A new Supreme Court of Appeal judgement will bring welcome relief to indebted South Africans.
According to a report by GroundUp, the ruling upheld that borrowers may not pay more than 3% interest a month on a second short-term loan taken out in a 12 month period.
The regulations were originally introduced by the National Credit Regulator and the Department of Trade and Industry.
However, these regulations were challenged by Micro Finance South Africa (MFSA) which argued it would reduce credit availability to those most in need.
The High Court originally ruled in favour of MFSA but this was overturned on appeal by a full bench of the court.
That decision was also appealed by MFSA at the Supreme Court of Appeal, which has now ruled in favour of the NCR and DTI. This means that the new regulations remain in force.
In duplum rule
While this is good news for indebted South Africans, legal experts warned that consumers still need to be cautious of taking out multiple loans.
Speaking to GroundUp, independent legal and financial advisor Leonard Benjamin said that micro-lenders are able to get around the in duplum rule (which states that borrowers can never pay more than double the loan outstanding) by offering multiple secondary loans.
“At an interest rate of 5% a month you very quickly reach that ceiling,” he said. “Borrowers at this end of the market can very quickly end up in a debt trap from which they can never escape.”
This article was sourced from BusinessTech; for the original article, click here.