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