Can do, will do
The push-back against abusive unsecured lending practices is gaining momentum. And it’s thanks in large part to the efforts of private-sector parties such as billionaire philanthropist Wendy Appelbaum, who led a court challenge against emolument attachment orders, and Summit Financial Partners.
To date, the good intentions of government have borne little fruit.
The fact remains, if you were to design a regulatory environment intended to protect the purveyors of abusive lending practices, it would look a lot like the one that exists in SA.
Vulnerable borrowers with little understanding of their rights are up against canny lenders who have deep familiarity with the law and its large loopholes — and who are confident of the inability of the regulators to act against them.
As DA MP Dean McPherson remarked at the end of a recent parliamentary committee meeting: “We debate why these companies [unsecured lenders] do what they do; they do it because they can . . . there’s an 82% chance absolutely nothing will happen to them.”
As the law stands, all that might happen is a rebuke or an easily accommodated fine.
The meeting had been called by parliament’s trade & industry committee, and brought together representatives from the national credit regulator (NCR), the national consumer tribunal (NCT) and the department of trade & industry to once more trawl over this familiar territory.
For three hours the portfolio committee members listened to explanations as to why the regulators have been so unsuccessful in prosecuting cases and curbing abuses in unsecured lending.
Clark Gardner, CEO of Summit, which has led private-sector efforts to rein in abuses in unsecured lending, holds out little hope for improvement in the near future. This is why his company is determined to continue taking legal action to force lenders to change. One of these court actions relates to charges of reckless lending against Capitec, a company that has already managed to side-step a challenge by the NCR by using legal technicalities. (See Cover Story May 19-25.)
Clark dismisses Capitec’s recent criticisms that Summit uses the media to fight its cases. “Making the public aware of these practices is half the battle. A court may find they are legal but they shouldn’t be; they [the abusive lending practices] are wrong.”
At his company’s AGM last Friday, Capitec CEO Gerrie Fourie told shareholders the dispute with Summit had been “sensationalised” in the media.
Capitec was confident it had no case to answer: “It’s unfor- tunate they attack through the media.”
A well-intended press release issued after the recent DTI committee meeting by Joan Fubbs, a DA MP who chairs the study group on trade & industry, is calling for a one-off debt forgiveness programme for retrenched workers. This call highlights a lack of understanding of the unnecessarily complex world of unsecured lending.
Gardner says the unsecured debts of retrenched employees should not be of particular concern to government. “Most unsecured lending includes insurance that covers retrenchment, so it is automatically written off if the borrower is no longer employed. And if not written off it will often prescribe.”
Of much greater concern to Gardner is what happens to those who are earning and are losing large portions of their income as a result of reckless lending.
These are the people he wants government to protect. And the best way to do that, says Gardner, is not to add more layers of laws and regulations that 60,000 51,000 will cause even more delays, but to simplify the process.
Government should change the law so that consumers who are victim to reckless lending, or are forced to pay excessive addon charges, can go to a magistrate’s court and have the debt written off, says Gardner.
Lack of capacity is cited as the most obvious cause for government’s failure to effectively address the high-profile issue of abusive unsecured lending activities. NCT chief operating officer Marilise Bosch told the committee the 800/month case load in 2014 “exploded” to around 1,600/month in 2015. “If the case load continues to increase as it has in the past year it will compromise our ability to function.”
The tribunal is held back by limited budget and capacity. Much of its case load relates to debt rearrangements. These are comparatively straightforward but have to be approved by the tribunal.
However, increasing numbers of prohibitive conduct matters are being brought as, says Bosch, the NCR has become more aggressive about prosecuting contraventions of the National Credit Act.
“Also, there has been an increase in cases brought by consumers and debt counsellors,” says Bosch, in a bid to explain why the average turnaround for cases was 358 days. “That’s the average; there are some with much longer turnaround times,” she told the appalled MPs.
“Consumers are still being ripped off. They can’t [afford to] go to court; you’re the only entity that can protect them; but it takes them years to be heard,” DA MP Geordin Hill-Lewis told Bosch last Friday.
McPherson says the average turnaround is 358 days because lenders who appear before the NCT deliberately try to delay the process in the hope of getting it struck off the roll.
NCR company secretary Lesiba Mashapa acknowledges the flaws in the system but believes much of it can be rectified if the regulator is given increased