‘Instant loans’ arouse suspicion of reckless credit
IN THE Supreme Court of Appeal (“SCA”) case of National Credit Regulator v Dacqup Finances CC, the SCA held that a signboard advertisement for “instant loans”, provided grounds to initiate a complaint into alleged contraventions of the National Credit Act (“NCA”).
An inspector, noticing the advertisement, visited Dacqup Finances CC’s (“Dacqup”) premises where she learnt, among other things, that an interest rate of 30% per month was being levied. This exceeded the statutory maximum permissible for microloans (currently at 5% per month for a consumer’s first loan).
The National Credit Regulator (“NCR”) initiated an investigation into possible contraventions and concluded that Dacqup had, inter alia, failed to properly assess the financial means of the respective consumers and their debt repayment history. This contravened the prohibition against granting of reckless credit in the NCA, which is designed to protect consumers against unscrupulous lending practices.
At the National Credit Tribunal, Dacqup raised various points in limine, including whether the NCR had formed a “reasonable suspicion” that Dacqup was contravening the NCA through the use of the phrase “instant loans”.
The inspector contended that the phrase “instant loans” indicated that Dacqup may not have been conducting proper affordability assessments and was contravening the NCA. Dacqup was successful at the High Court, which held that the words ‘instant loans’ could not objectively trigger a reasonable suspicion, as the phrase could reasonably be understood to mean that Dacqup acts ‘promptly, swiftly or speedily’, yet lawfully. Without considering the merits of whether Dacqup had contravened the NCA in material respects, the High Court upheld Dacqup’s appeal with costs.
The SCA disagreed with the High Court and overturned its ruling. The SCA held that while suspicion falls short of actual proof, there must be some factual basis on which the suspicion is grounded. The standard of reasonable suspicion is very low, it must be more than a hunch and an unparticularised suspicion. Even if the SCA accepted the High Court’s reasoning, the meaning ascribed to the phrase “instant loans” by the inspector, was a reasonable one and thereby gave rise to a reasonable suspicion.
The SCA held that the approach taken by the High Court conflated the notion of a reasonable suspicion with prima facie (on the face of it) evidence. For example, to require the inspector to actually obtain a loan in order to establish a reasonable suspicion would be tantamount to obtaining prima facie proof. The SCA therefore upheld the appeal of the NCR and also reversed the costs order, which should not have been awarded, providing a reminder of the principle that where a statutory body is fulfilling its statutory duties, costs should not be awarded against it, even if it acted incorrectly, as long as its conduct was not in bad faith.
NOTE: This information should not be regarded as legal advice and is merely provided for information purposes on various aspects of commercial law.