Too good to be true
If something sounds too good to be true, then it usually is. In the world of finance and investment, this assertion proves correct almost 100% of the time. Investors should exercise extreme caution when lured with advertised returns that are well in excess of the market rate. And on the flipside of the coin, South African property investors would not have fallen prey to the financial shenanigans of a low-interest bond finance company had they approached its offering with more caution.
The product we refer to was offered by Rudco Finance Company (Rudco). It marketed home loan finance at 6% per annum – or half of the prime lending rate prevailing at the time. It is alleged (among other transgressions) that Rudco charged a R5 700 initiation fee to switch bonds from other banks to its product. More than six months later, it remains unclear whether Rudco initiated any of its promised 6% home loans, despite having lured a number of clients.
When FAnews Online first wrote about the offer in July 2007 we wondered how Rudco had managed to operate for as long as it had without any regulatory intervention. Fortunately the regulators took action soon thereafter.
National Credit Regulator issues compliance notice
The terms and conditions attached to the 6% mortgage offer contravened a number of National Credit Act regulations. The result was that on 23 August 2007, the National Credit Regulator (NCR) intervened and issued a compliance notice. They required that Rudco:
1. (a) Cease the practice of demanding payments and/or service fees before advancing the loans;
(b) Cease the practice of charging monthly service fees in excess of the R50 limit;
(c) Issue pre-agreement statements and quotes, both to consumers who have already applied for or been granted loans, as well as to any new consumers applying for loans; and
(d) Deliver copies of their credit agreements to all consumers with whom agreements have been concluded.
2. Rudco Finance must, with immediate effect, withdraw all advertisements which do not comply with the Act or Regulations and all advertisements which are fraudulent, deceptive or misleading. Rudco Finance must similarly instruct its agents to withdraw such advertisements.
3. Rudco Finance must implement measures to ensure that it complies with the regulations applying to agents.
4. In respect of loans that have been approved or entered into prior to 1 June 2007, thus falling under the Usury Act, Rudco Finance must stop receiving payments or fees from consumers if the loans have not yet been advanced.
The NCR further instructed that Rudco Finance must submit a proposal on how it intends to reimburse consumers for amounts received in contravention of the National Credit Act and the Usury Act. This proposal had to be submitted by 03 September 2007. The NCR subsequently granted an extension to 26 November 2007.
Amazing negligence from various brokers and advisers
Various reports indicate that despite the August compliance notice by the NCR, many brokers and financial advisers continued to punt Rudco’s products. Moneyweb reports that “One such broker is Total Investment Solutions (TIS).” They claim they are aware of “a TIS client who paid his R5 700 instalment to Rudco in October this year, after the NCR had found it to be in breach of the law. The client claims TIS never alerted him to the controversy surrounding Rudco. TIS CEO Gerald Labuschagne has declined to comment on this specific client’s case.” A quick search reveals that there are other companies offering similar products – apparently following the same modus operandi as Rudco.
A company called Intel Property Group, also touting a 6% home loan product, hosted a launch event to 50 franchisees in Cape Town recently. The company appears to be a branch (or at the very least a spin-off) of Rudco.
Failure to comply ends in the High Court
The latest in the ongoing saga is that despite the extended deadline and numerous requests from the NCR for it to comply, Rudco has failed to adhere to the conditions as set out above. It has not reimbursed any of its clients as instructed. This meant the NCR was forced to take matters to the Cape High Court where a temporary liquidation order was granted. Rudoc has until 16 January 2007 to furnish the court with reasons why the order should not be made permanent.
It appears those waiting for closure on their decisions to switch bonds to Rudco will have to wait till early 2008 for finality.
Editor’s thoughts:
During the Cape High Court application against Rudco, it emerged that company chief executive Rudi Visagie had been convicted of theft in 1995. He was then barred from acting as a company director. This fact raises another set of questions. Do the Registrar of Companies / Close Corporations perform adequate checks to determine the suitability of directors when new companies are registered? And what ‘protection’ should we expect from these regulators? Add your comments below or send an email to [email protected].
Comments