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CONTROVERSIAL online microlender Wonga SA has a month to shape up or face the music.
The company, which has granted more than a million loans to 250 000 South Africans in the two years since it opened for business, fell foul of the UK authorities last month. In that case, it had to pay compensation of £2.6-million (about R47.4-million) to 45 000 customers whom it tried to trick into repaying loans by sending fake lawyer’s letters on letterheads of fictitious law firms.
This week, things hotted up for Wonga in South Africa, when the National Credit Regulator (NCR) charged it with contravening the National Credit Act.
In South Africa, first-time customers can borrow up to R2 500 over 48 days, which carries a hefty 27% interest rate. Repeat customers can then borrow up to R8 000.
According to the regulator, Wonga did not obtain proof of borrowers’ income and living expenses to determine if they had the ability to repay the loans. It also did not keep records to support its “affordability assessments”, nor the records of steps it took after customers have defaulted.
The regulator said Wonga was required to remove any adverse information it had listed at credit bureaus on its customers’ credit records. In addition, any judgments taken against its borrowers must be rescinded — at Wonga’s expense.
The NCR has not determined how many customers were listed at credit bureaus by Wonga SA, and the company declined to reveal the total.
Wonga also refused to say how much it would cost it to rescind these judgments.
The NCR’s company secretary, Lesiba Mashapa, warned that if Wonga did not comply with these requirements by the end of next month the company would be referred to the Competition Tribunal.
Still, it appears Wonga is not losing any sleep.
Wonga SA CEO Kevin Hurwitz said he had “reviewed the letter with external advisers, who confirmed our view that we comply fully with the rules”.
Hurwitz said Wonga had sought a meeting with the NCR — setting the stage for a tussle.
What will also raise eyebrows is that the NCR seems to have woken up to this issue only now even though Wonga has been operating in South Africa for two years.
An overhaul of its processes to comply with the rules may affect one of Wonga’s main competitive advantages.
All along, Wonga has claimed that it is the “fastest loans provider” in the country.
Hurwitz has boasted that Wonga’s loan-decision process was done by computer systems, which eliminated human error.
But if Wonga has to get documents proving income and living expenses before giving a loan, as the NCR wants, this would affect its time frames.
The NCR couldn’t care less whether the new rules affect Wonga’s time frames. If it takes one or two hours longer to grant a loan, “so be it”, Mashapa said.
Until now, Wonga hasn’t reaped the sort of controversy locally as it has in the UK.
Founded by South Africans Errol Damelin and Jonty Hurwitz, Kevin’s cousin, Wonga has been accused of making huge profits by providing short-term loans at interest rates of as high as 365% over 18 days in the UK.