Missed payments could be costly

BANKS HAVE OVERCHARGED BY UP TO 50% We’re talking about potentially billions of rands in overcharges – actuary.

Eight years ago debt counsellor Fanie Grove examined over 80 vehicle loans where clients had fallen into arrears and found in every case the bank had unlawfully overcharged interest.

In some cases, the overcharge was 40 to 50% more than the interest allowable in terms of the National Credit Act (NCA).

He said: “… if you extrapolate this, we are talking about potentially billions of rands in overcharges spanning back years.”

The matter was raised with the National Credit Regulator (NCR) in 2014 over a Standard Bank customer who missed some monthly payments in 2013.

The NCR took the view that the bank wasn’t violating the NCA and that it had calculated the interest correctly – despite the bank later reducing the loan amount.

However, an actuary who reconstructed the bank statements and applied what he says is the correct interest charge, found the bank had overcharged by 40%.

Standard Bank spokesperson Ross Lindstrom says charging interest on interest when a client falls into arrears on a vehicle loan is “in line with the contractual agreement, which complies with all relevant legislative requirements”.

Lindstrom says the bank reducing the client’s loan amount is “definitely not an admission of any wrongdoing, as this was an attempt by Standard Bank to assist the customer”.

The client purchased the vehicle through Standard Bank in 2008 for roughly R110 000. In 2011 he noticed the outstanding balance was R203 000, despite having paid R90 000.

Before 2013, he’d started missing the odd payment. The bank added the arrears amount to the amount outstanding.

“A portion of every instalment goes to repay the capital and a portion to interest. In the early stages of a loan term, most of the repayment goes to repaying interest... The arrears amount is added to the outstanding balance. The banks have been charging interest on the arrears, which already includes an interest charge. A plain reading of the law suggests they cannot do this,” says Grove.

When financing cars, banks calculate the vehicle cost, plus financing charges over the life of the loan, divided by the number of instalments. So, a R100 000 car financed over 36 months has a total cost of, say, R150 000. This means R4 166 monthly instalments.

The interest portion is calculated based on the loan’s full term.

To add an arrears instalment to the outstanding balance and again charge interest on this amounts to what some believe is “double dipping” – charging twice for the same thing.

This becomes more prejudicial when the borrower misses several instalments.

“The net effect is that the balance that is owing is not calculated according to the interest rate that is specified in terms of the contract entered with the finance house,” says forensic accountant Andre Prakke. “There will be a portion of simple interest and compound interest.”

If the case is handed over, collection and legal costs are added and it gets worse still when insurance premiums are debited.

Banks accused of ‘double dipping’ on interest