Cape Town - The rising level of over-indebtedness is a serious concern, Minister of Trade and Industry Rob Davies said on Monday.
He is especially worried about the increasing number of consumers with impaired credit records.
"We are concerned about the high levels of debt. Yes, it is very important that people have access to credit, but there is a real prospect of an increase in indebtedness," Davies said at a Barclays Consumer Conference in Cape Town.
Another concern for Davies is that a large part of the financial services industry has not yet started informing consumers that new credit regulations are to come into effect. These include new affordability tests before credit providers can extend credit.
The new regulations also aim to prevent credit insurers from selling "inappropriate cover" when credit is provided and circumventing caps on interest rates. An example of this is a retrenchment package sold to a retired consumer, said Davies.
Furniture stores which rely on credit insurance cover rather than margin to make profit is another example.
Davies mentioned situations where, when someone applied for car finance at a dealership and did not qualify, that person was then told to "go round the corner and see so-and-so" who would give him or her the credit.
Davies expressed satisfaction that the ease with which garnishee orders are obtained is being addressed.
"We see gaps in the legislative framework and the fact is that more than 40% of the credit active public have some form of impairment on their credit record. Credit providers rely on credit bureau statements, which are very general. In addition, too many credit providers rely on garnishee orders."
He said often consumers do not understand the credit products they are offered, especially the extra fees that are added.
"The risk is that, as the economy is going through a rocky patch and people are having less disposable income, lenders will try to expand their business. That is why we have developed the new regulations which will require an affordability test. A loan could then be declared a reckless loan," said Davies.
"Unfortunately in SA we have many people with a low (standard of) education and low income and they are preyed upon. That is why the National Credit Regulator must proactively act against these types of lenders."
Davies believes there are too many credit providers who think they can get away with breaking the law.
"Our message is that we will step up our work constantly as these practices are not in the interest of the financial industry or society as a whole," he told Fin24.
ALSO READ: No more reckless lending to consumers