Minister Davies to appeal short-term credit judgment

© Alexandr Gordeev – 123RF.com

“Minister Davies will appeal the recent judgment in which the court set aside the regulations ... relating to short-term credit transactions that Minister Davies issued on the 6 November 2016,” said the Department of Trade and Industry (dti) spokesperson, Sidwell Medupe, on Friday.

On 21 November 2016, the court set aside the regulations after Micro-Finance South Africa (MFSA) disputed the reduction of the maximum prescribed interest rate from 5% per month on the first loan to 3% per month for subsequent loans in the same calendar year.

“The MFSA and the Judge are of the view that the reduction of interest rates from 5% to 3% does not take the interest of the credit market into account at all. Accordingly, the regulations were set aside,” said Medupe.

The Minister believes the appeal allows an opportunity to clarify issues raised in the judgment, as the reduction is informed by, among others, the fact that consumers are not able to repay the debt in one month and often go back for another loan on top of the unpaid debt and interest.

“This debt spiral is [what] informed the Minister to issue the regulations. Minister Davies is of the view that the Judge did not take into account the facts and evidence submitted by the dti.

“As a consequence, the Minister is appealing this decision, as he believes that a different court will come to a different conclusion,” Medupe said.

The judgment stems from an urgent application brought to the court by MFSA. The application was Micro-Finance South Africa’s response to the introduction of the regulations that cut the maximum interest rate that micro-lenders can charge on microloans to consumers.