Despite several government investigations and submissions from interested parties over the past seven years, there has been no concrete action taken to address unethical payroll deductions.
Concerns regarding payroll deductions have been raised for many years.
In 2016, the South African Reserve Bank (SARB) and National Treasury launched an investigation into the payroll deduction system. Then in 2018, a joint consultation paper entitled “Regulatory proposals on payroll deductions” was published by National Treasury and the SARB.
The paper highlighted that “although payroll deduction systems may be beneficial to financial services providers and enhance employees’ access to broader financial services, significant shortcomings have been identified relating to the payroll deduction service and its negative impact on the financial system and vulnerable employees.”
In August 2020 major regulators – including the SARB, Financial Sector Conduct Authority and National Credit Regulator – conducted a survey through the South African Payroll Association (SAPA) to “accelerate the process of finalising an informed, robust and comprehensive regulatory position on payroll deductions in South Africa.”
Submissions on payroll deductions ignored
Several submissions have been made to the SARB regarding the issue. They argue that the existing, formalised national payment system is sufficient in collecting loan payments and premiums, and that payroll deductions are unnecessary, unregulated and creating over-indebtness.
The submissions highlight that some of these loans are not visible to the National Credit Bureau, are not shown on credit reports, and bypass most of the National Credit Act.
The Stellenbosch University Law Clinic undertook an in-depth investigation into this issue, and recently issued its findings, together with recommendations to the National Credit Regulator and the Department of Trade, Industry and Competition.
All the issues identified by the Stellenbosch University Law Clinic investigation had already been highlighted in the previous submissions to the SARB, but there is yet to be any action taken.
As one interested party explained, “submissions from all role players was requested and submitted in April 2018. Then we had no further traction on the matter until the survey in 2020 which also quietly went away.”
In 2021 there were several media articles relating to abuses perpetrated by credit providers, and they singled out specific lenders. Yet these lenders continue with their unethical practices. These payroll loans continue to allow unregulated lending, leading many workers to financial ruin.
The SARB has said that the notice issued in July 2016 “advised stakeholders and participants in the National Payments System to refrain from entering into or executing non-statutory commercial arrangements for payroll deduction services as these could potentially contravene the NPS regulatory framework.”
According to the SARB, the committee is “urgently finalising a few matters before publishing an agreed regulatory position for public consultation.”
This article first appeared in City Press.