n SA Mercantile Law Journal = SA Tydskrif vir Handelsreg - The excessive cost of credit on small money loans under the National Credit Act 34 of 2005

Volume 19, Issue 3
  • ISSN : 1015-0099
  • E-ISSN: 1996-2185



The National Credit Act 34 of 2005 has introduced a new era of consumer credit regulation and practice, bringing about wholesale changes to the consumer credit industry. It is an extremely complex and lengthy piece of legislation which seeks to include within its ambit, and to regulate in a concise manner, all conceivable sectors of the consumer credit market. An important aspect of the legislation is the placing of limits on the cost of credit, which is a significant new development in the case of the micro-lending industry.

This article will begin with a brief discussion of the micro-lending industry prior to the Act : its growth and size with no interest-rate limits; the impact of excessive interest rates; and possible legal recourse for consumers. The article will then focus squarely on the cost of credit provisions : the legislative framework for the cost of credit; the prescribed limits on the cost of credit; and a thorough analysis of the new cost of credit. The full implications of the maximum prescribed interest rates, initiation fee and service fee will be considered separately. The combined impact of these credit costs will then be demonstrated and comprehensively analysed, and their socio-economic impact reviewed. Finally, suggested amendments to the National Credit Regulations will be proposed in order to address their shortcomings in regard to the cost of credit.

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