South African Consumer Credit Regulation — the Lessons For Australia

by Dr. Andrew D. Schmulow

Thomson Reuters Accelus, (2015), published electronically.

Africa is not a continent generally held up for its excellence in financial regulation but South Africa’s National Credit Act contains legislation the rest of the world would do well to take note of, particularly Australia.

Australia is grappling with a number of retail regulation issues at the moment around predatory and reckless lending practices. Payday lenders in particular are under fire, having been discussed several times in the Senate and awarded the 2015 “Shonky” award by consumer watchdog group Choice for their tendency to ‘sneak around government restrictions.’

Rent-to-buy schemes are also in the spotlight, with the Senate last month passing legislation placing such schemes off-limits for the financially vulnerable living on welfare payments.

While these examples are quite micro in terms of the broader economy, the underpinning philosophy of protecting the vulnerable from financial predation is extremely sound. The most stunning example of a failure in this regard was the financial crisis of 2008, where extraordinarily reckless lending in the United States almost led to the financial collapse of the Western world. Not to mention the social responsibility that regulators have to protect the weakest members of the economy.

So where does Africa fit? Well, it happens that South Africa’s regulatory treatment of lending practices sets a visionary framework. Not just for preventing unsavoury lending, but also stopping credit and asset bubbles from forming in the first place.