TOWARDS RESPONSIBLE LENDING IN NAMIBIAN CONSUMER CREDIT LAW: A COMPARATIVE INVESTIGATION By NDATEGA VICTORIA ASHEELA submitted in accordance with the requirements for the degree DOCTOR LEGUM in the FACULTY OF LAW UNIVERSITY OF PRETORIA SUPERVISOR: PROF DR S RENKE CO-SUPERVISOR: PROF DR M ROESTOFF NOVEMBER 2017 ACKNOWLEDGEMENTS I gratefully acknowledge the following people for their assistance and support in the process of writing this thesis. Genuine appreciation goes to my supervisors, Professor Stéfan Renke and Professor Melanie Roestoff, for their unwavering support and guidance in all the stages of producing this work. They have believed in me from day one and have made the road very comfortable for me, both academically and on a personal level. Be blessed more abundantly. I am very grateful to Ms. Nicola Howell of the Queensland University of Technology, Professor Gail Pearson of the University of Sydney and Professor Jeannie Paterson of the University of Melbourne Law School for their assistance in retrieving research material in Australia and for their willingness to share with me their work in the field. I am indebted to Ms. Howell for agreeing to read through my draft Australian chapter and for offering many useful suggestions. I gratefully acknowledge the University of Pretoria for granting me a bursary to pursue this degree. I am also thankful to my employer, the University of Namibia, for granting me a year of staff development leave to complete this degree. I am grateful to Dr Kenneth Ferdie Mundia, my former lecturer and colleague, for his continuous support. Thank you for encouraging me to embark on this important project. I truly hope it makes you proud. My siblings, Petrina, Josef, Timothy, Nancy, Jakulandje and Asheela, I am eternally grateful to you for the love and support. Special thanks for the friendship I have always found in Paul Nambahu, Emily, Lindelwa, Lineekela, Taimi, Nelly, Ezze and Shipanga. Your prayers and availability to attend to my concerns means everything. Daddy Penda Shapopi, I appreciate you. My son, Boas Ethan Nambahu, thank you baby for making this road easier by being such a strong and independent boy. Above all, I give all the glory and honour to the loving God. Your grace is sufficient for me. I dedicate this work to my parents, Mr. Andreas Asheela and Mrs. Lea Jakula Asheela, for their gift of a wonderful home and for their investment in our education. SUMMARY The regulation of consumer credit in Namibia mainly is provided for by the Usury Act 73 of 1968 and the Credit Agreements Act 75 of 1980. These legislative enactments originated in South Africa and were applied in South West Africa during the period of South Africa’s mandate over what is now the Republic of Namibia. Despite the fact that these enactments are over 35 years old, they are substantially unchanged. In response to an awareness of the threat of consumer over-indebtedness and other events such as financial crises, the purpose in this thesis is to undertake a situational analysis of the debt prevention measures as provided for by the Namibian legislative framework and the extent of protection these measures afford consumers in terms of irresponsible credit and over-indebtedness. A broad survey of the policies aimed at promoting responsible lending benchmarks the Namibian consumer credit regulatory framework against the leading international best principles which have been developed in response to global economic challenges. The Namibia Financial Institutions Supervisory Authority in the 2014 Microlending Bill proposes to introduce responsible lending practices in the form of a compulsory pre-agreement assessment of the prospective consumer before providing them with credit. In a comparative investigation, the creditworthiness assessment and related measures central to the responsible lending regimes in South Africa and Australia are considered. Measuring the Namibian consumer credit regulatory framework against these recent developments, it is submitted that the current debt prevention measures are inadequate in protecting consumers from irresponsible credit lending and the risk of consumer over-indebtedness. This thesis supplies reasons for the need in Namibia to update the regulatory structure of the credit industry in order to protect consumers. As a contribution to the promotion of a culture of responsible lending in the Namibian consumer credit market, the thesis proposes the introduction of responsible lending measures in Namibia’s consumer credit legislative framework. TABLE OF CONTENTS CHAPTER 1: INTRODUCTION ........................................................................ 1 1.1 Background .................................................................................................. 1 1.2 Thesis Statement .......................................................................................... 3 1.3 Thesis Statement Defined............................................................................ 3 1.4 Research Objectives .................................................................................... 4 1.5 Research Methodology ................................................................................ 6 1.6 Delineations and Study Limitations ............................................................ 8 1.7 Organisation of Chapters ............................................................................ 9 1.8 Terminology and Reference Methods ...................................................... 10 CHAPTER 2: RESPONSIBLE LENDING POLICY ................................... 11 2.1 Introduction ................................................................................................ 11 2.2 Theoretical Perspectives Underlying Responsible Lending Policy ....... 13 2.3 Criticisms of Responsible Lending Policy ............................................... 17 2.3.1 General................................................................................................... 17 2.3.2 Responsible Lending is Paternalistic ...................................................... 17 2.3.3 Financial Responsibility Shifts to the Credit Provider ............................. 19 2.3.4 Responsible Lending Leads to Restrictive Lending Practices ................ 19 2.3.5 Over-reliance on Credit Bureaus for Creditworthiness Assessments ..... 21 2.3.6 Responsible Lending Conflicts with Standardised Models of Credit Scoring ................................................................................................... 22 2.4 International Efforts to Promote Responsible Lending .......................... 23 2.4.1 General................................................................................................... 23 2.4.2 The Group of Twenty .............................................................................. 23 i 2.4.3 The Organisation for Economic Co-operation and Development ........... 25 2.4.4 The World Bank ...................................................................................... 26 2.5 Wilson’s Criteria for an Effective Responsible Lending Regime ........... 29 2.6 Responsible Lending Policies in Particular Credit Markets ................... 31 2.6.1 General................................................................................................... 31 2.6.2 The United States of America ................................................................. 31 2.6.3 The European Union .............................................................................. 38 2.6.3.1 The Directive 2008/48/EC ................................................................... 44 2.6.3.2 The Directive 2014/17/EU ................................................................... 46 2.6.4 South Africa ............................................................................................ 49 2.6.5 Australia ................................................................................................. 52 2.7 Conclusion .................................................................................................. 59 CHAPTER 3: CONSUMER CREDIT REGULATION IN NAMIBIA ........ 70 3.1 Introduction ................................................................................................ 70 3.2 An Overview of the Namibian Financial System ...................................... 72 3.2.1 General................................................................................................... 72 3.2.2 The Consumer Credit Market ................................................................. 73 3.3 The Namibian Consumer Credit Legislative Framework ........................ 79 3.3.1 General................................................................................................... 79 3.3.2 The Usury Act ......................................................................................... 80 3.3.2.1 General ................................................................................................ 80 3.3.2.2 The Scope of Application ..................................................................... 81 3.3.2.3 Debt Prevention Measures in terms of the Usury Act .......................... 84 3.3.2.3.1 Finance Charges on the Principal Debt ........................................ 85 3.3.2.3.2 The Prescribed Interest Rate Ceilings .......................................... 89 3.3.2.4 An Evaluation of the Usury Act ............................................................ 91 3.3.2.4.1 Scope of Application ....................................................................