Abstract
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South Africa is a developing country of approximately 55 million people, of which
40 million are regarded as economically active, and fall between the ages of 15
and 64. 1 Of this, approximately 25 per cent are unemployed, with many adults
classified as illiterate.2 This presents opportunities for unscrupulous financial
service providers, especially lenders, to take advantage of the large number of
unsophisticated financial consumers in South Africa. In 2002 the South African
Department of Trade and Industry (DTI) recognised that the situation in the
consumer credit market was untenable. Existing legislation provided inadequate
rules regarding disclosing the cost of credit, consumers were uneducated regarding
financial matters ( especially when it came to understanding the concept of interest
and fees), and there was excessive predatory behaviour among credit providers,
who often made no attempt to establish whether consumers were in a position to
repay their debts.3 A study conducted by the DTI in 2004 revealed that the credit
market in South Africa, which had developed over a period of 40 years, was
inappropriate for the development of a new democratic society, which aimed to
cater for all its citizens. It was a market which both reflected and reinforced two separate economies in South Africa.4 On the one hand there was (and still is) a
modem, first-world industrial, mining, agricultural, financial and services sector,
which produces most of the country's wealth, and on the other, a third-world
economy, in both urban and rural areas, where the majority of poor, mainly black,
people live.5 This second economy was characterised by severe underdevelopment,
accessing credit was difficult, the costs were extremely high, and consumer
protection measures were limited, if not non-existent. For all these reasons, a
fundamental restructuring of the credit market and its regulation was found to be
necessary. 6