THE days of reckless credit providers going unpunished could be numbered, as the Department of Trade and Industry plans to empower the National Credit Regulator (NCR) to fine them.
Currently, only the National Consumer Tribunal has this power, but it has a backlog of unheard cases, dating back to 2013, and imposed inconsequentially small fines on the companies involved.
A proposal has been submitted to Cabinet to amend legislation to empower the NCR to impose fines, allowing it to conduct proactive investigations and implement a debt-relief programme.
The NCR supports the idea of a debt-relief programme for heavily indebted retrenched workers and has already started engaging with the banks on how they can participate voluntarily in the programme.
The NCR said debt forgiveness programmes were common across the world. Such a programme should be once-off and targeted specifically at retrenched workers who no longer had the ability to continue paying their debts.
National Consumer Tribunal’s CEO noted that the tribunal faced a deluge of debt rearrangement cases that amounted to about 1,600 cases a month since February 2015, giving a total of 19,097 cases for the 2015-16 year, with 27,407 cases forecast for the current year.
Currently, the tribunal has 11,091 matters that are not finalised.
With its new powers of enforcement, the NCR will have the clout to ensure credit providers and lenders comply with the Act, thus affording consumers the necessary protection.
The flip side of this coin, is that creditors and lenders will tighten their lending policies – making access to credit more difficult, according to Adv Kate Thambiran, MD of LUCID Clear Credit.
Thambiran warns that, “consumers will need to manage their personal balance sheets more prudently, if they want to qualify for credit and finance in future.”
The National Credit Regulator had referred Lewis and Monarch Insurance Company to the National Consumer Tribunal following an investigation into loss-of-employment cover sold to people who would not be able to claim the benefits.
The referral relates to three cases of the sale of retrenchment cover to pensioners and self-employed consumers.
“We are requesting Lewis and Monarch to refund the pensioners and self-employed consumers and to do an audit in terms of how much to refund.”
“We are also asking the Tribunal to impose an administrative fine,” a Regulator spokes person said.
Fifteen salary attachment orders (commonly known as “garnishees”) issued on behalf of unsecured lender, were on Wednesday declared “unlawful, invalid and of no force and effect” in the Western Cape High Court by Judge Siraj Desai.
Desai also declared certain sections of the Magistrates’ Court Act (MCA), which governs the issuing of these orders, to be unconstitutional, granting a substantial victory to consumers.
EAOs, which are imposed on a debtor’s salary by a creditor to recover outstanding money, have been widely abused by unscrupulous unsecured lenders and debt collectors.
Alongside declaring that the specific EAOs concerned must come to an end, Desai also declared that certain sections of the MCA are unconstitutional.
The judge concluded, a clerk of court cannot simply rubberstamp an EAO where a debtor has consented to the judgement debt if a magistrate has not also considered the financial implications of the EAO on the debtor.
In addition, Desai ordered that in terms of credit agreements under the National Credit Act, the MCA does not permit a debtor to consent in writing to the jurisdiction of a magistrates’ court other than one where that debtor lives or is employed.
“The Flemix respondents are obtaining judgements and EAOs against the applicants in courts far removed from their homes and places of work and in places which they could not hope to reach, the right to approach the courts was seriously jeopardised, if not effectively denied,” Desai said in his judgement.
That all 15 of the attachment orders concerned in the case were “irregularly if not unlawfully obtained”, suggested that “thousands if not tens of thousands” of Flemix’s other active cases – some 150 000 – are based on unlawfully obtained attachment orders, Desai added.
The judge urged the Ministers of Justice and Trade and Industry, as well as the National Credit Regulator and Human Rights Commission to “alert debtors as to their rights in terms of this judgment”.
The practice of reckless lending continues unabated, even among major credit providers. And not enough is being done to stop the unethical practices that facilitate over-indebtedness.
The National Credit Act (NCA) states that granting a loan to someone who cannot afford it is reckless lending. The Act allows the National Credit Regulator (NCR) to apply for the licence of a credit provider that engages in reckless lending to be revoked, which will put the credit provider out of business.
Lesiba Mashapa, the NCR’s company secretary, says the regulator received 291 complaints of reckless lending in 2014.
A Gauteng domestic worker and single mother of three earns R4 800 a month. She has debt of R21 600 and her credit record shows that she has defaulted on two accounts. Nevertheless, Cash Converters this month granted her a loan of R500.
In December, the regulator took action against Cash Converters for alleged breaches of the Act, including failing to conduct proper affordability assessments when granting loans. The case will be heard by the tribunal later this month.
Capfin is another of the domestic worker’s creditors. Since January 2013, she has been granted nine microloans by Capfin.
When she was granted her last Capfin loan in December 2014, she was more than five months in arrears on both her Jet and Ackermans accounts.
The NCR applied to the National Consumer Tribunal this week to cancel Capfin’s registration because of reckless lending, Mashapa says.
African Bank & Standard Bank
A Cape Town cleaner and single mother of three earns R4 700 a month. She owes R85 900 to African Bank and Standard Bank.
Her credit report shows she took out three loans from African Bank, ranging from R26 200 in June 2012 to R55 450 in January 2014. The outstanding balance is now R60 029, and she stopped her repayments in August last year.
