As financial pressure on households continues to rise, more South Africans are being pushed toward unregistered lenders who operate outside of the law and without consumer protections.
The Credit Association of South Africa (CASA) is warning consumers that while regulated credit providers must comply with strict affordability assessments and pricing limits under the National Credit Act (NCA), illegal lenders operate without any of these protections, often trapping vulnerable consumers in cycles of debt and exploitation.
According to Leonie van Pletzen, CEO of CASA, the issue is not simply the existence of illegal lenders, but the fact that more consumers are turning to them after being declined in the regulated credit market.
“When consumers cannot access regulated credit, they do not stop needing money,” van Pletzen explains. “This means that they are then forced to turn to informal lenders who operate completely outside of the law.”
“These illegal lending operators do not follow affordability rules, charge excessive fees, and consumers have very little protection if something goes wrong,” she continues.
Why illegal lending is dangerous
Illegal lenders, commonly known as ‘mashonisas’, often use practices that would be unlawful in the regulated credit market. These may include:
- Charging excessive interest and hidden fees
- Keeping bank cards or identity documents as collateral
- Using intimidation or harassment to collect repayments
- Not providing written credit agreements
- Not reporting repayment behaviour to credit bureaus
This means consumers receive no legal protection, have no ability to build a credit record, and often end up paying far more than they originally borrowed. This leads to further financial distress and over-indebtedness.
“Consumers should know that these practices are illegal,” says van Pletzen. “If a lender keeps your bank card or Identity Document, or threatens you in any way, that lender is operating outside of the law.”
What consumers should look for
CASA encourages consumers to always check whether a lender is registered with the National Credit Regulator (NCR) before taking a loan.
Signs of a legal credit provider in South Africa, as governed by the NCA, include:
✔ A written credit agreement
✔ An affordability assessment before a loan is approved
✔ Transparent disclosure of interest rates and fees
✔ Registration with the NCR
Consumers can verify a lender’s registration by visiting the NCR website: www.ncr.org.za
Why access to regulated credit matters
South Africa’s NCA was created to protect borrowers from unfair lending practices. However, CASA warns that when regulated lenders are unable to sustainably serve certain segments of the market, the unintended consequence is that consumers may turn to illegal alternatives.
Research shows that many consumers who are declined for credit later seek funding in the informal lending market, where none of the protections of the NCA apply.
“Consumer protection and financial inclusion must go hand in hand,” van Pletzen explains. “If people cannot access regulated credit, the illegal market fills the gap, and that is where the real harm to consumers happens.”
Protecting consumers and eroding illegal lending
CASA believes that tackling illegal lending requires a two-pronged approach:
- Strong enforcement against illegal lenders
- Ensuring regulated credit remains accessible to consumers
“When responsible lenders can serve consumers sustainably within the regulated framework, it reduces the space for illicit lenders to operate,” van Pletzen says. “Ultimately, the goal is simple. South African consumers should have access to safe, transparent and regulated credit, not be forced into the shadows of the illegal market.”
“CASA continues to work with government, regulators and industry stakeholders to strengthen consumer protection whilst supporting responsible financial inclusion,” she concludes.