Did banks fail in R699-car saga?

Credit applications may have been tampered with.

JOHANNESBURG – The attempts by banks to distance themselves from the now defunct vehicle-financing scheme run by the Satinsky Group raises questions as to whether they did their homework before allowing the company to sell cars with the banks’ financing.

Satinsky, which through its subsidiaries sold the popularly named “R699 cars”, had an agreement with Blue Lakes Trading and Promotions in Hong Kong in terms of which customers were paid an advertising fee for carrying stickers on their cars. Customers entered into standard financing agreements with banks and signed separate advertising contracts with Blue Lakes. The scheme has now unraveled, leaving owners of these cars with large outstanding amounts owed to banks, while the monthly advertising rebates they had come to rely on have dried up.

After FirstRand Bank’s vehicle finance company WesBank issued a hard-hitting statement earlier this month to say it refused to become involved with Satinsky because it doubted the scheme’s soundness from the beginning, we must question why similar alarm bells didn’t go off at other banks too.

WesBank CEO, Chris De Kock says its due diligence process “indicated that the simple mathematics behind reducing an installment of R2 000 or more to the advertised R699 did not point to a sustainable vehicle finance model and structure for the consumer.” Since there was no evidence of financial reserves, says De Kock, it seemed blatantly obvious that the scheme relied on upfront profits from vehicle sales to fund downstream obligations, “the historical traits of a true Ponzi scheme”.

WesBank thus refused to appoint Satinsky as a dealer after being approached by the Group to do so on more than one occasion.

Yet when asked why they entered into dealership agreements with Satinsky in light of WesBank’s statements, Nedbank’s Motor Finance Corporation (MFC), Absa and Standard Bank are accepting no responsibility. Their responses go along the lines of ‘we were not party to the agreement between Satinsky and Blue Lakes and granted vehicle finance to customers based on a standard affordability assessment’.

While this may be true, these banks would still have had to appoint Satinsky as an approved dealer under what is known as a master dealer agreement (MDA). “Dealers act as financial intermediaries for banks. If a dealer is out of business in a year’s time, this represents a great risk for the bank and its customers, which means I [the bank] must understand the financial position and sustainability of the dealer before I allow it to act as an intermediary on my behalf,” De Kock maintains.

De Kock says that when Satinsky approached WesBank, it laid out exactly what it wanted to do with the scheme, including the agreement with Blue Lakes.

No doubt it would have approached other banks with the same proposal, which means that these banks cannot claim to have had no knowledge of the business model.

Banks respond

Trevor Browse, managing executive at Nedbank MFC, says that Nedbank was doing business with the Satinsky Group long before the launch of the “R699 scheme” and so the launch of the new marketing scheme did not alter the obligations of Satinsky under the MDA or invoke a review of the dealer code.

“Each bank’s dealer approval criteria may vary, but in principle would look at proof of long run financial stability of the dealership, proven track record in the motor industry, personal integrity checks on the shareholders and evidence of recent sales volumes,” Browse tells Moneyweb.

An Absa spokesperson says the bank does not promote in any manner the agreements between Satinsky and Blue Lakes. “Absa is unaware of which clients did in fact conclude such agreements (separate advertising contracts) with Blue Lakes,” the spokesperson adds.

Similarly, Standard Bank says that Satinsky would operate “like any other dealership with which we do business. The individual’s credit application would be put on an industry portal where all the banks would have an opportunity to offer finance to the individual”.

None of these responses answer the question of why the banks were satisfied that Satinsky was a responsible vehicle dealer. Judging from how seriously this scheme has imploded, along with reports on its offshore connections, one wonders how comprehensive their due diligence checks were.

Perhaps banks were satisfied with the apparent legality of the scheme. Asked why WesBank didn’t vocalise its concerns sooner, De Kock stressed that Satinsky was not necessarily breaking any rules. “There is actually no factual basis on which I could have stood up in any forum whatsoever and said this scheme is illegal or unlawful,” he maintains.

Absa meanwhile is undertaking a full forensic investigation of the vehicle finance applications done through Satinsky, after certain discoveries suggest that credit applications may have been tampered with. “If there is evidence of fraud then it’s a criminal case,” an Absa spokesperson confirmed.

The National Credit Regulator issued Satinsky with a Compliance Notice. The NCR has said that the adverts on cars do not comply with the NCA, as they do not fully disclose the cost of credit.

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