Credit watchdog cracks the whip on Cape Town micro-lender

Cash-strapped consumers seeking loans from a lender in Cape Town had a nasty shock when their bank cards and ID documents were withheld after they struggled to pay off loans they couldn’t afford.

Now the micro-lender behind the offences‚ Eagle Cash Loans‚ has lost its registration and has to cough up R250 000.

This is after an investigation by the National Credit Regulator (NCR) which discovered the credit provider had “lent recklessly to consumers” and “retained bank cards and identity documents in contravention of the National Credit Act”.

The National Consumer Tribunal then handed down the judgement‚ imposing the fine and cancelling their registration.

Tom Heinemann‚ a Danish researcher who made an award-winning documentary on micro-lending in South Africa‚ said microloans had created “the opposite of poverty reduction… The loans are used to buy goods for immediate consumption‚ and only serve to put more pressure on the debtor”.

“In a worst-case scenario‚ this will lead the already poor person to lose the little safety they do have‚ when they are forced to sell their house to meet interest and instalment payments.”

Economist Azar Jammine said the situation with loans in South Africa “improved vastly” after 2007 when restrictions were put on mortgage advances.

“But then‚ between 2010 and 2012‚ there was an explosion in micro-lending. The next big phase was an attempt to tighten the legislation further. Some lenders still manage to bypass this‚ but it is not as bad as it was.”

According to Jacqueline Peters of the NCR‚ “a cancellation of the entity’s registration does not automatically nullify or cancel existing credit agreements”.

She added: “Consumers are urged to ensure that they only apply for credit from credit providers who are registered with the NCR. Credit agreements concluded by unregistered credit providers are unlawful and in contravention of the NCA.”

Eagle Cash Loans were not reachable for comment.

 - TMG Digital/The Times