JOHANNESBURG – Thirteen unsecured lenders operating from the Marikana township just outside Lonmin’s (JSE:LON) Rustenburg operations have been targeted by the National Credit Regulator (NCR) as part of a swoop that seeks to root out irregular lending practices in the area.
The “Blitzkrieg” operation follows “media reports” which pointed towards severe indebtedness amongst miners exacerbated by an alleged malpractice on behalf of lenders and debt collection agents, according to Advocate Zweli Zakwe, head of the investigations unit at the NCR.
Moneyweb was at the scene on Monday by invitation.
Evidence gathered on the first day of the four-day operation suggested that lenders where operating in breach of sections of the National Credit Act (NCA).
This is despite the fact that the majority of lenders are registered with the NCR.
Of the six lenders that had been subjected to searches by Tuesday morning five appeared to be in breach of the law, according to Zakwe.
One lender was found in possession of a borrower’s ID book and at least 23 credit cards used “as a collection method”, for which charges were filed at the Marikana police station.
Another appeared to be erroneously inflating the loan size of defaulting borrowers by 99% when it applied for garnishee orders.
Garnishee orders are applied for through the courts and under oath. They compel employers to deduct amounts directly from their workers’ salaries until the amounts outstanding on a default loan, plus collection charges are fully recovered.
It was also apparent that at least one lender was making use of blank-signed process documents, including a consent to judgement, used to secure garnishee orders.
By forcing borrowers to sign the blank document the lender appeared to be by-passing the legal process required to secure a garnishee.
At least three of the six appeared not to be conducting affordability tests.
Affordability tests are the key requirement imposed on the lenders by the NCA in its attempt to curb reckless lending which it is feared may destabilise the unsecured market and exacerbate chronic indebtedness amongst SA’s workforce.
An ongoing Moneyweb investigation has pointed towards widespread abuse in the unsecured market with links being drawn between recent labour unrest and miner indebtedness.
Speaking on reason or the swoops Zakwe commented that “One of the primary reasons (for the swoop) was because of the information that came to light that the miners cannot survive on their wages and are trapped in a web of debt”.
We developed a concern over whether these providers are registered and are doing business, according to the Act, he said.
“The intention is to check whether these credit providers are complying with the Act in terms of affordability assessment, the collection methods that they use and the charges they impose.”
Asked if the apparently illegal practices served to exacerbate levels of indebtedness Zakwe said that “generally there is a link”.
“We have found that when chasing profits and numbers credit providers don’t necessarily comply with the Act in terms of doing affordability assessments,” he said.
Zakwe agreed that the practices uncovered at Marikana are endemic in the unsecured market.
He also agrees that the apparent reckless lending practices expose the major lenders operating in the unsecured market to increased levels of risk.
“It’s going to jeopardise those that are playing by the book. If you play by the book and you grant a loan then that person can afford it. But now if someone else grants him a loan that he can’t afford then he is going to start defaulting on the loan that he could afford.
“That person may end-up in debt review”, notes Zakwe.
The debt review process does not provide repayment preference amongst the lenders to which the defaulter is exposed, meaning that each lender shares the cost of the borrower’s inability to pay.
The Marikana Township is heavily saturated with lenders.
On the 500m strip of road that makes-up the town centre at least 16 lenders could be identified, see map.
Capitec, African Bank, U Bank and Nedbank all have micro-finance or personal loans offices on the strip although none of them had been targeted under this operation.
Trade and Industry Minister Rob Davies appears to have taken an interest in the problem, requesting an update on the swoop in a meeting held between the NCR and the Department of Trade and Industry on Monday evening, according to Zakwe.
View Marikana micro-lenders in a larger map