loans, deductions for savings products or insurance premiums.
“The number of entities that extend credit, and offer products and services to deduct debt repayments, insurance premiums and payments towards savings products from payroll (a service commonly referred as payroll deduction) has increased in recent years,” the Reserve Bank said in a statement on Wednesday (7 March).
“These services are usually offered with prior agreement between employers and employees and, in certain instances, are requested or initiated by financial institutions, including financial intermediaries,” the banking body said.
“At their best, payroll deduction services can lower the credit risk to financial product or services providers making the collections and therefore increase access by employees to a broader range of financial services.
“However, payroll deductions can also promote preferential collections and information asymmetries, and there are also unscrupulous operators who abuse the payroll deduction services system, leaving employees with very little to take home,” it said.
The Reserve Bank said that its objective is to ensure that the payroll deduction system:
- Treats employees fairly and protects them from abuse;
- Remains a safe and efficient means of collection;
- Is transparent;
- Does not promote undue preference;
- Prevents financial crime (e.g. fraud in the payroll deduction system); and
- Promotes access to financial services.
In addition, the payroll deduction system should be underpinned by principles that seek to:
- Protect employees from predatory or unfair lending and/or selling practices;
- Afford employees the benefit of access to finance at reasonable rates.