Thursday, April 25, 2024

NBFIRA cracks down on micro lenders loan repayment  

The Non-Banking Financial Institutions Regulatory Authority (NBFIRA) has issued instructions to micro lenders that starting 1st April it will be monitoring their debtors’ repayment schedules. 

The Chief Executive Officer of NBFIRA Oduetse Motshidisi reminded micro lenders that the regulator is empowered to give a non-bank financial institution a written direction on the manner in which the affairs of the non-bank financial institution may be conducted if it appears to the Regulator that the direction is necessary to protect the interests of clients of such non-bank financial institution and the public.

“In that regard, Micro Lenders are directed to issue a repayment schedule to borrowers. The Directive also provides guidance on Regulation 10(1) of the NBFIRA Micro Lending Regulations, 2012,” said Motshidisi. He said the current practice is that “It is observed that there is insufficient disclosure of loan information to the borrowers.” Motshidisi said there is also lack of consistency in the market on the application and calculation of the total cost of credit. 

“Consequently, this has resulted in numerous complaints lodged by borrowers on inadequate disclosure of loan information by micro lenders prior to signing of the loan agreements, as well as miscalculations and divergent views on the application and calculation of total cost of credit,” said Motshidisi. 

He explained that in terms of the NBFIRA Act, 2023, a micro lender, means a person who advances money to another person, where the money does not exceed the prescribed amount, but does not include a person licensed in terms of the Banking Act or Building Societies Act.

“Section 56(5) of the NBFIRA Act, 2023 stipulates that the direction referred to under subsection (1) may specify the period by which, or the period during which, such direction is to be complied with,” said Motshidisi. 

He said In terms of section 56(7) of the NBFIRA Act, 2023, a person who, without reasonable cause, fails to comply with a direction given in terms of this section commits an offence and is liable to a civil penalty not exceeding P250 000 to be imposed by the Regulatory Authority.

“Regulation 10(1) of the NBFIRA Micro Lending Regulations, 2012, states that a micro lender shall provide a borrower, prior to signing a loan agreement, at the latest, with a schedule in writing, stating the principal amount, the total amount payable over the repayment period, the total cost of credit, the repayment period, the number of instalments and the amount of each instalment and the total monthly cost of credit rate,” said Motshidisi. 

He said a micro lender shall also provide a borrower with a statement providing details of whether the interest rate element of the total monthly cost of credit is fixed for the repayment period or variable, and if variable, the circumstances under which penalties would be charged, the amount of the penalty, any additional costs that may have to be paid and a method of calculating the penalty, the nature and amount of any insurance if required, including the name of the insurer and the amount and frequency of the premiums payable.

Motshidisi said it is apparent that there is no clear guidance on the information to be shared with borrowers prior to signing the loan agreements. 

“Furthermore, there are inconsistencies in the calculation of total cost of credit across the industry. Therefore, pursuant to Section 56(1) (f) of the NBFIRA Act, 2023, the Regulatory Authority hereby directs micro lenders, through this Directive, to issue Repayment Schedules to borrowers. In addition, micro lenders are directed to ensure that they comply,” he said. The Regulatory Authority has also directed Pawnshops, Finance and Leasing Companies to issue Repayment Schedules to borrowers. Pawnshops, Finance and Leasing Companies were also directed to comply with the general terms and conditions when calculating maximum cost of credit and penalties, respectively. 

“Penalty must be charged at default only. The total of the penalty amount and additional costs, excluding the identifiable legal fees shall not exceed five percent of the outstanding principal amount per month with a maximum not exceeding the outstanding principal amount,” said Motshidisi.

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