The National Credit Regulator gets down to business

The National Credit Act (NCA) and the legal institutions put in place to police the country’s credit lending environment have been in operation for some time now. But we’ve heard very little about the work they are doing to protect consumers from ruthless lending practices.

This ought to change as the regulators begin hearing complaints and handing out verdicts in the coming months. In fact, toward the end of last week the National Credit Regulator (NCR) released details of one of the body’s first determinations.

The task of policing the credit environment begins

In March this year the National Consumer Tribunal (NCT) issued a notice of referral in terms of which they notified the public that a complaint had been filed against the respondent, Chatspare Financial Services. Allegations that had been levelled against the respondent included:

- Charging more interest than prescribed by the Usury Act;

- Splitting loan amounts in agreements whereby the loan amount was in excess of R10 000 so as to circumvent the provisions of the Usury Act;

- Misleading complainants with regards to the purpose for which their investments or policies were ceded;

- Recovering interest that was not due to the respondent;

- Failure to keep proper statements of accounts and records and to supply complainants with the copies of agreements;

- Granting of reckless credit in some instances;

- Use of unreasonably oppressive and burdensome collection methods;

- Failure to ensure that the employees, agents and intermediaries, were adequately trained; and

- Failure to keep a loan register reflecting the details of all loans advanced to borrowers, records and copies of all loan agreements.

It’s a long list that illustrates the range of practices the NCT can clamp down on in policing the credit environment.

Sending a strong message

The case has now been heard – and it’s clear the NCR want to send a stern warning to those companies flouting the terms of the NCA. On 25 July 2008 the NCR issued a press release in which the outcome of the above hearing was made known. When all is told, the NCT recovered more than R630 000 for the 17 consumers who filed complaints against Chatspare. These complainants had ‘lost’ life and investment policies, which they had ceded against loans from the respondent, due to non-payment of loans.

Jan Augustyn, Manager for Investigations and Prosecutions at the NCR summarises the complaint against the financial services provider as follows:

“The main area of concern was that Chatspare provided loans to these complainants under the exemptions to the Usury Act (prior to the National Credit Act, 2005) in excess of R10 000; but have split these loans in smaller amounts in order to have the benefit of the higher rates under the exemptions.

“Another issue was that Chatspare did not fully explain all the terms and conditions of the loan agreements. The NCR was of the opinion that as these loans did not comply with the Exemption Notices the Usury Act was applicable to these loans and therefore the relevant Usury Act interest rate caps applicable at that time should apply.”

A negotiated settlement

All but one of the complainants accepted settlements negotiated between the NCT and the respondent. Details of the 16 ‘settlements’ are as follows: In 13 cases the NCT obtained a Consent Order wherein Chatspare was ordered to repay these complainants a total of R503 212.42. In three cases charges were withdrawn after the respondent agreed to repay the consumers an amount of R107 000.

Where the settlement was not accepted the case had to be ‘decided’ by the NCT. In this instance the NCT ruled in favour of the claimant and ordered Chatspare to repay an amount of R20 701.16 (plus interest of 15.5% per year from February 2008). The NCT decided that the Usury Act was applicable in this case despite Chatspare’s decision to ‘split’ a loan of R40 000 into four loans of R10 000 each.

“Through the intervention of the NCR and the application to the Tribunal, the NCR was able to reimburse seventeen consumers to the tune of R631 613, 58. Chatspare is no longer in the business of providing credit,” concludes Augustyn.

Editor’s thoughts:
This case once again illustrates the powers afforded industry regulators to enforce legislation. We’re glad the rather ingenious practice of splitting a large loan into four ‘mini-loans’ has been harshly dealt with. Have you come across companies making use of similar methods to circumvent legislation? Add your comment below, or send it to editor@fanews.co.za