Consumers warned about 4 000 credit providers with lapsed registration: Here’s how to check

Consumers have been warned to ensure that they do not borrow money from one of the 4 000 credit providers whose registration with the National Credit Regulator has lapsed.

These providers are now operating illegally and often charge exorbitant interest, impose hidden and often illegal fees and use dubious collection practices.

As the South African economy continues to face challenges consumers increasingly turn to credit providers to afford to pay for basic necessities, but they are often unaware of the stark differences between legal, registered credit providers and the dangers posed by illegal lenders, Leonie van Pletzen, CEO of MicroFinance South Africa (MFSA), says.

The MFSA calls on consumers to prioritise using regulated credit providers and emphasises the need for sustainability in the lending sector through an urgent review of the rates and fees these credit providers charge.

“Credit providers who are registered with the National Credit Regulator (NCR) operate within a strict regulatory framework that ensures consumer protection, affordability and fairness.

“They are bound by the National Credit Act (NCA) and must comply with affordability regulations that safeguard borrowers from over-indebtedness and require transparency about interest rates, fees and repayment terms.”

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The benefits of borrowing money from registered credit providers

Van Pletzen says legal credit providers operate with professionalism, transparency and accountability, adhering to the same rates and regulations as banks.

“These regulated institutions are required to perform comprehensive credit checks to ensure that borrowers can afford the loans they apply for.

“This compliance ensures that consumers are not only protected, but that also get fair and responsible credit options that contribute to their financial well-being.”

In contrast, Van Pletzen says, illegal credit providers, often referred to as mashonisas, operate outside the law and are not subject to any of the requirements for protection or oversight that registered lenders must follow.

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Illegal credit providers exploit consumers

She warns they often charge exorbitant interest rates, impose hidden fees and use aggressive and unethical collection practices.

“These unregulated lenders exploit consumers, driving them into a cycle of debt that is difficult to escape from. Consumers may find themselves in the unfortunate situation where most of their earnings go into repaying loans every month.”

Despite the risks, many consumers are forced into the hands of illegal lenders due to the unsustainable conditions facing the formal microfinance industry, she says.

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Review needed of credit providers’ rates and fees

“The last review of registered credit providers’ rates and fees was done nearly 10 years ago and since then, the cost of doing business increased dramatically.

According to the NCR website, the registration of almost 4 000 credit providers lapsed. Many of them may still be operating, potentially illegally, putting more consumers at risk.”

MFSA is advocating on behalf of its 1 500 members for a much-needed review of the rates and fees registered microfinance providers charge to ensure their businesses remain sustainable and competitive against the illegal market.

“If legal credit providers are unable to cover their costs and operate profitably, they will be forced to turn away more consumers, driving them directly into the arms of unregulated lenders.

“We need a credit sector that is both responsible and sustainable – one that provides consumers with the access to credit they need while protecting them from exploitation,” Van Pletzen says.

She says the MFSA continues to champion the professionalism of the microfinance sector, working closely with the NCR to ensure compliance and consumer protection.

The association also plays a pivotal role in raising awareness of the risks associated with illegal lending and the importance of engaging only with registered credit providers.

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Check if your credit provider is registered

“We urge consumers to verify that their credit providers are registered with the NCR before taking out any loans.

Registered providers operate transparently, charge fair rates and ensure that borrowers are treated with respect and dignity, qualities that are all too often absent in the illegal market.”

Consumers can check here if their credit providers are registered with the NCR.