The end of May is the deadline for the NCA to submit proposed changes to the monthly service fees that credit providers are allowed to charge on credit agreements.

The maximum monthly service fee has been capped at R50 since June 2006 and this amount is now to be reviewed at intervals of no less than three years. Service fees are a part of the cost of credit which includes interest rates and credit insurance. Both substantially increase the cost of credit.

Microlenders are legally allowed to charge an initiation fee, a service fee and a maximum monthly interest of 5% on a short-term unsecured loan. A short-term unsecured loan is payable over a maximum of six months and may not exceed R8 000. The maximum initiation fee that can be charged on these loans is R150, plus 10% of the amount of the agreement in excess of R1 000. An initiation fee may never exceed R1 000.

Many MFSA members have closed down due. This is due to the fact that rates and fees on loans do not cover the cost of providing these loans. This creates a problem since short-term loans often aren’t cost effective to provide. Therefore credit providers tend to issue larger loans with longer terms to consumers creating larger debt issues in the long run.