PAYDAY LOANS IN CAPE TOWN
In the Mother City, payday lenders are offering customers cash to lure friends and family onto their books.
High-interest firms such as Cash Loans SA and Cash Convert Loans have been warned over this practice. Consumer watchdogs say the incentives are “cynical”. Cash Loans customers can earn up to R5 000 if they get a friend to take out a R20 000 loan at an interest rate of 35%. Rent-to-Loan retailer Cash Quick, with rates up to 28%, offers R1 500 to introduce a “payday pal”. Doorstep lender Loans R Us will pay clients R500 if a friend borrows R2 000 or more at 53,5%, while Loans At Home hands over R200 at 43,3%. Recent South African Reserve Bank (SARB) figures show households in Cape Town have unsecured debts of up to and over R204 000 000.
Marc Bowman of City Council of Consumer Action said the schemes were “bound to attract people”. Martyn James, the vice-president of CCCA added: “We’ve serious concerns about these ethics.” Loans R Us insisted only a “tiny percentage” of loans were driven through its scheme. Cash Quick said it was common practice among retailers. Loans At Home said it was “happy to offer a small reward” for customer referrals.
Lenders now are required to provide all loans with payback installment plans that span at least three pay periods. Borrowers can repay a loan any time between 12 and 62 days, and there is no penalty for early payback. The number of pre-authorized withdrawals lenders can make from a borrower’s account are also restricted to avoid extra fees. It’s part of legislation passed last spring to protect borrowers by enforcing lower interest costs and broadening repayment rules. Payday lenders provide up to R20 000 in cash to people to tide them over from paycheck to paycheck.
The president of the South African Payday Loan Association, Peter van Rooyen has said that lending companies won’t be able to absorb the changes. He also added that the law will lead to a significant contraction of the industry in Cape Town. CCCA’s Secretary General, Zizipho Ngcube says it’s important that the government support families by improving consumer protections against largely unsupervised sub-industries such as the cash express loan service.
Cape Town now has the lowest interest rate for payday loans in South Africa. In August, the rate was reduced to R15 per every R100 borrowed from R23 for every R100.
Van Rooyen said short-term express loans are sometimes necessary for people trying to make ends meet: “As families across the province prepare for a busy holiday season, many are shopping for Christmas presents, and are looking forward to spending time together,”. He also added, “but some are struggling between paychecks this season and many need a payday loan to bridge that gap.”
The SAPLA’s Joanne Kruger said measures to control payday lending help prevent people from falling into a cycle of debt.
“We know that financial literacy and access to affordable financial products are absolutely key to helping people who are finding it hard to make ends meet,” she said. Lenders have long been criticized for charging fees that, if annualized, amount to more than 600% interest. That can force borrowers — often lower-income earners — into a continuous cycle of financial catch up.