Small lenders force fee issue
Microfinanciers are suing the National Credit Regulator (NCR) and Minister of Trade and Industry Rob Davies for failing to review the service fees that can be be charged on credit agreements, and despite a 2014 court order declaring that they do so.
MicroFinance South Africa (MFSA) last week issued an urgent application in the high court, declaring the regulator and Davies to be in contempt, or at least in breach, of court for failing to review the fees within the timeframe stipulated by a judge of the high court. The application also seeks to interdict the regulator from prosecuting credit providers allegedly charging higher service fees than the regulation allows for.
Bitline and six other credit providers brought a case against the regulator last year to challenge the validity of the prescribed maximum service fee (currently R50 as stipulated in the National Credit Act and regulations), which had not been reviewed since 2006. On June 4 2014, the Pretoria high court ordered that the service fees, which providers are allowed to charge, be reviewed within nine months. The deadline lapsed this year on March 4, but the fee, it appears, is yet to be reviewed.
The regulations also state that the regulator must “perform a review of interest rates and cost factors at intervals of no more than three years and advise the minister of any changes that may be required”.
‘Court order disregarded’
Hennie Ferreira, the chief executive of the MFSA, which was one of the respondents in the Bitline case, said the organisation “cannot idly stand by whilst a court order which affects the entire country is being disregarded”. The body represents more than 1 200 microfinance credit providers of short-term and unsecured credit that are registered with the regulator.
Ferreira said, although the fee had not been reviewed as it should have, “the NCR still prosecutes its members with impunity on the invalid regulations. For these reasons the MFSA was compelled to bring this application as the outcome of the application will affect the entire credit industry in South Africa, consumers and credit providers alike.”
The application also seeks to interdict and restrain the regulator from prosecuting any of its members for an alleged breach of the service fee regulation in the Act.
The regulator issued new national credit regulations on March 13, but makes no mention of the service fee other than that it should be disclosed to consumers seeking credit.
The Act requires the minister to consult the regulator in deciding fees and that he consider, among other things, “conditions prevailing in the credit market, including the cost of credit and the optimal functioning of the consumer credit market”. It also stipulates that different fees can be prescribed for different subsectors of the consumer credit market, although this is not in place.
In its application, the MFSA points out that this differentiation has not been made and claims it is “illogical” for the maximum monthly fee to be the same for all credit agreement, ranging from mortgages to unsecured lending.
“On the face of it, it was an unconsidered and wholly arbitrary decision,” it says.
Credit providers a necessity
Ferreira said a sustainable microfinance industry required credit providers to be able to sustain and grow their businesses. “In order to do so, rates and fees, as prescribed by the NCA, must take into consideration and reflect the real costs of credit provision in order to ensure a competitive, fair and transparent industry.”
Given the slow progress in reviewing this fee despite the court order, “the respondents are in contempt of court or at the very least in breach of the court order”, Ferreira said.
The MFSA had tried to engage with the regulator on reviewing it but the organisation’s attempts were “met with vagueness”, he said.
In the application, the MFSA says it “has no information as to what the respondents have done to comply with the court order. The respondents have not in any way formally approached the applicant on this issue in the past nine months.”
Ferreira said it was critical that the MFSA should formally gain clarity on how the rates and fees pertaining to both short-term and unsecured credit were set, as well as the costs that these rates and fees were intended to cover.
“These queries are relevant to ensure a proper understanding of the requirements and obligations of the credit provider in terms of the NCA, as well as to ensure compliance by MFSA members.”
Neither the regulator nor the ministry of trade and industry would comment, regarding the matter as sub judice until an answering affidavit is filed. The application will be heard on April 7 this year.