Relief for borrowers following SCA ruling
Borrowers with more than one debt outstanding were given some protection last week when the SCA ruled that the interest rate on short-term loans after the first loan cannot exceed 3% a month. GroundUp reports Micro Finance SA (MFSA) had challenged regulations promulgated under the National Credit Act reducing the interest rate on a second short-term loan taken out in a 12-month period from 5% to 3% a month.
The maximum interest rate on a first loan is 5% a month.
The regulations were introduced by the National Credit Regulator and the Department of Trade & Industry to provide some relief for over-indebted consumers. Many borrowers struggle to keep up with the repayments on their first loans and are forced to borrow a second time.
MFSA was unhappy with this reduction in interest rates on second loans, arguing it would reduce credit availability to those most in need. MFSA – which represents roughly 1 200 micro-lenders – challenged the regulations in the Gauteng High Court (Pretoria) on the grounds that the changes were made without proper consultation and without considering the impact on both borrowers and lenders.
The High Court originally ruled in favour of MFSA but this was overturned on appeal by a full Bench of the court. That decision was also appealed by MFSA at the SCA, which has now ruled in favour of the regulator and the department.
Article disclaimer: While we have made every effort to ensure the accuracy of this article, it is not intended to provide final legal advice as facts and situations will differ from case to case, and therefore specific legal advice should be sought with a lawyer.
