More S. Africans fall victim to reckless lending practice

More and more South Africans have fallen victim to reckless lending practices, the Congress of South African Trade Unions (COSATU) said on Monday.

The market for unsecured personal loans has quadrupled over the past six years, to 164 billion rand (about 14 billion U.S. dollars) , 11 percent of all loans in the country, the national trade federation said in a statement.

About 25 percent of unsecured loans were "nonperforming" which means that they hadn't been repaid in three months or more -- up from 14 percent in March 2012, COSATU said.

The default rate in the past six years has hovered around 16 percent, but jumped by almost 10 percent in 2014.

"The debtors see their wages disappear even before they get them, via 'emolument attachment orders' (EAOs), commonly known as "garnishee orders" that force an employer to deduct money owed to a creditor from a person's monthly salary," said COSATU.

Thousands of workers' families are stuck in a debt trap, as a consequence of this reckless lending, by both established banks, and "mashonisa" loan sharks, who get their money back by deducting debt repayments, plus exorbitant interest charges, from the workers' wages through the EAOs.

The plight of the debtors is made worse as a result of decades of financial exclusion under apartheid, COSATU said.

Most black South Africans don't have deeds to their homes, to use as collateral. Even other assets, such as cars, were often also bought with money from the unsecured loan market so they can't then use them as collateral either.

The loans are usually guaranteed by nothing other than a pay slip, and interest rates are as high as 40 percent, five times the country's average lending rate.

COSATU said it will continue its battle against reckless lending practices, as part of its broader campaign for the complete transformation of the financial sector. Endi