South African Consumer Credit Policy: Measures Indirectly Aimed at Preventing Consumer Over-indebtedness

• Jurisdiction: South Africa
• Published date: 25 May 2019
• Date: 25 May 2019
• Author: Philip N Stoop
• Pages: 365-386

South African Consumer Credit Policy:

Measures Indirectly Aimed at Preventing

Consumer Over-indebtedness*

PHILIP N STOOP**

University of South Africa

1 Introduction: Policy Considerations and Essentials of

Consumer Legislation and Background to the South African

Act

The global economy boomed during the last two decades, largely because

credit was easy to grant and to access.

1

But this boom came at a price: the

unprecedented number of individuals and businesses that are over-indebted.

2

Legislation protecting debtors and directly or indirectly aimed at preventing

the problems of overspending is now an international phenomenon, though

differing from country to country, depending on local needs.

3

Generally,

though, it seeks to address the imbalance between the bargaining power of

credit providers and consumers, to combat malpractices by identifying and

prohibiting such malpractices, and to limit the free exercise of legal

remedies.

4

The South African Government identif‌ied the benef‌its of a working credit

industry that helps consumers to accumulate assets, exploit economic

opportunities and establish businesses.

5

For the enjoyment of those benef‌its,

though, the industry needs to be regulated, simply to ensure that consumer

abuses are minimised.

6

The South African Law Commission,

7

when

investigating the industry, received several requests for its deregulation.

8

Merchants and f‌inanciers claimed that consumer credit legislation irked them

* This article is based on a paper presented at the International Association of Consumer Law’s12th

International Conference on Consumer Law, at the Nalsar Law University, Hyderabad, India on 25-27

February 2009.

** BCom LLB LLM (UP). Senior Lecturer, Department of Mercantile Law, School of Law,

University of South Africa.

1

Melanie Roestoff & Stéfan Renke ‘Solving the Problems of Overspending Individuals’ (2003) 24

Obiter 1.

2

Idem at 4-6, referring to ‘The Preface to the International Federation of Insolvency Practitioners

Debt Committee’ report, INSOL International Consumer Debt Report:Report of Findings and

Recommendations (2001) (hence ‘INSOL Consumer Debt Report’).

3

JM Otto The National Credit Act Explained (2006) at 1.

4

Roestoff & Renke op cit note 1 at 16.

5

Department of Trade and Industry South Africa (‘the DTI’) Consumer Credit Law Reform: Policy

Framework for Consumer Credit (2004) at 6 (‘Policy Framework’), available at http://

www.thedti.gov.za/ccrdlawreview/policyjune2005.pdf.

6

Ibid.

7

South African Law Commission Working Paper 46, Project 67 (1993) ‘Part III: Policy

Considerations and the Essentials of Consumer Legislation’ at 47-66.

8

Idem at 54.

365

(2009) 21 SA Merc LJ 365

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and that deregulation formed part of South Africa’s economic policy.

9

But the

Commission stated that consumer credit legislation is essential even in

market-oriented and capitalist economic systems and that, in fact, it is

in countries with the most unregulated economies that one f‌inds the most

comprehensive consumer protection legislation.

10

However, some writers,

merchants and f‌inanciers argue that consumer protection and credit legislation

should be abolished; they claim that contract law is based on freedom of

contract and that supply and demand alone should regulate the credit

industry.

11

One should keep in mind, though, that the credit provider and the

consumer are not of equal standing and that free competition will not

eliminate malpractices, simply because there are greedy f‌inanciers in every

society.

12

Consumer protection can be best achieved, therefore, by regulating

the credit industry. Appropriate legislation is aimed primarily at protecting

consumers; at the same time, credit providers’ reasonable expectation of a

prof‌it must also be protected.

13

Since the free market did not function properly

in South Africa, there was a need for comprehensive credit legislation that

regulated the market in almost every aspect of credit provision.

14

The most

important objectives of consumer credit legislation identif‌ied by the South

African Law Commission were that it must address the consumer’s unequal

bargaining position, curb malpractices, curb the exercise of remedies by credit

providers, protect only the consumer community, educate consumers, and

provide consumers with relevant information.

15

Given the considerable imbalance of power between credit providers and

consumers, low education levels, poorly informed consumers, weak disclo-

sure and deceptive marketing practices, many South African consumers have

concluded unaffordable credit contracts, and their over-indebtedness has led

to many social problems.

16

For these reasons, Parliament passed the

comprehensive National Credit Act (‘the Act’),

17

more prescriptive than its

predecessors and creating a more extensive enforcement framework.

18

Fully

operative since 1 June 2007, the Act protects a wide range of consumers,

including all private individuals, whatever their f‌inancial position.

19

It lays the

foundation for a regulated credit market that will contribute to unlocking

9

Ibid.

10

Ibid.

11

Ibid.

12

Idem at 54-5.

13

Idem at 58-9.

14

For example, from marketing to default (idem at 60).

15

Idem at 61-4.

16

Policy Framework op cit note 5 at 7. See also Therese Wilson ‘Responsible Lending or Restrictive

Lending Practices? Balancing Concerns Regarding Over-Indebtedness with Addressing Financial

Exclusion’ in: Michelle Kelly-Louw, James PNehf & Peter Rott (eds) The Future of Consumer Credit

Regulation: Creative Approaches to EmergingProblems (2008) 91 at 95.

17

34 of 2005. See also André Boraine ‘The Reform of Administration Orders within a New

Consumer Credit Framework’ in: Michelle Kelly-Louw,James P Nehf & Peter Rott (eds) The Future of

Consumer Credit Regulation: Creative Approachesto Emerging Problems (2008) 187 at 204-7.

18

See Boraine op cit note 17 at 204-7. The predecessors were the Credit AgreementsAct 75 of 1980

and the Usury Act 73 of 1968.

19

Otto op cit note 3 at 2.

(2009) 21 SA Merc LJ366

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