The law uses the term gender-neutral “ombude” (often referred to as mediator). The law provides that certain disputes between a financial institution (such as a bank) and a consumer arising from a credit contract may be referred to the appropriate ombudsman. The Ombudsman then acts as an intermediary between the institution and the consumer, with a complaint. A secured loan is a kind of unsecured loan that requires a guarantor to co-sign the credit contract. A surety is a person who agrees to repay the borrower`s debts if the borrower is late for agreed repayments. The guarantor is often a trusted family member or friend who has a better credit history than the person who excludes the credit, and the agreement is therefore considered by the lender to be less risky. A secured loan can therefore allow someone to borrow either more money or the same amount at a lower interest rate than they would otherwise be able to secure by a more traditional type of loan. Consumers have the right to obtain an offer and a credit contract in an official language that they read or understand, as long as it is reasonable. All documents that are not required must be available in a plain language (a language that an ordinary consumer understands with average reading and writing skills and minimal credit experience). Until June 1, 2007, the Usury Act (now repealed by the National Credit Act) limited the interest rates that credit providers could charge. Until that date, the maximum interest rate was 20 percent per annum for all credit contracts up to r10,000 and seventeen percent per annum for credit contracts over R10,000.
However, registered microcredits were excluded from the Usury Act from 1992, meaning that they were allowed to calculate all the interest rates they liked. This has led to exorbitant interest rates, where microcredits typically calculate 30% per month (or 360% per year), or 18 times more than 20% per year for other loans. Due to the huge profits made by microcredits, the sector has become uncontrollable and has grown rapidly compared to the previous year. In the three years from September 2003 to August 2006, for example, industry payments more than doubled. The sector has grown by more than 30% per year on average. In the twelve months to August 2006, the total marginal value of loans paid in the microfinance sector recorded exceeded R30,000,000 R30,000. The risk of defaulting on a secured debt, the so-called counterparty risk for the lender, tends to be relatively low, as the borrower has so much more to lose by neglecting his financial commitment. For most consumers, it is generally easier to obtain a loan financing guarantee. Because a secured loan carries less risk to the lender, interest rates are generally lower than those of unsecured loans.