This article first appeared in the Business Times section of The Sunday Times on 8 May 2016.
News broke this week that the National Credit Regulator had received a complaint about Capitec’s multi-loan product and the fees charged by the bank.
The allegations from Summit Financial Partners are centred on a Capitec product it claims is a series of micro-loans that are approved and accessed via an ATM credit assessment.
The National Credit Act requires lenders not to enter into a credit agreement without first taking reasonable steps to assess the consumer’s debt history, financial means, prospects and obligations, as well as ensuring the consumer understands the risks and costs of the proposed credit.
The allegation is that the three questions posed by a Capitec ATM are inadequate for a full assessment of a prospective customer ’s affordability. Summit also takes issue with the “initiation fees” charged by Capitec, which can apparently be as much as 12%.
Capitec itself has not commented much on the case, but has denied the allegations, suggesting there is a “misunderstanding of the technicalities”, and that a full credit assessment is redone for every loan application.
I personally hope the 12% fee is incorrect and that Capitec will be able to prove it is not charging people who need that R1 000 mid-month boost, a fee of R120 for a loan. That, in anyone’s books, is just too high — let alone for the lower- to middleclass Capitec customer.
However, what really interested me had less to do with Capitec but more with the powers of the regulator.
I learned that this matter was pursued by the NCR in 2013, but the regulator was stopped in its tracks by the National Consumer Tribunal.
Apparently the NCR relied on the provisions of the act that empowers the watchdog to investigate cases in its own name, without having to first receive a complaint from the public or an affected party.
On the back of the unsecured lending crisis in 2012, the NCR initiated an investigation into the industry and came across the Capitec multi-loan product and consulted the bank.
The investigation reached a point where it was clear the parties disagreed, and the regulator duly approached the tribunal to rule on the Capitec product and whether it was in breach of the act.
The tribunal did not even consider the merits of the case, saying the NCR did not have “reasonable suspicion” to probe Capitec in the first place.
Apparently this interpretation has also been confirmed by the high court and materially curtails the ability of the NCR to investigate matters it believes require further analysis.
The NCR is unable to investigate any matter without a complaint from the public, or without having some miraculously objective proof prompting “reasonable suspicion”.
The obvious problem with this is how ordinary citizens would know that their lenders are not in compliance with the act.
The other issue is potential “justice delayed”. Had the NCR been allowed to pursue the investigation in 2013, the matter would have been heard, both sides would have made their arguments and the tribunal its ruling. This would be good for the regulator, Capitec and, most important, the customers.
Otherwise, the government could have knowingly allowed a potentially illegal practice, prejudicial to ordinary South Africans, to continue for three years and not taken action.
The encouraging news is that parliament’s portfolio committee on trade and industry has noted the case and met with the NCR to discuss its powers regarding compliance with the act “in an attempt to ensure that consumers have quicker access to redress”.
The NCR didn’t mince its words to the portfolio committee and stated that its powers to investigate were limited to “reasonable suspicion” of abuses based on complaints from the public, and detailed how this had led to various entities refusing to be investigated.
This clearly needs to be resolved urgently.