Credit warning to South African consumers
Consumers are being urged to avoid borrowing from at least 4,000 credit providers whose registrations with the National Credit Regulator (NCR) have lapsed.
These unregulated lenders often impose exorbitant interest rates, hidden fees, and use questionable collection practices.
MicroFinance South Africa (MFSA) is advocating for consumers to prioritise using regulated credit providers, calling for an urgent review of the rates and fees charged by these lenders to ensure sustainability within the sector.
“As the South African economy faces ongoing challenges, many consumers are turning to credit providers for financial support,” said MFSA.
“However, many are unaware of the critical differences between legal, registered credit providers and the dangers posed by illegal lenders.”
Leonie van Pletzen, Chief Executive Officer of MFSA, highlighted the importance of registered credit providers in ensuring consumer protection and fairness.
“Registered credit providers operate within a strict regulatory framework that ensures consumer protection, affordability, and fairness,” she stated.
These providers must comply with the National Credit Act (NCA), which safeguards borrowers from over-indebtedness and ensures transparency in interest rates, fees, and repayment terms.
“The NCA guards against predatory lending by regulating over-indebtedness and reckless credit,” explained Matthew Thomson, a director of litigation at DML Attorneys.
Reckless lending occurs when a credit provider fails to conduct an affordability assessment or disregards signs that a borrower does not understand the risks involved.
Van Pletzen noted that legal credit providers adhere to the same professional standards as traditional banks, conducting thorough credit checks to confirm borrowers’ ability to repay.
“This compliance not only protects consumers but also offers fair credit options that enhance their financial well-being,” she said.
In stark contrast, illegal credit providers, often referred to as mashonisas, operate outside the law, lacking the oversight registered lenders must follow.
Many consumers feel compelled to turn to these unregulated lenders due to the difficult conditions in the formal microfinance sector.
Ayanda Ndimande, head of Business Development at Sanlam Retail Credit, recently explained that “out of desperation, people turn to unregistered moneylenders when they cannot repay their debts, worsening their situation.”
These unregulated lenders frequently impose excessive interest rates and hidden fees, trapping borrowers in a cycle of debt that is difficult to escape.
“Many individuals end up using a significant portion of their income just to repay these loans, making it impossible to sustain themselves,” van Pletzen warned.
The consequences of borrowing from disreputable lenders can be severe, impacting borrowers’ credit scores and financial futures.
Van Pletzen pointed out that almost 4,000 credit providers have allowed their registrations to lapse, with many potentially operating illegally, further endangering consumers.
The last comprehensive review of rates and fees for registered credit providers took place nearly a decade ago, while the cost of doing business has risen significantly since then.
In light of these issues, MFSA is advocating for a thorough review to ensure the sustainability and competitiveness of registered providers against illegal markets.
“If legal credit providers cannot cover their costs, they will have to turn away more consumers, driving them into the arms of unregulated lenders,” said the MFSA chief executive
“We need a credit sector that is responsible and sustainable—one that provides consumers with the access to credit they need while protecting them from exploitation.”
Consumers are encouraged to verify that their credit provider is registered with the NCR before taking out loans.
“Registered providers operate transparently, charge fair rates, and ensure that borrowers are treated with respect and dignity—qualities that are all too often absent in the illegal market,” van Pletzen concluded.
Thomson shared some tips on how to spot a predatory lender, including:
- Lack of Registration: Ensure your lender is registered with the NCR. Authorised lenders must display their NCR registration certificate. If it’s not visible, ask to see it. Verify the registration number on the NCR’s official list to avoid scams.
- No Credit Check or Affordability Assessment: Legitimate lenders conduct credit checks and affordability assessments. If a lender doesn’t perform these evaluations or asks for upfront payments, it’s a red flag.
- Unreasonably High Interest Rates: Predatory lenders often charge exorbitant interest rates, ranging from 50% to 112%, well above the legal maximum. If the rate seems excessive, consult the NCR.
- Additional Warning Signs: No legally binding contract provided; Pressure to take multiple loans; Too-good-to-be-true interest rates, especially if upfront payments are requested; Demands for personal documents like ID or bank cards, which is illegal.
For more information, consumers can check the registration status of credit providers on the NCR website here.
If you suspect predatory lending, report it to the NCR or local authorities.
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