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Chapter 12 - Consumer Law

Microlending and microlenders

What is microlending?

Microlending is an agreement between two people in terms of which one person agrees to lend money to another person. The person who is lending the money (the lender) will usually charge an extra amount called interest that is added onto the main loan. This is the lender’s fee for lending the money.

Registration of microlenders

In terms of the National Credit Act (NCA), all microlenders (as credit providers), must be registered with the National Credit Regulator. The NCA controls the amount of interest that microlenders can charge on money that has been borrowed by a consumer and all aspects of microlending.

See Getting credit: contracting with a credit provider.

Remember the following when making a loan from a microlender:

- A microlender may not charge an up-front fee with the application, in other words, a fee when the person signs the document.
- A microlender may not keep the identify book or bank card or pin number as a collection method.
- Do not sign a document where there are blank spaces where the microlender can fill in information after you leave the office.
- Do not sign a ‘Consent to judgment’ form when you take a loan.
- Find out the benefits of any ‘membership’ fees charged by some microlenders before signing the agreement.

The contract/loan agreement with a microlender

A microlending agreement is drawn up when a lender offers to lend a consumer money and the consumer agrees to accept the terms of the repayment. When the consumer signs the contract he or she is agreeing to pay back the money and the interest according to the terms in the contract.

The consumer should always keep a copy of the contract and all the forms that have been signed. The contract must include the following information and details:

- the amount of the loan
- the interest rate
- amounts repayable
- the number of instalments
- if there is insurance, the type of insurance, the name of the insurer and the amount that may be included
- the period within which the loan must be repaid
- the penalties that will be charged if you miss a repayment (also called defaulting on your payments)

Any amount that is deducted from the loan amount reduces the principal debt.