Regulating the unsecured lending sector: Catering to a real South African need whilst complying with section 25 of the construction

LL.M. (Commercial Law)Abstract: After the collapse of South Africa’s largest unsecured lender African Bank Limited in 2014, researchers and policy makers were encouraged to explore the intricacies of extension of credit and the impact that it has on all classes of earners in the country. This study aims at investigating the impact of the National Credit Act 34 of 2005 on over-indebtedness, reckless lending and borrowing, deprivation of property and credit literacy. As a result of poor financial literacy, consumers are more likely to invest in inappropriate financial and credit products and ultimately lose out on benefits such as tax deductions whilst incurring massive service fees and approaching the informal credit market for immediate access to cash. This study sets out various ways in which the National Credit Act may be failing South Africans and offers a few solutions to this conundrum. The National Credit Act was established to address the high levels of over-indebtedness and this dissertation investigates and expands on the National Credit Act’s ability to fulfil its objectives. This paper further puts forward how credit literacy can help alleviate the credit crisis faced by ordinary South Africans. The literature review illustrates an overall need for the legislature to offer more protection for consumers that need credit. This may include formalizing the informal lending sector so that informal credit providers are more inclined to offer credit on more reasonable terms and in line with the objectives of section 25 of the Constitution of the Republic of South Africa, 1996. This dissertation further provides recommendations on how the government can educate people on the best ways to secure credit safely and in ways that they can use credit as a tool to generate lasting wealth, whilst operating within the regulatory confines of the National Credit Act