Financial industry takes aim at loan sharks, scams

The financial services industry is piloting Money Smart Week in Gauteng, a collaborative attempt to improve financial literacy amidst tough economic times, which typically see the rise of people turning to loan sharks or unregulated loan schemes.

The pilot week, which began on Monday, is being held in in four townships in the provinces, Mamelodi, Tembisa, Soweto and Alexandra, and aims to give information and advice to consumers about their rights.

Lyndwill Clarke Financial Sector Conduct Authority (FSCA), head of consumer education, told Fin24 that many people don’t know the difference between regulated products and scams.

During Money Smart Week, people are able to request a free copy of their credit records from credit bureaus at the venues, and to lay complaints with various watchdogs responsible for the financial services industry.

Clarke said they chose to pilot the projects in townships, as financial literacy information is not readily available there, and regulators find that these are the areas where scams such as pyramid schemes are most prevalent.

Most over-indebted nation

Credit Ombud Nicky Lala-Mohan said South Africa was the most over-indebted nation in the world, because up until four years ago, credit was freely available, without rigorous affordability guidelines.

Lala-Mohan said his office was seeing a rise in 'loan tracking' products that promised to source credit for a client for a monthly fee.

This service is not illegal, and Lala-Mohan added that loan trackers who demanded monthly debit orders were an example of people needing to understand contracts before signing them.

The downside of the stricter affordability guidelines by the National Credit Regulator (NCR) has seen people turning to loan sharks or 'Mashonisas', especially during difficult economic times, according to Lala-Mohan.

Regulated personal loans are allowed to charge 26%-30% interest rates, while unregistered micro-lenders have been known to demand more than 200% interest rates.

He stressed that all lenders not registered with the NCR were illegal, but that it was difficult to clamp down on these businesses, as it was a "societal issue".

Debt management company Debt Rescue believes more than 40% of South African consumers are technically over-indebted, while consumers are under pressure from several consecutive fuel increases and rising inflation.

Money Smart Week is backed by National Treasury, the FSCA, industry watchdogs and several companies in the sector.

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