South Africa’s Minister of Trade and Industry published draft regulations on the review of the limitations of fees and interest rates on 25 June 2015. The regulations will increase and decrease interest rates and fees that credit providers can levy on consumers’ mortgage agreements, credit cards, store cards and unsecured credit transactions.
The proposed changes to the interest rates for credit cards, store cards and unsecured credit transactions may leave some credit providers dissatisfied, however, the proposed increases to the service fees and initiation fees may trigger a mild form of euphoria on the part of some credit providers, bearing in mind that initiation and service fees have remained unchanged for years.
The maximum interest rates on mortgage agreements will increase by 0.1% [RR+12%] per annum and on store cards, will decrease by 2.9% [(RRx1.7) +10%] per annum and 7.9% [(RRx1.7) +15%] per annum for unsecured credit transactions. The calculation of the maximum interest rate is based on the current repo rate (RR) of 5.75%.
The maximum initiation fees to be charged in relation to a mortgage agreement, credit facility, unsecured credit transaction and the like have increased. For example, if you apply for a new retail store card and the deferred amount under the retail store card is less than R1 000, you will be required to pay an initiation fee of R165 (previously R150). The formula for calculating the initiation fee payable under a credit facility is R165 per credit agreement plus 10% of the amount in excess of R1000.
The maximum monthly service fee increases from R50 to R60. The service fee covers the cost for administering a credit agreement which is the operational cost of the credit provider such as rent, labour, communication, banking, processing of repayments and related costs. The service fees must be charged for the calendar month in which they are payable and on a pro-rata basis where the credit agreement is concluded during the course of that calendar month.
An initiation fee may only be charged when a new credit agreement is established with a consumer and must not be charged on a transactional basis where there is no new credit agreement.
All comments to the draft regulations must be submitted to the Department of Trade and Industry no later than 25 July 2015.