Worker debt is key to wage talks

The National Credit Regulator has referred Ubank to the Consumer Tribunal. (Delwyn Verasamy, M&G)

The National Credit Regulator has referred Ubank to the Consumer Tribunal. (Delwyn Verasamy, M&G)

The Chamber of Mines and the National Union of Mineworkers (NUM) may enter a deal that will include tackling the indebtedness of mineworkers, but a bank owned by the two is accused of lending recklessly to the very people they seek to help.

Indebtedness among mineworkers has been placed near the top of the agenda for platinum and gold mining houses, and constitutes a major component of the wage negotiations taking place between the companies and unions.

The chamber, representing five gold-mining companies, on Monday tabled a wage offer based on economic and social issues. Labour representatives, comprising four unions, were urged to embrace a holistic settlement that would ensure the sustainability of the sunset industry.

Apart from annual wage increases and the proposal of a profit-sharing scheme, the chamber’s offer also contains social and employment guarantees, the core components of which include a commitment to alleviate debt among employees.

The objective, according to the proposal, is that no employee should be impoverished because of payroll-administered deductions, which should amount to no more than 25% of net pay.

Personal financial management training and reasonable access to on-site debt counselling services will be provided to all employees.

The matter of debt is not mentioned in the 646 pages of the report of the Farlam commission of inquiry and this is regarded as a glaring omission. The commission was tasked with investigating the underlying causes that led to the Marikana massacre in 2012.

In Lonmin’s statement on the Farlam commission’s report, it said it had placed particular emphasis on living conditions and employee indebtedness, “two key issues that we believe will make a profound impact on the wellbeing of our employees”.

The unions agree that indebtedness and exposure to unscrupulous lenders remain a problem for mineworkers.

At the same time, the National Credit Regulator (NCR) has accused Ubank of reckless lending.

Ubank is jointly owned by the NUM and the chamber and operates largely in mining communities.

After African Bank, now in curatorship, and Capitec, it was the largest unsecured lender in South Africa in 2012.

In January, the regulator announced it had referred Ubank to the Consumer Tribunal for contraventions of the National Credit Act.

An investigation conducted by the regulator revealed that, among other things, Ubank has granted credit recklessly; it has granted credit to borrowers who were in arrears on credit agreements with other credit providers and failed to take their debt repayment history into account; it has included initiation fees on the principal debt of unsecured loans; and it incorrectly disclosed the interest rate on credit agreements.

The regulator has requested an administrative fine and corrective measures to be taken by Ubank to provide redress to the affected consumers.

Ubank’s chief executive officer, Luthando Vutula, said in a statement Ubank did not agree with the regulator’s report and had attempted to resolve the matter amicably, but to no avail. He said Ubank was not in a position to discuss the matter publicly as it was sub judice.

Stephen Logan, a consumer advocate at Fair Credit, said the absence of a mention in the Farlam commission’s report of the role indebtedness played is “just such a glaring omission”.

“All these miners are overindebted and it’s a huge contributing factor to why we have all these strikes. To my mind it’s the elephant in the room.

“We all know the salaries [of the striking miners were] more than what was perceived at the time. It [the issues of debt] is really obvious. And what the NCR found when they did raids in the areas was that there was a huge amount of reckless lending going on.”

The government is under pressure to address the manner and price of lending not just on the mines but in all sectors. This has culminated in proposed credit regulations, published for comment by the department of trade and industry on June 25, that suggest lower interest rates on unsecured credit agreements.

The maximum has been revised down by eight percentage points from a maximum of 32.65% to 24.78%.

The credit regulations have not been revised since being published in 2006, despite the National Credit Act stipulating a revision at least every three years. The department was driven to act by recent court challenges brought by MicroFinance South Africa (MFSA).

The MFSA asked that the government revise some outdated fees quickly because the industry was struggling to keep up with rising costs. In particular, it wanted the service fee cap of R50 on all credit transactions to be revised.

This has been raised to a proposed R60 maximum.

Logan said the Act and regulations had set limits for loans under the amount of R10?000. Previously, the interest rates and fees on these loans had not been subject to limits.

“I think the intention was clearly to protect consumers so that they could not be asked to pay more. And what we have seen is that has not happened … Now we are at the point where they haven’t achieved core goals. Credit is still extremely expensive.”

Logan said the key reason to revise regulations was to address the cost of credit, particularly for the poor, and hence the focus on unsecured lending, which was more expensive than other types of credit.

But the unsecured lending industry is not pleased with the contents of the proposal gazetted last week.

MFSA chief executive Hennie Ferreira said that despite a number of requests the micro-financing industry had not yet been given the rationale on which the new rates and fees were decided.

“We want to understand how these things are determined. We want tariffs that are not abusive and reviewed on a regular basis.”

He said MFSA members had seen costs increase considerably in recent years. Lenders expended a great

deal of resources on the selection and compliance processes with

a great number of potential clients, in the end only to do business with a few.

But Logan said the regulator’s statistics showed that 50% of all credit applications received were rejected.

“This means we have given out credit to the point where 50% can’t qualify. You have burnt your market here.”

Ferreira said rates that made legitimate business too difficult would stimulate the underground market.

“As it stands right now, there will be absolute haemorrhage. It will go the same way as BEE [black economic empowerment] codes. They have not applied their mind fully.”

The 25% limit companies seek to impose on payroll deductions could be helped by an imminent judgment in a case that challenges how emolument attachment orders (garnishee orders) are issued. The aim is to stamp out their widespread abuse.

Ferreira said, if the use of emolument attachment orders were removed, it would have considerable effects. “If it is well administered, it is an effective way of collecting debt from people who don’t want to repay.

“If you can’t pay, you [enter into an] arrangement, or go into debt counselling. If you can pay but just refuse to, you should not enjoy special protection,” he said.

Logan said the 25% limit should be closer to 20%. “But any limit is better than no limit. It will disincentivise credit providers. They will have to check the client’s ability to repay more thoroughly. The key thing for lenders is collectability.”

Lisa Steyn

Lisa Steyn

Lisa Steyn is a business reporter at the Mail & Guardian. She holds a master's degree in journalism and media studies from Wits University. Her areas of interest range from energy and mining to financial services and telecommunication. When she is not poring over annual reports, Lisa can usually be found pottering about the kitchen. Read more from Lisa Steyn

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