Ms SK needed R60 000 to replace the windows in her house. The work had to be done urgently, because the security risk was a concern.
Ms SK had investigated taking out a personal loan, but she was put off by the unaffordable instalments and the interest rate of 31 percent.
Ms SK applied for a home loan at First National Bank (FNB) in Cape Town on December 2 (2013). Ms SK says the consultant advised her that, because it typically takes three months for a mortgage bond to be registered, she should take out a personal loan in addition to a home loan.
The personal loan would be granted almost instantly, with the first repayment due in late February only, which would be more or less when the mortgage bond would be registered. As soon as the bond finance came through, Ms SK could use it to pay off the personal loan.
The consultant also offered Ms SK, a revolving credit facility of R28 000, “for emergencies”. (The consultant told Ms SK that, if she used the revolving credit facility, the repayments would not be more than R900 a month.)
Ms SK says she asked the consultant if there was any risk of the home loan being rejected if she were to accept the personal loan and the revolving credit facility, but the consultant told her not to worry that the home loan would be turned down.
Ms SK agreed to the personal loan, but says she was emphatic that she could not afford repayments of almost R2 700 a month on the loan.
“I told [the sales consultant] that I definitely cannot afford that. Her response was: ‘But you can pay it back when your home loan is approved.’”
The personal loan of R60 000 was paid to her the following day, but on January 13 this year, Ms SK was informed that her application for a home loan had been declined, “due to affordability constraints”.
Fortunately, Ms SK never touched the R60 000 in her account. Ms SK paid back the R60 000 to FNB on January 27.
But FNB is demanding that Ms SK pay a “settlement amount” of R4 919 for “accrued fees, charges and interest”. The bank says that the fees, charges and interest “will continue to accrue until the loan has been repaid in full and closed off”.
The fees and charges (an initiation fee of R1 140, a monthly account fee of R57 and credit life insurance of R177) amount to R1 374. The remaining R3 545 is interest. The first settlement amount that FNB gave Ms SK was R4 028, but this increased to R4 919 in one week.
Ms SK also believes that she is a victim of reckless lending, and has lodged a complaint with the National Credit Regulator.
In terms of the National Credit Act, if a credit provider fails to conduct an affordability assessment before advancing credit to you, the provider could be guilty of entering into a reckless credit agreement.
Under the heading “affordability disclosure” on the personal loan quotation issued by FNB is a three-line “summary of your income/expenses”.
It states that Ms SK’s “declared expenses” are R6 000 a month. But the income and expenditure statement submitted with Ms SK’s home loan application shows that her expenses are R16 100 a month.
“I don’t know how she arrived at R6 000 expenses. My expenses are around R13 000 before food.”
However, Ms SK’s initials are on the personal loan quotation.
Ms SK says she cannot recall the consultant questioning her about her monthly expenses and she was not asked for bank statements when the consultant processed either the personal loan or the home loan application.
An allegation of reckless lending will fail if the credit provider discovers that you were not entirely truthful in answering questions put to you by the credit provider when you applied for credit. This is problematic, because if a credit provider induces you to be untruthful – by understating your expenses – and you agree to this, you lose the right to bring a charge of reckless lending against the provider.
FNB DENIES GRANTING CREDIT RECKLESSLY
Pieter du Toit, chief executive of personal loans at First National Bank (FNB), says: “The bank denies the customer’s claims and, in particular, the allegation that credit was granted recklessly. FNB subscribes to the requirements of the National Credit Act and [our] internal credit policies ensure compliance to [the] same.”
When asked to explain the discrepancy between the expenses declared in Ms SK’s quotation for a personal loan, on one hand, and the income and expenditure statement in her home loan application, on the other, Du Toit says: “The personal loan contract expenses exclude the repayment obligations that are pulled directly from the credit bureau as debt repayments and systematically added to the living expenses, to assess the affordability.
Explaining FNB’s decision to decline the home loan, Du Toit says that, according to the information on the home loan application, Ms SK earns an average net monthly income of R20 568 and has expenses of R16 104. The personal loan and revolving loan instalments amount to R2 675 and R892 respectively, which indicates that, “by her own declaration”, the customer “would be able to afford” these instalments and have surplus disposable income.
“Considering these figures, it becomes clear that the customer would not have been able to afford all three products (personal loan, revolving loan and home loan). The customer took up the personal loan and revolving loan offers, and, when the home loan application was processed in January 2014, the additional debt resulted in the home loan application being declined,” he says.
When asked how the same consultant could submit three applications for credit by the same customer on the same day and the total of all the credit applied for could far exceed the customer’s affordability, Du Toit replied: “Even though three applications were submitted, only two applications were granted. Sales consultants are not in a position to assess credit applications and are required to capture the information provided by a customer as accurately as possible.”