The Congress of South African Trade Unions (COSATU) are calling for financial services to be more affordable and accessible for the disadvantaged and poor people of South Africa. It slammed the banks for charging too much in bank fees and argued that the Tax Free Savings Accounts (TFSAs) often offered interest that was below inflation.
At the hearings conducted by the Standing Committee on Finance and the Portfolio Committee on Trade and Industry on how the financial sector should be transformed, COSATU presented its argument for the areas within the financial sector that need to be addressed by the sector, Parliament, government and civil society.
In an interview with Justmoney, COSATU Parliamentary Coordinator Matthew Parks noted that a public banking sector would be a good competitor to the private sector, specifically targeting the very poor clientele. Parks highlighted that are large segments of the population cannot afford the bank charges employed by the private banking sector.
“The rural areas, there are very few bank branches there, there are very few bank ATMs there. I think the idea is to have a bank, but one that can give competition to the private sector to target specifically your poor sections of the community,” said Parks.
The PostBank, according to COSATU and Parks, could be the vehicle used to establish a public bank to rival the large private banking sector.
Transformation in the banking sector
The Financial Sector Regulation Bill (FRS Bill) is supported by COSATU as “a critical building block to ensure greater stability for the financial sector.” However, despite this support, COSATU believes that there are problem areas within the financial sectors that are not addressed in the Bill. “There are areas which have a heavy impact upon the daily lives of COSATU members and workers in general,” the union pointed out that the hearings.
Within the transformation of the banking sector is the issue of high bank charges and interest rates. COSATU noted that it understands that government is preparing a bill to better regulate charges in the financial sector. Parks stated that this will hopefully generate greater competition in the sector. “It’s our theory that the big four banks basically have a gentlemen’s agreement between themselves around banking prices and tariffs, as well as not to aggressively poach each other’s clientele.”
While steps have been taken to include more people in the banking sector and encourage them to participate through the introduction of Tax Free Savings Accounts (TFSA), Parks noted that the interest earned on these accounts is below inflation.
“We are supporting any kind of measure to incentivise savings and all of that. But we wanted to actually go a bit further because currently only 6% of the population can afford to retire when they hit retirement age. They incentivised to save, but the interest rates that people [get] from the banks for savings is below inflation, it’s below what they pay on their interest charges for their home loans, for example, or their car loans. It’s a systemic area for people to save, because why should I save if I’m going to get less interest than inflation and I can save more money by pumping money into my home loan,” said Parks.
He added: “We really need to have a whole mixed package of stuff (i.e. financial products and incentives) to kind of encourage saving, increase wages and increase expenditure and the economy. Government does assist to an extent with the RDP housing, your university bursaries or your social grants, but that’s only really targeting the very poorest, and huge chunks of the working and middle class are left out (the missing middle). For example, to qualify for an RDP house you need to earn less than R3500.
“There are [large groups of the population] who don’t qualify for home loans, but they also don’t qualify for an RDP house, and renting is much more expensive than having a bond in the long term. You pay much more for rental than you would for your bond.”
Transformation in the lending services
At the public hearings, COSATU stressed that “greater criteria and regulations are needed with regards to interest rate charges.” Parks noted that the higher interest rates affect the poor the worst, and as they don’t always have established credit records, they are charged a higher interest rate because of the increased risk to the financial services company.
Parks said: “You find, you’ll go to FNB for a loan at an 11% interest rate or whatever [but] they will deny you that loan because you are not credit worthy. You will then go to Direct Axis which is more flexible about credit status [and] they will give you the loan at 25% interest rate, but Direct Axis is owned by FNB, the very bank which denied you the loan at a much lower interest rate. They are kind of forcing you to go to a much more exorbitant interest rates, so they make a killing. It’s a whole mixed bag of contradictions, and the people who are left short changed are the ordinary consumers.”
Other areas of transformation
In addition to the points above, COSATU raised several other issues within the financial services sector that need to be addressed. Among these were:
- The need to save and create jobs
- Nationalising the South African Reserve Bank (SARB)
- The need for financial education and empowerment
- The issue around the auctioning of homes and cars
- Debit and garnishee order abuses
- Issues around loan sharks
- Participation of organised labour and civil society
When it comes to the laws and regulations proposed and/or implemented by government, Parks said: “Government comes with nice policies and nice laws, but they are not implemented.”
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