1. CREDIT LAW REVIEW BACKGROUND RESEARCH

2. Contents Background Research Objectives Methodology Research Insights Conclusions

3. Background: Research on both consumer perspectives as well as stakeholder views Research conducted by Reality Research Africa & SA to Z (consumer perspectives) & Rudo Research & Training & Afridata Research (stakeholder views)

4. RESEARCH OBJECTIVES: To assess the level of consumers understanding of the cost of credit and perceptions on the information received from credit providers Consumer and industry representatives perceptions of consumer credit

5. METHODOLOGY: CONSUMERS Qualitative Research - conducted focus group discussions with consumers from different income segments and race groups Conducted 12 “focus group discussions”, with participants from different socio-economic backgrounds, on different products Objective: to assess the level of consumers understanding of the cost of credit and perceptions on the information received from credit providers

6. METHODOLOGY: CONSUMER & INDUSTRY REPRESENTATIVES Conducted 10 group discussions, 18 individual interviews and a number of written submissions Representation as follows: –Consumer orientated groups:- reps from the Provincial Consumer Desks 6 from consumer organisation 1 from a trade union 2 from SMME reps –14 credit providers –2 academics, 5 lawyers and 3 support institutions

7. FINDINGS: CONSUMER PERSPECTIVE DISCLOSURE: –Consumers did not understand the cost of credit –Felt that the actual cost of the credit was significantly higher than what they perceived it to be –Lower income groups- feeling of disempowerment and being misinformed wrt HP and micro-loans

8. CONSUMER COMMENTS ON DISCLOSURE: Hire Purchase“… it was R1 200 the price, when I came to realise, with the interest, the interest is higher than the price, the interest was R1 800, and the table was R1 200, it cost me to pay R3 000”, or from another participant: “My furniture, it was R2 000, the price that was displayed. But at the end of the day it was about R5 000 and they did not explain to me what was happening” (hire purchase, Coloured, Indian & Black groups); STORE ACCOUNTS, “They sometimes qualify you without even applying. They just tell you quote an X number and you qualify for a certain amount without any signature” [Black group, LSM 3-5] What happens is this, they will say, wait for a second, they are checking how much you qualify for, the result comes, and they say, it is R700.00 that you qualify for, no questions asked, you are glad that you are going to cover this and that. All the other stuff will come later, the important thing at that particular time is getting the goods. Personal Loans“The money lenders’ rate is not controlled. It goes up to 30% or more”. (personal loans, Black group LSM 3-5)“This ABSA loan, which they say is 28%, when they calculate they will tell you you pay so much back. But when you calculate it comes to 65%”. (personal loans, Black group LSM 6-7) ”I know of a company that borrows you money over the phone. You just give all the required information and if you met their criteria they qualify you and lend you the money you have applied for, straight into your account. Nowhere to read and sign Mine was blank. (Moderator: You signed a blank form?) The top was typed in, but the bottom was not filled in at all. No witnesses, no banking details, no account details, nothing. The top was typed in. And basically they can change it and you are not going to know. [White respondents LSM 8-10]

9. CREDIT RELATED SERVICES: Perceptions amongst consumers that credit providers inflated the cost of credit through items such as credit life insurance, delivery fess and club membership Charges where seen as being compulsory Felt they should be offered the option of paying for such service upfront, hence no interest would accumulate

10. TERMS AND CONDITIONS MISLEADING: Disenchantment, and even fear, common in respect of “zero deposit deals” (HP’s); deals with residual balances (car finance) or deals which entail an initial period in which there is no repayment or where the repayments are lower. Consumers reported having been “caught out” through these terms, that they were generally not well explained, were misleading and that “in the end, the payments will be more” –“I have got no idea actually”, …”No, they just say, sign here”, …”They talk so fast and then the small print, or I would be lying if I said I have any idea of what it is all about, I have no idea”

11. SOURCES OF INFORMATION: Participants admitted they do not read the contract before signing it, and that the contract played no role in influencing credit decisions. Advertisements, viewing items on the shop floor and discussions with sales staff where much more important Lower income groups- high level of concern with the difficulty of language and terminology used –With ABSA they give you a copy to read and also there are conditions on the back of that form. Due to ignorance and or laziness we normally do not read them- another trouble” (personal loans) –“ The contract is important, but we do not use it for information, because of the excitement of buying.” –“ Contract should be fewer pages, bigger print and in English so that one can understand it all”

12. CONSUMER CHOICE: Decision on the item to be purchased and the finance sought, seems nearly always to be integrated Important, as it indicates a link between the supply of goods and the selection of finance and thus there may be little competition between financiers. Appears to be a high level of “lock-in” into existing suppliers- is re-inforced by the fear of being blacklisted and the perception of having very few finance options.

13. SOLICITATION, HARASSMENT, SPECIAL OFFERS AND INDEBTEDNESS: Consumers believe that unsolicited credit offerings are “causing them to take more debt than what they should”. Such statements made in particular with respect to increased credit card limits and increased limits on store cards. Feelings of being “harassed” or “pressurised” into taking credit or signing the contract are also seen as contributory factors to taking too much debt

14. ACCESS TO REDRESS, COMPLAINTS RESOLUTION: Broadly shared view of credit providers being unresponsive to complaints, to the extent that consumers indicate that they have little choice but to continue paying until the debt is settled. Fear of being blacklisted- even if something wrong in the contract, you cannot stop paying as this would cause you to be blacklisted General ignorance of any of the complaints resolution agencies

15. COMMENTS ON COMPLAINTS RESOLUTION & ACCESS TO REDRESS: And that is what is killing a lot of us, we just sign and when they take you to the Credit Bureau, it is then that you realise that this is a mess and it is late then to make them change. When you try to talk to them, they are going to tell you that you should not talk to them, but to their lawyers”. [Black group, LSM 3-5] “They just say, if you do not pay, this is what is going to happen to you, they are going to take your belongings or whatever, whatever; that they tell you”, …” And then they blacklist and things like that, if you do not pay, you get on the blacklist. They stress that”, …”but they do not tell you what your rights are”

16. FINDINGS: CONSUMER & INDUSTRY REPRESENTATIVES Existing legislation is old and ineffective- should be replaced with one, consolidated Credit Act. Weak enforcement is contributing to non-compliance and is undermining consumer protection Low income credit providers were less compliant and less effectively regulated than high income clients Enforcement is weak and has resulted in extensive non-compliance and circumvention of legislation Introduction of one consumer credit regulator who should enforce compliance across all types of consumer credit transactions

17. FINDINGS: CONSUMER & INDUSTRY REPS – CON’D Fees & charges, and credit life insurance in particular, inflate the cost of credit and is used to circumvent the Usury Act cap Greater honesty by consumers in disclosure of existing debts would be of benefit to both the consumers and the credit providers. Consumers must read their contracts and understand their commitments Consumers must be better educated in credit issues There is a need for a national register on loan & other commitments The data on the existing credit bureaus are inaccurate.

18. CONCLUSION: There is a consistency between the views that are expressed by consumers in the focus group discussions and the views of the different stakeholder representatives The common thread is a view that the current legislation is outdated and fragmented and that the enforcement is weak.