Banks and finance minister agree to clean credit industry

The rush into garnishee orders by credit providers may be a thing of the past after last week’s agreement between the Banking Association of South Africa and the National Treasury.

In a wide ranging meeting the parties agreed to move towards limiting garnishee orders. A joint statement issued after the meeting National Treasury was left to pursue the matter with the Department of Justice to propose that the use of garnishee orders be restricted to maintenance order or pap geld.  The agreement came amid rising concerns that unscrupulous operators in the lending industry were abusing garnishee orders.

The joint statement said BASA and the National Treasury have reached an agreement to improve responsible lending and prevent households from being caught in a debt spiral. “The agreement calls for several measures to be taken, including a review of loan affordability assessments, appropriate relief measures for distressed borrowers, reviewing the use of debit orders and limiting the use of garnishee orders”.

The agreement was a follow up from previous meetings between the Finance Minister, Pravin Gordhan and major retail bank chief executives. The meetings had identified several concerns about lending practices by certain unscrupulous operators:

  • Excessive lending to households even when such loans are not affordable.
  • Illegal collection practices such as keeping ID documents, bank cards and PINs.
  • Selling inappropriate credit products to maximise margins (example: using expensive unsecured lending for house renovations instead of cheaper mortgage loans).
  • Extending unaffordable loans to pensioners and other social grant recipients.
  • Abuse of consumer credit and asset insurance, including excessive fees and charges.
  • Abuse of debt and garnishee orders, and of direct payroll deductions.

The agreements come amid rising concerns that South Africa might be headed for a financial bubble as a result of reckless lending. The statement expressed concern around un secured lending trends while it said the country was not yet facing a systemic risk.

“Quarterly Bulletin shows the ratio of household debt to disposable income remains high at 76.3 per cent in the second quarter of 2012. Of more concern is that, the percentage of retail borrowers in good standing, meaning those that have no accounts in more than 1 or 2 months in arrears, is at its lowest since records began in June 2007. It fell to 53 per cent according to the June 2012 Credit Joint statement by the Minister of Finance and the chairperson of the Banking Association of South Africa 2 of 5 Bureau Monitor from 63.6 per cent in June 2007. The number of accounts in good standing is 74.5% (June 2007: 79.2%)”.

The full joint statement can be read here:

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