According to the National Credit Act amendment which came into force in November 2016, if you want to lend money and charge interest, you must be a registered credit provider.
Sadly, a report issued by Wonga revealed that there are many loan sharks or unregistered loan providers with at least “40,000 operating in South Africa, at a ratio of 1:100 for every household in informal settlements”.
Loan sharks provide quick and easy access to short-term loans and can assist those who might not be able to access credit.
But Jeffery Sibanda warns that unregulated loan sharks can charge very high interest rates.
“By virtue of being unregulated, they charge anything from 30% to 50%,” says Sibanda.
This, he says, is unlike regulated loan sharks who “charge fees as prescribed by the National Credit Act”.
According to the National Credit Act, interest rates for a short-term loan that does not exceed six months cannot exceed 3% a month.
READ: Expert advice on dealing with loans
Loan sharks will do just about anything to get their money back
Sibanda warns that some loan sharks can also illegally take a person’s possessions as repayment for a debt.
“Should you fail to repay the loan on time, your personal belongings will be taken regardless of the value,” says Jeffery.
Loan sharks can even go as far as taking your ID and bank cards.
Jeffery says according to civil law, taking anyone’s belongings is a criminal offence.
Sibanda warns that sometimes the loan sharks might use “intimidation and in some instances violence” to get their money back from the borrower.
But if you find yourself a victim of a loan shark, he says all is not doomed. You can report the loan shark to the National Credit Regulator.
“Victims have won judgements in their favour. According to case law, operating illegal lending makes it a criminal offence,” says Jeffery.
You can also report any loan shark that charges you high interest rates.
READ: Dealing with finances in marriage
Image courtesy of iStock/ Chainarong Prasertthai