Consumer protection legislation in South Africa: is it really necessary?

Abstract

The South African government tries to protect its consumers, many of whom are histoncally disadvantaged, in the transactions they enter into with suppliers, especially in the financial services industry, where they are more vulnerable. Government aims to do this through legislation. Consumer protection legislation is heavily criticised because it adds to the burden of compliance imposed on suppliers by legislation. Another criticism is that consumers are ultimately prejudiced because the costs of compliance are inevitably passed on the consumers. This calls to question whether consumer protection measures are really necessary, and do they really benefit consumers.

This mini dissertation examines the reasons why government consistently seeks to pass legislation to protect consumers. Chapter one commences with an outline of legislation introduced since democracy to protect consumers of general goods and services, of credit and of financial services and products. This is followed by a discussion of the advantages and criticism of this legislation which should reveal whether it was due for review and possible overhaul. This study is relevant because the South African financial services industry is currently migrating to the Twin Peaks model of regulation. Legislation has been passed and more is in the pipeline to establish a Prudential Authority within the South African Reserve Bank focusing on market stability, and a Market Conduct Regulator to focus on the fair treatment of consumers of financial products and services. Chapter four examines the reasons why government is introducing this new legislation, its aims and the important provisions. Critics argue that the new legislation will fail to achieve its aims of protecting consumers because the creation of additional regulators does not result in consumer protection and the financial market is too dynamic for legislation to keep up with developments. However, the dissertation concludes that the government may still salvage the situation by focusing on two areas that are the key to achieving its aims: enforcement of the legislation and consumer education.