Cash loans cry foul over regulations
MARC SPRINGER
WINDHOEK
A group of microlenders are up in arms and have mounted a constitutional challenge against legislation governing their operations.
At the centre of the lawsuit is the Microlending Act of 2018 which aims to promote responsible borrowing and lending.
Government insists the regulations are necessary for the protection of borrowers, while the cash loans business owners maintain that the Act limits their freedom of contract and imposes unreasonable restrictions on their right to carry on their occupation, trade or business.
The challenge - instituted by Aiso Cash Loan CC and supported by 25 other microlenders - is directed against seven respondents, amongst them President Hage Geingob, Prime Minister Saara Kuugongelwa-Amadhila, Attorney General Festus Mbandeka, finance minister Iipumbu Shiimi and the Namibia Financial Institutions Supervisory Authority (Namfisa), which is tasked with enforcing the Act.
Microlenders are required to ascertain the financial means of clients before providing cash loans to them.
In addition, they are prohibited from demanding finance charges at a rate greater than the percentage prescribed or from obliging loan applicants to sign any blank document in terms of which they may incur any liabilities or waive any legal rights.
Furthermore, the Act disallows microlenders from providing loans to persons who already have an existing loan - unless an affordability assessment clearly demonstrates their ability to service the additional loan.
Moreover, the legislation restrains cash loan businesses from soliciting deposits or keeping in possession any bank cards, passports, driver’s licenses or identification documents from borrowers as security until the loan has been repaid in full.
Microlenders are required to enter into written loan agreements with each borrower, which have to be in plain language and easy to understand for laypersons. Also, the Act compels them provide the borrower with a statement setting out all the charges levied, all the payments made and the outstanding balance.
‘Overbroad’ regulations
The microlenders said they feel the Act, and several regulations made under it, are "impermissible, subjective, overbroad, vague, unreasonable and arbitrary" and, as such, are in violation of their fundamental freedoms guaranteed under the Namibian Constitution.
Apart from the fact that they were allegedly not consulted while the legislation was being drafted, they argue that many sections contained therein constitute a material barrier to the practice of microlending businesses.
Section 1 of the Act empowers the finance minister to determine the maximum loan amount and the maximum repayment period which a loan transaction may not exceed. This, the microlenders contend, accords a "constitutionally impermissibly wide, unguided and unfettered discretion" to the minister and accords him powers reserved for the legislature.
They also refer to that section as "vague and subjective", stipulating that microlenders may not provide a loan amount to clients higher than a sum they would be able to repay.
They claim that clients may have additional sources of income besides their salary, and they contend that it is virtually impossible to establish the creditworthiness of any client prior to deciding whether or not to provide a loan to them.
Massive fine
According to the applicants, these and several other sections of the law are so vague and overbroad that they would be unable to comply with the provisions or any new and additional conditions that may be imposed on microlenders by Namfisa.
The microlenders further term it "grossly disproportionate" that - in terms of the Act - any non-compliance with these legal requirements constitutes an offence which on conviction can attract a fine up to N$500 000 or lead to imprisonment for five years. They argue that any violation of the provisions would amount to an "administrative transgression", and not merit such severe legal action.
The matter, being heard by Judge Boas Usiku, is set to return to the High Court on 30 June after a mediation session scheduled for 26 May was cancelled.
WINDHOEK
A group of microlenders are up in arms and have mounted a constitutional challenge against legislation governing their operations.
At the centre of the lawsuit is the Microlending Act of 2018 which aims to promote responsible borrowing and lending.
Government insists the regulations are necessary for the protection of borrowers, while the cash loans business owners maintain that the Act limits their freedom of contract and imposes unreasonable restrictions on their right to carry on their occupation, trade or business.
The challenge - instituted by Aiso Cash Loan CC and supported by 25 other microlenders - is directed against seven respondents, amongst them President Hage Geingob, Prime Minister Saara Kuugongelwa-Amadhila, Attorney General Festus Mbandeka, finance minister Iipumbu Shiimi and the Namibia Financial Institutions Supervisory Authority (Namfisa), which is tasked with enforcing the Act.
Microlenders are required to ascertain the financial means of clients before providing cash loans to them.
In addition, they are prohibited from demanding finance charges at a rate greater than the percentage prescribed or from obliging loan applicants to sign any blank document in terms of which they may incur any liabilities or waive any legal rights.
Furthermore, the Act disallows microlenders from providing loans to persons who already have an existing loan - unless an affordability assessment clearly demonstrates their ability to service the additional loan.
Moreover, the legislation restrains cash loan businesses from soliciting deposits or keeping in possession any bank cards, passports, driver’s licenses or identification documents from borrowers as security until the loan has been repaid in full.
Microlenders are required to enter into written loan agreements with each borrower, which have to be in plain language and easy to understand for laypersons. Also, the Act compels them provide the borrower with a statement setting out all the charges levied, all the payments made and the outstanding balance.
‘Overbroad’ regulations
The microlenders said they feel the Act, and several regulations made under it, are "impermissible, subjective, overbroad, vague, unreasonable and arbitrary" and, as such, are in violation of their fundamental freedoms guaranteed under the Namibian Constitution.
Apart from the fact that they were allegedly not consulted while the legislation was being drafted, they argue that many sections contained therein constitute a material barrier to the practice of microlending businesses.
Section 1 of the Act empowers the finance minister to determine the maximum loan amount and the maximum repayment period which a loan transaction may not exceed. This, the microlenders contend, accords a "constitutionally impermissibly wide, unguided and unfettered discretion" to the minister and accords him powers reserved for the legislature.
They also refer to that section as "vague and subjective", stipulating that microlenders may not provide a loan amount to clients higher than a sum they would be able to repay.
They claim that clients may have additional sources of income besides their salary, and they contend that it is virtually impossible to establish the creditworthiness of any client prior to deciding whether or not to provide a loan to them.
Massive fine
According to the applicants, these and several other sections of the law are so vague and overbroad that they would be unable to comply with the provisions or any new and additional conditions that may be imposed on microlenders by Namfisa.
The microlenders further term it "grossly disproportionate" that - in terms of the Act - any non-compliance with these legal requirements constitutes an offence which on conviction can attract a fine up to N$500 000 or lead to imprisonment for five years. They argue that any violation of the provisions would amount to an "administrative transgression", and not merit such severe legal action.
The matter, being heard by Judge Boas Usiku, is set to return to the High Court on 30 June after a mediation session scheduled for 26 May was cancelled.
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