You can count on banks to trick the com­mon man into debt

Weekend Argus (Saturday Edition) - - ISSUES -

IF KIDS can grasp it, why can’t bankers?

There is a dif­fer­ence be­tween what is le­gal and what is right. Par­ents work hard on get­ting their kids to un­der­stand this and, for­tu­nately for so­ci­ety, they mostly suc­ceed.

Big busi­ness doesn’t get it, though. For most cor­po­rates what is le­gal is moral, fin­ish en klaar. In South Africa en­tire in­dus­tries were glee­fully built around ex­ploit­ing con­sumer ig­no­rance and the fine print.

Take shod­dily made fur­ni­ture, sold to peo­ple who couldn’t af­ford it at usu­ri­ous rates of credit, then re­pos­sessed when pay­ments lagged. Add in com­pul­sory in-house in­sur­ance, late-pay­ment penal­ties and le­gal fees that would shame a Hol­ly­wood di­vorce lawyer, and sud­denly one had a yoke of penury and vas­sal­hood to ri­val the feu­dal sys­tem.

This was partly reme­died by the Na­tional Credit Act, but in the ab­sence of cor­po­rates hav­ing an un­likely at­tack of moral­ity, there is still much for the leg­is­la­tors to ad­dress.

This was brought home by an em­ployee’s at­tempt to ac­cess a credit line at a build­ing sup­plies store for some emer­gency re­pairs.

A savvy reg­u­lar at such a mer­chant can usu­ally ask for 30 days of in­ter­est-free credit, but for many the temp­ta­tion is ir­re­sistible when pre­sented with an un­so­phis­ti­cated client. So in­stead of buy­ing on in­voice a few thou­sand rands of goods and pay­ing them off at mon­thend, he ended up with an R8 000 bank loan which, with charges, ou­tra­geous but le­gal in­ter­est, and un­nec­es­sary in­sur­ance, lumped him with a R17 000 two-year debt.

When he re­alised his folly and tried to can­cel the still-un­ac­cessed credit line, the re­sponse from Ned­bank was a blunt no. No exit, no early re­demp­tion. So, what are the loop­holes that re­quire fur­ther gov­ern­ment in­ter­ven­tion?

First, there is the need for a statu­tory cool­ing-off pe­riod dur­ing which one can change one’s mind without in­cur­ring penal­ties. Bizarrely, in South Africa there is a cool-off for con­sumer credit agree­ments but not for fi­nan­cial prod­ucts.

There is, in fact, a five-day pe­riod be­tween sign­ing a loan ap­pli­ca­tion and ac­cept­ing the quo­ta­tion dur­ing which one can legally opt out. Catch-22 is that nei­ther Ned­bank’s loan doc­u­ments nor the re­tailer “sell­ing” the loan on be­half of the bank men­tions this.

In any case, any cool-off pe­riod is mean­ing­less un­til af­ter the bank ap­proves the loan and the bor­rower fi­nally ac­cepts the quo­ta­tion. This is an anom­aly that the banks would hate to see changed.

An­other neat trick is that un­less the bor­rower knows to specif­i­cally de­mand it upon sign­ing the loan ap­pli­ca­tion, he doesn’t even get a copy of the terms to study un­til af­ter the five-day exit pe­riod has elapsed.

Sec­ond, while banks nom­i­nally have to ad­here to a code of prac­tice, re­tail­ers do­ing the hard-sell as agents for the bank don’t. If er­rors are made or the loan im­pli­ca­tions are not ex­plained to naive bor­row­ers, the bank can, and does, shrug its shoul­ders.

Third, South African banks are ex­cep­tion­ally prof­itable be­cause the gover nment tol­er­ates in­iq­ui­tous in­ter­est rate mar­gins and puni­tive ad­min­is­tra­tive charges. Iron­i­cally, wealthy clients can of­ten bar­gain th­ese down; the less af­flu­ent take what they can get.

There is a happy end­ing, of sorts. Af­ter 10 weeks, pro­fes­sional in­ter­ven­tion and thou­sands of words of cor­re­spon­dence, our hap­less bor­rower got his loan re­luc­tantly can­celled but had to pay around R1 000 in fees.

As to the dif­fer­ence be­tween what is le­gal and what is right – es­pe­cially in a de­vel­op­ing coun­try – Ned­bank re­sponded with breath­tak­ing ar­ro­gance: “While the bank has an obli­ga­tion to con­for m to the codes and rel­e­vant leg­is­la­tion it does not have an obli­ga­tion to ed­u­cate the client on the code and leg­is­la­tion per­tain­ing to credit providers.”

In other words, tough luck, suck­ers.

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