The festive season has come and gone. For some it’s back to school, others need to register for university while for most people it is back to work after spending time away with family or on an annual vacation.

Mr Nicky Lala-Mohan, The Credit Ombud says: “The unfortunate truth is that many consumers tend to be reckless/irresponsible with their spending during the festive season. Credit cards are maxed out, new debt is incurred and sometimes consumers fall behind with their monthly payment obligations. This adds more pressure to consumers as many households these days rely on credit to cover their day to day expenses.” The problems are  in relying so heavily on credit is also evident in the number of impaired credit records which indicates that close to 10 million consumers struggled to pay their debts on due time during 2016.

 Despite the fact that the Credit Regulations were amended recently, making credit granting rules stricter in order to curb reckless lending,  consumers who are struggling financially find themselves in a desperate position and are prepared to do anything to get their hands on cash. This desperation drives consumers to unlawful, unregistered loan providers [also called mashonisa] who are operating outside the ambit of the law, who may be charging exorbitant interest and fees and have questionable collection practices.

The requirements of the National Credit Act are that all providers of credit should be registered with the National Credit Regulator irrespective of the number of credit agreements or amount of credit extended to consumers.

“Unfortunately, not all credit and loan providers are registered with the National Credit Regulator”, warns Nicky Lala-Mohan.

We generally see an increased number of consumers who apply for microloans during January to pay for school registration fees, purchase uniforms and stationery and even to cover their day to day expenses during the month of January.

Lala Mohan continues: “Too many consumers take out ‘pay-day’ loans which are loans designed to be taken out over a short period of time while others go as far as borrowing from unregistered loan providers as their processes, while cutting corners, are quick and easy. However, the Credit Ombud needs to issue a warning to consumers against borrowing from unregistered loan providers as the repercussions may be severe”.  

Lala Mohan explains the dangers of borrowing from unregistered lenders as follows:

1.    They don’t come cheap

Fees and interest – these organizations are usually not compliant at all with  the National Credit Act and will therefore not stick to the rules and regulations designed to protect consumers when it comes to  the  charging of interest and . They usually charge very high interest and consumers end up paying an exorbitant amount of money on interest alone.

2.    Their collections processes may be questionable

There are rules and regulations set out in the National Credit Act for the collection of unpaid debt. When dealing with an unregistered lender with no fixed offices, it will be difficult for consumers to lodge complaints against these loan providers when they use questionable methods such as threats or violence or even taking a consumers’ bank cards and ID books/cards.

3.    Loan agreements and the terms thereof are not clearly explained

  Due to the fact that these loans appear to be quick and simple, consumers usually enter into these agreements without fully understanding what they are getting themselves into. The terms and conditions are not laid out and, in particular, the consequences of failing to pay are not explained.

4.    Loans are granted without ensuring affordability

  If a proper affordability assessment is not conducted – and this is usually the case with these providers, consumers are at risk of taking on loans which they cannot afford to repay and become more over indebted.  

5.    Consumers are eventually placed in an even worse position.

The consumers will end up with more debt and worries as opposed to having their problems resolved. For example, they could be forced to a situation where they have to take out another loan in order to pay the previous loan. This behavior leads to a debt trap where consumers need to continuously borrow more and more money in order to cover these the payments of all the loans as well as their day to day living expenses.

6.    No recourse to formal dispute resolution agencies

Consumers who borrow from unregistered lenders cannot avail themselves of the protection provided by legislation and may not even be able to use the services of our Ombuds Offices as these credit providers are not our members and are usually not willing to co-operated to provide any information or resolve consumers’ disputes.


Lala Mohan says: “the Credit Ombud advises consumers not to turn to unregistered lenders with unlawful practices simply because their application process is ‘quick and easy’ or because they are the only ones who are prepared to provide the loan. These loan providers are not doing consumers any favours by giving loans without doing the necessary checks to ensure that they are able to afford it and will be able to pay it back.”  To grant a loan which the consumer cannot afford is exactly how consumers end up in a debt spiral or over- indebted.  It is dangerous and not advisable for consumers to expose themselves to financial and physical harm.” he concluded. .

Consumers can contact the office of the Credit Ombud for FREE assistance if they experience any issues relating to credit agreements with non-bank credit providers such as the clothing and furniture retailers as well as micro-lenders, fraudulent listings, emolument attachment orders (“garnishee orders”) or general complaints about their credit bureaux listings. The office can be contacted on 0861 66 28 37; on the website www.creditombud.org.za; email us at ombud@creditombud.org.za or send a sms to 44786 and we will call you.



If you would like more information about this topic, please contact Salem Dyafta, Public Relations Manager at 0828741537 or email at sdyafta@creditombud.org.za.