Check your rate mate

2008-06-27 00:00

A Weekend Witness reader sent in an interesting problem. On a R8 500 loan, taken over three years, the interest rate charged was 46,6%. The full amount to pay back was over R22 000.

The bad news is that, according to the National Credit Regulator, it’s perfectly legal.

The National Credit Act prescribes maximum interest rates, and since the interest rate is rising, the calculation gets big quickly. The question raised by our reader is whether giving such large amounts of debt to low income earners is anything other than theft.

The assumption has been that the National Credit Act would put the brakes on adding to the debt burden of consumers, and with South Africans over R1,1 trillion in debt, something needs to be done.

Banking fees are too high. But you already knew that. Now the Competition Commission has released the Executive review and Banking Inquiry Panel recommendations. According to a press release by the Inquiry, the big four banks control more than 90% of the market.

Even more amazing is that in 2006 transactional fees brought in a third of their income, at R34,5 billion. The Inquiry concluded that transactional and bank charges are higher than they would be at competitive levels. The market is such that they are in a position to abuse their market power.

The Inquiry took 22 months to complete and has released 28 recommendations to change the way banks charge their customers. Once the 600-page report has been released, the Competition Commission, the DTI and the National Treasury will decide what steps to take.

Among the recommendations is a cap of R5 for rejected debit orders, as some banks charge up to R110 per transaction. The panel concluded that these high fees contribute to the “vicious cycle of consumer indebtedness” and are also predominantly being levied on low income consumers. In addition, penalty fees on rejected transactions are big earners for the banks and are much more than what the transaction costs.

Consumers are already being penalised by the service provider and again by the bank. Allowing non-banks access to the national payment system and instituting a regulatory scheme would increase competition in the sector and a Payment System Ombud is proposed to ensure fairness.

The level of interbank arrangements and the costs of branded payment cards are of concern as the method by which these fees are set may allow for potential abuse. Setting up an independent and transparent regulatory process was recommended.

Product and price comparisons were recognised as being difficult for consumers due to bundling, packaging and pricing.

The complexity of products and prices and the banks’ reluctance to price compete contribute to customer inertia, which enforces the banks’ market power.

Among other recommendations is the amendment of the Banking Associations Code of Banking Practice.

If you have a vexing or interesting consumer issue, try to resolve it first with the company concerned, and, if after a reasonable time you have still had no resolution, contact Cathy Thompson at 083 292 5934 or

Maximum Prescribed Interest Rates

• Mortgage agreements [(Repo rate x 2.2) + 5%] per year

• Credit facilities [(Repo rate x 2.2) + 10%] per year

• Unsecured credit transactions [(Repo rate x 2.2) + 20%] per year

• Short term credit transactions five percent per month

• Other credit agreements [(Repo rate x 2.2) + 10%] per year

6. Incidental credit agreements two percent per month.

Join the conversation! encourages commentary submitted via MyNews24. Contributions of 200 words or more will be considered for publication.

We reserve editorial discretion to decide what will be published.
Read our comments policy for guidelines on contributions. publishes all comments posted on articles provided that they adhere to our Comments Policy. Should you wish to report a comment for editorial review, please do so by clicking the 'Report Comment' button to the right of each comment.

Comment on this story
Comments have been closed for this article.

Inside News24

Traffic Alerts
There are new stories on the homepage. Click here to see them.


Create Profile

Creating your profile will enable you to submit photos and stories to get published on News24.

Please provide a username for your profile page:

This username must be unique, cannot be edited and will be used in the URL to your profile page across the entire network.


Location Settings

News24 allows you to edit the display of certain components based on a location. If you wish to personalise the page based on your preferences, please select a location for each component and click "Submit" in order for the changes to take affect.

Facebook Sign-In

Hi News addict,

Join the News24 Community to be involved in breaking the news.

Log in with Facebook to comment and personalise news, weather and listings.