By Anja van den Berg
Providing short-term high-interest loans to risky borrowers, loan sharks are operating under the radar, leaving consumers vulnerable and exposed to abuse.
“They’ve been part of the credit landscape for hundreds of years,” says South African consumer journalist Georgina Crouth. “Their predatory lending are linked to major events in history, including the American Civil War and the 1929 Wall Street collapse.”
While there are laws in place to curtail their practices, loan sharks often operate beyond the reach of regulators and the legal system.
In May last year online microlender Wonga issued a report compiled by research firm Eighty20, showing unregistered lenders or loan sharks are more widespread than previously thought.
It estimated that there are at least 40 000 operating in South Africa, at a ratio of one for every 100 households in informal settlements.
“By being unregulated, they charge anything from 30% to 50%,” says Jeffery Sibanda, a financial advisor. The National Credit Act allows a maximum of 31% interest a year to be charged. For a short-term loan that does not exceed six months, interest rates may not exceed 3% a month.
According to the National Credit Act amendment, which came into force in November 2016, only registered credit providers may lend money and charge interest. Failing to register as a credit provider will result in a loan agreement being declared illegal by the courts. Moreover, the unregistered credit provider will have limited legal recourse against the credit consumer.
Sibanda warns that some loan sharks illegally take a person’s possessions as repayment for a debt. He also warns that loan sharks may use intimidation and, in some instances, violence to get their money back from the borrower.
Loan sharks can even go as far as taking your ID and bank cards. Sibanda says according to civil law this is a criminal offence.
Earlier this year the court imposed a fine of R18 000 – or 30 months’ imprisonment – on a 54-year-old loan shark from Welkom after he was convicted for contravening the National Credit Act. The perpetrator was confiscating clients’ bank cards and identity documents to secure loan repayments.
A loan shark may:
- offer little or no paperwork, such as a credit agreement or record of payments;
- refuse to give information, such as the interest rate or how much you owe;
- take items as security, such as passports, bank cards or driving licences;
- increase the debt or add additional charges at any time;
- refuse to allow you to settle your debt; and
- get nasty – he could resort to intimidation, threats or violence.
If you find yourself the victim of a loan shark, you can report the individual to the National Credit Regulator.
Times Live: https://www.timeslive.co.za/news/south-africa/2019-02-27-loan-shark-fined-r18000-for-confiscating-bank-cards-and-id-books/
The Money Advice Service: https://www.moneyadviceservice.org.uk/en/articles/how-to-spot-a-loan-shark
East Coast Radio: https://www.ecr.co.za/lifestyle/family/expert-warns-beware-loan-sharks/