Checks and balances FNB found guilty of reckless lending

● FNB has been found guilty of reckless lending and has had to write off a loan of more than R150,000 to a Gauteng woman who claimed the bank had failed to properly assess her finances when granting the loan.

Last month the National Consumer Tribunal (NCT), in a ruling on the complaint submitted by Annet Ludick, said the bank had been unreasonable in awarding her such large overdrafts on her credit cards that she would have struggled to repay them.

The judgment explained how Ludick had approached the bank on several occasions in 2015. In March, she applied for and received a credit card limit increase to R61,000. In May, she received a revolving loan of R10,000. In October, she applied for and received an increase on her overdraft account to R68,000, and in December she was able to increase the overdraft limit to R80,000.

The following year, Ludick became unable to repay the debt, and with the assistance of a debt-counselling service lodged a complaint against FNB with the National Credit Regulator. The regulator investigated her complaint, but ultimately concluded that no reckless lending had taken place. She then approached the NCT.

Though the bank argued that Ludick had failed to apply with the NCT before her complaint prescribed — meaning she had taken too long to submit it — the NCT ruled that the only reason for this was because the regulator had taken years to come to its decision.

The tribunal recognised Ludick’s arguments that the bank had not conducted affordability assessments or credit checks when approving her loans and overdrafts, and that her spending each month far exceeded her income.

“The [bank] did not request information from her beyond her providing pay slips on one occasion,” the ruling read. Ludick also said the monthly income amount the bank used to calculate the repayment was incorrect, inflating it from R20,000 to R28,875.

The bank argued, however, that it had done affordability assessments for each of Ludick’s applications. But it was unable to submit evidence of this on two of the four, nor was it able to provide the original revolving loan agreement to the tribunal.

“According to the [bank], the applicant [Ludick] would have been able to meet her financial obligations were it not for her excessive cellphone, food, Solidariteit and DSTV expenses,” the NCT ruling read.

It continued that FNB “can reasonably have been expected to have had good systems in place to ensure it can produce evidence of the assessment done. It may have conducted assessments but in the particular circumstances of this matter it was unable to provide adequate proof thereof.”

The tribunal said the bank should have settled the matter when the complaint was reported in September 2016.

The tribunal said the multiple credit applications by Ludick in 2015 clearly indicated she was in financial distress, and “a reasonable lender would have been wary granting all the credit that it did without further inquiry”. Because of this, the tribunal set aside the three “reckless” credit agreements, saying Ludick was no longer liable for any payments, charges and fees levied. The NCT also ruled that she be reimbursed with all interest fees and charges since October 2016.

FNB’s Lwazi Stuurman would not confirm if the bank planned to appeal against the ruling, adding: “FNB conducts affordability and credit assessments in alignment with its credit policies and the law. The bank complied with the affordability requirements of the NCA [National Credit Act] in respect of this matter, however it could not satisfy the record-keeping requirements due to operational inefficiency.”

NCT spokesperson Sibusiso Nyathi said the tribunal had made numerous rulings such as this against various credit providers. “Since the inception of the tribunal in 2006, different types and sizes (small, medium and large) of credit providers were brought to the tribunal. In respect of 82 matters, the conduct of credit providers was declared to be prohibited, 38 were deregistered, 72 were fined about R19m, whereas 55 were ordered to refund consumers over R817m,” he said.

Ludick’s ruling comes in the wake of the recently signed National Credit Amendment Bill, which aims to assist over-indebted South Africans to have their debt suspended, in part or in full, for up to two years. If the person’s financial circumstances do not improve, they can apply to have the debt extinguished.

A reasonable lender would have been wary granting all the credit that it did National Consumer Tribunal