In fact, the CAC suggests that consumers should approach only regulated organisations, such as the banks and credit unions, for assistance when experiencing financial problems.
A number of unregulated companies have been extending attractive same day, pay-day or quick loans to consumers as people prepare for the Yuletide season. Checks made by the Jamaica Observer revealed that some lending agencies have been offering unsecured Christmas loans of up to $500,000 for repayment in three years.
While the loan may appear reasonable, the catch is that consumers usually end up paying double the interest rate they would have incurred on a regular loan.
“Many of these companies practise over-lending to customers and sometimes impose excessive fees and onerous contract terms which, once signed, the consumer has to honour because it is a private contract,” the CAC stated in a report.
Additionally, some lenders have imposed a non-refundable processing fee for loan applications. The application is then denied by the lenders and the non-refundable fee is used as a means of accumulating funds, according to the CAC.
Executive Director of the Jamaica Micro Financing Association, Raymond Gabbidon, stated that while processing fees are used by some companies to cover printing, site visits and other operational costs, the act of accepting the fees with an intention of denying the loan is “downright dishonest”.
“That’s a no-no as far as we are concerned, and our members know that clearly because that’s part of our code of conduct,” he told Sunday Finance. “Interest rates should also be applied based on a market-determined rate, we don’t recommend any rates.”
Gabbidon is now calling on the Government to have the Micro Credit Act tabled in Parliament next April, to taper the growth of interest rates charged by the sector. “We are commending the CAC for the work that they have been doing, but we need the Government to table the bill because that would go a far way in regularising the micro financing sector,” he said.
The CAC added that in instances where the loans are approved, many consumers are faced with high loan repayments and may find themselves in a bind when they are unable to make the repayments. In fact, a number of consumers may be forced to approach new lenders for funds to support the previous loan.
This usually results in consumers exceeding their income with loan repayments.
The commission is advising that consumers consider the purpose of the loan, review the time period, terms and conditions, including interest and processing fees, before signing off on application forms.
“What consumers have to do is protect themselves by shopping around, make sure you clearly understand the payment terms and you get a printout of what the payments will look like and how long it will be for,” Gabbidon said.