Her credit report also shows that, in November 2012, after she had acquired credit from African Bank, Standard Bank issued her with a credit card. The outstanding balance on the card is now R11 233.
She went on to obtain three personal loans from Standard Bank, two for R10 000 each and one for R5 000. She says she used one of the loans from African Bank to pay off one of the Standard Bank loans.
A bookkeeper from East London had a judgment against her, but Absa gave her finance for a Satinsky car. Furthermore, her credit report showed that her Absa home loan instalment was R4 423 a month, but her credit application stated that her total monthly debt repayments were R3 900 and that her total monthly living expenses were R1 000.
A receiving clerk in Durban was more than five months in arrears on his African Bank and Blue Bean credit cards when Absa granted him finance for a Satinsky car.
The NCA and RECKLESS LENDING
The National Credit Act (NCA) says that a credit provider must not enter into a credit agreement without first taking reasonable steps to assess a consumer’s:
* Debt repayment history;
* Existing financial means, prospects and obligations; and
* General understanding and appreciation of the risks and costs of the proposed credit, and his or her rights and obligations under the credit agreement.
The NCR says that if a court is presented with evidence that the credit provider failed to take these reasonable steps as required by law, the credit provider may be found to have acted recklessly. The Act provides for a court to apply three different remedies when credit was granted recklessly. The court may set aside the credit agreement, restructure it, or suspend it, depending on the circumstances.
The National Credit Regulator (NCR) is calling for a fine to be imposed on the national second-hand retail chain Cash Converters for various breaches of the National Credit Act (NCA).
In addition to buying and selling second-hand goods, Cash Converters operates as a pawnbroker and credit provider, offering mainly pay-day loans and what it calls a “cash advance” loan, which is a loan against your valuables. (A pay-day loan is a small unsecured loan, which attracts the highest interest rate allowed by the NCA – five percent a month – and is typically rolled over several times. In other words, as soon as you pay it off, you are offered another loan.)
Lesiba Mashapa, the company secretary at the NCR, says the regulator has referred to the National Consumer Tribunal a case against Cash Converters for failing to undertake proper affordability assessments in the granting of pay-day loans and for unlawful clauses in its contracts.
Mashapa says that, in terms of Cash Converters’ contracts, consumers are required to insure their pawned goods. However, the NCA stipulates that a pawnbroker must retain pawned goods at its own risk. “By requiring consumers to ensure the property, they were passing the risk to consumers,” Mashapa says.
The contracts also state that consumers will be compensated only for the loan amount, instead of the fair market value of the pawned goods, if Cash Converters lose or damage the goods, he says. Say, for example, you borrow R1 000 and you pawn your diamond ring worth R5 000. If Cash Converters lose the ring, you are compensated R1 000 and not R5 000, the fair market value of the ring.
In addition to seeking a fine, the NCR wants the tribunal to prohibit Cash Converters from using contracts that contain unlawful provisions and to order the company to refund consumers who were compensated for less than the market value of the items they entrusted to Cash Converters.
The festive season is here and most of us are counting the days until the holidays. For most South Africans, December is a time for family and fun in the sun – but it is also typically a time when spending is at an all-time high.
The National Credit Regulator is urging consumers to be vigilant when entering into credit agreements, says Mpho Ramapala, acting manager of the regulator’s education and communications department.
“Consumers should be wary of misleading terms in advertisements and direct solicitation for credit, such as ‘no credit checks required’, ‘blacklisted consumers welcome’, ‘free credit’, ‘cheap credit’, ‘affordable credit’, ‘low cost credit’ or any wording that has substantially the same meaning.”
“If you want to begin the new year in a financially sound position, be aware of how you spend your money during this period, and save for the new year,” Ramapala advises.
TIPS TO HELP YOU START THE NEW YEAR ON THE RIGHT FOOT
Make sure you understand how much money you have available to spend this festive season. Make a list of all your expected expenses – such as food, accommodation, entertainment, gifts and extra petrol. If there’s a shortfall, accept that you’ll need to scale back.
Don’t cheat by including how much you expect to get from a 13th cheque or annual bonus. If you are fortunate enough to get a bonus, don’t blow the cash, but rather use it to pay off loans, make an investment or save some for a rainy day. Don’t forget about your debt and debit orders.
2. Say no to credit
One of the biggest financial traps over the festive season is the excessive use of credit. This implies that consumers look to finance their festive season through debt, especially when it comes to buying gifts. If you have to borrow money, make sure you borrow only for what is strictly necessary, and ensure that you can afford the repayments.
There is no way around it: for most of us, the festive season is all about giving. However, this doesn’t mean that you can’t be financially savvy about being generous.
Avoid wasting money by making sure the gifts your loved ones want (or what you choose for them) are within budget.
Giving gift vouchers is also a great way of sticking to your budget; alternatively, for the ultimate act of giving, consider donating to a good cause on behalf of your loved one.
4. Saving for January
There’s nothing wrong with enjoying yourself during December, but remember that January awaits. Don’t forget there are household accounts like water and lights, the bond, the car, groceries, fuel, and other expenses that have to be paid at month end.
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Consumers hoping a recent credit amnesty would open the door for them to buy new cars received a reality check last month, with new vehicle sales falling by 16% month on month.
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