Disclosure Is Not the Same as Protection

South Africa’s National Credit Act is, by most technical measures, working. Lenders are disclosing. Pre-agreement statements are being issued. Interest rates are capped. Cost-of-credit calculations are reaching borrowers in writing before they sign.

But something is not quite right. 

The National Credit Regulator has consistently reported that around 10 million South Africans, out of roughly 27 million active credit consumers, hold impaired credit records. Over a third of the people the system is designed to protect are in financial distress. 

Fig. 1 · NCR Credit Bureau Monitor data. Each icon represents approximately 1 million consumers.

Disclosure is happening, but protection is not. This regulatory observation should give pause to anyone designing a consumer credit framework. 

The gap between disclosure and protection is not unique to South Africa, but it illustrates a distinction the financial inclusion sector tends to blur: disclosure regulation and protection regulation are not the same thing.  Designing one while expecting the outcomes of the other is a category error that has real consequences for borrowers.

The assumptions behind disclosure regulations

Disclosure regulation operates on a specific theory of change: if consumers are given accurate information about a financial product, they will use that information to make better decisions. On this logic, the regulator’s job is to ensure the information reaches the borrower. What happens after that is the borrower’s responsibility. This is not a cynical position; it reflects a genuine philosophical commitment to consumer autonomy, and it has produced important gains. The Truth in Lending Act in the United States, the EU’s Consumer Credit Directive, South Africa’s own NCA — these frameworks have meaningfully improved the quality of information available to borrowers.

But they share a common assumption that should be questioned: that a borrower who receives accurate information is a borrower who can act on it. With simple, low-complexity products, this assumption holds up reasonably well. But in personal credit — where initiation fees get folded into principals, interest compounds monthly, insurance premiums are bundled into instalments, and the effective cost of a loan bears only a distant relationship to its headline rate — the assumption starts to collapse. The information is available, but comprehension is not. And a disclosure framework has no way to distinguish between the two.

Fig. 2 · Illustrative cost breakdown for a R10,000 personal loan over 24 months at representative SA rates. The headline interest rate accounts for less than half of total repayment cost.

Building out the infrastructure of consumer credit frameworks

This distinction matters especially for the financial inclusion sector, as the sector is in the middle of an infrastructure build. Across Sub-Saharan Africa, South and Southeast Asia, and Latin America, governments and regulators are designing consumer credit frameworks for populations who are, often for the first time, interacting with formal financial products at scale. 

Many of these frameworks are modeling themselves on disclosure-first approaches. They do so partly because disclosure is achievable, as it is technically straightforward to mandate and audit. But they also do so because of the assumption we just examined and saw collapse - that borrowers will be able to act in their best interests once they have accurate information. This assumption comes from a belief that improving people’s knowledge about financial products is the primary way to improve their wellbeing.

That belief deserves scrutiny. Research on behavioral responses to credit disclosures has repeatedly found that even well-designed disclosure interventions have limited effect on borrowing decisions when products are complex, choices feel constrained and the immediate need for credit is high. These are exactly the conditions under which many people who live on low incomes find themselves. The populations most likely to benefit from better consumer protection are also the populations least likely to benefit from disclosure alone.

Succeeding at the right thing

Of course, disclosure must not be abandoned; it is a crucial first layer of protection. However, policymakers need to build a second layer into their frameworks: one that asks not just “was the information available?” but: “was the product designed in a way that most borrowers could understand its costs before committing?” 

Formulated in this way, the compliance obligation shifts from issuing a form to designing a product, and responsibility shifts towards lenders rather than remaining entirely with the borrower. 

South Africa’s experience shows us what it looks like for a system to succeed, but at the wrong thing. The NCA has achieved near-universal disclosure compliance. But it has not achieved consumer protection. If you are building a consumer credit framework right now, the question worth asking is: which of those two outcomes will you measure – disclosure compliance or consumer protection?