NCR given May deadline to review service fees on loans

The NCA deadline is looming at the end of May. They need to submit the proposed changes to the monthly service fees. These are the fees that credit providers are allowed to charge on their credit agreements.

This fee has been capped at R50 since June 2006.

This amount will now be reviewed at intervals of no less than three years. The service fees are part of the cost of credit, which includes interest rates and credit insurance. Both of these fees, will substantially increase the cost of credit for all parties involved.

How does this affect Microlenders?

Microlenders are legally allowed to charge an initiation fee, a service fee, and a maximum monthly interest of 5% on a short-term unsecured loan.

A short-term unsecured loan is payable over a maximum of six months and may not exceed R8 000.

Currently, the maximum initiation fee that companies can charge on these loans is R150, plus 10% of the agreement’s amount over R1 000.

The company cannot charge more than  R1 000 for an initiation fee.

Many of the MFSA members have closed down because rates and fees on loans do not cover the cost of providing these loans.

The problem is that short-term loans often aren’t cost-effective to provide. Credit providers then tend to issue larger loans with longer terms to consumers creating larger debt issues in the long run.

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