'Reckless lending global phenomenon that needs urgent attention'

Thuli Zungu

Thuli Zungu

If you thought consumers were not adequately protected in South Africa, think again.

The Department of Finance has proposed two acts to provide stronger protection for consumers.

What inspired the department to propose these acts was low-income earners who are over-indebted and unable to participate in the economy.

Its research showed that some debt administrators abused the system.

They did not pay the creditors, charged compound interest and prolonged the administration process for more than 15 years in some instances.

The government took a holistic approach to ensure an environment where there is more consumer participation than non-activism.

It came up with the National Credit Act (NCA) to control reckless lending and to curb over-indebtedness.

It also proposed consumer protection legislation which will, among other things, outlaw generally unfair terms in contracts.

These two acts were discussed at length at the 11th Consumer Law Conference in Cape Town recently where more than 80 prominent speakers from all walks of life converged to share views on consumer protection.

Most speakers expressed the need for consumer protection and fair trading regulation, even in competitive markets.

Speakers concurred that the market had failed low-income consumers.

This grouping had not benefited from the competitive market.

The experts advocated a need for consumer protection as the first priority by policy makers.

Speakers also agreed that over-indebtedness and reckless lending was a global phenomenon and needed urgent attention.

For its part, the Department of Trade and Industry said it was working hard to level the playing fields for consumers to trade fairly in the market place.

The NCA comes into effect in June while the new Consumer Protection Act is undergoing cabinet approval.

Fungi Sibanda, the DTI's chief director of consumer and corporate regulation, said consumer rights were critical and could not be ignored anymore.

"We come from a history of political activism; why are we not doing the same for consumers?" asked Sibanda.

He said the new consumer protection legislation would also outlaw unfair terms and conditions of a contract.

"Misleading advertisements and hidden costs will be a thing of the past," he said.

"Money lenders or service providers will be required to disclose all costs involved to avoid taking consumers by surprise," Sibanda said.

The proposed legislation will compel money lenders to assess the consumer's ability to repay the loan to avoid over-indebtedness and reckless lending, said Sibanda.

Those who fail to do so will be doing it at their own peril.

They will be forced to write off the recklessly granted loan.

But the borrower loses the shield where he or she fails to disclose all his or her debt, said Sibanda.

A penalty for a money lender who lends money recklessly will be a fine of 10percent of their yearly turnover, said Sibanda.

As of June, all moneylenders will be required to register with the department for accreditation and to comply with the provisions of the new legislation.

There will be no escaping - the Act will also be enforced against unregistered loan sharks.

Sibanda said his department needed everyone's cooperation to uproot over-indebtedness and reckless lending.

"Some debt administrators have joined the bandwagon and are being trained to counsel over-indebted consumers," said Sibanda.

Tjakie Naude, an associate professor at Stellenbosch University, applauded the department for including controls of generally unfair contract terms in their proposed new consumer protection legislation.

She said the decision to include a blacklist of prohibited terms was an improvement on the law commission's proposed bill of 1998.

A blacklist of prohibited terms and conditions invalid under all circumstances include:

l Terms granting unilateral decision-making powers to the business. In other words, control over the life of the contract and its terms;

l Other terms which unfairly prevent the parties from having equal rights;

l Terms governing the duration of the contract;

l Exclusion or restriction of liability normally imposed by law;

l Indemnity clauses;

l Exclusion or restriction of remedies normally available to the consumer.

Some laws assume this to be included in item 4, but others provide separately for restrictions on particular remedies;

l Procedural hindrances to the consumer's right to take legal action.

In other words, terms relating to disputes or proceedings;

l Exclusion of reliance on prior and subsequent undertakings and representations;

l Fictional declarations or receipts;

l Payment of compensation or penalties by the consumer, including liquidated damages clauses and forfeiture clauses;

l Transfer of rights and/or obligations to a third party;

l Unfair imposition of risk;

l Terms relating to security;

l Unfair enforcement clauses.

l Terms which entitle the business to unilaterally increase the price specified, or to link it to the price at delivery, without allowing the consumer to terminate the contract in the event of a price increase;

l Terms which allow the business to unilaterally modify the terms of the contract generally.