Capitec sued as Summit alleges it’s a disguised payday lender

Summit says lender has breached National Credit Act

Capitec Bank Holdings, South Africa’s biggest provider of unsecured loans, is being sued for allegedly breaking the country’s credit laws by Summit Financial Partners, a company that helps consumers work their way out of debt. Capitec denied the allegations.

Summit said Capitec has breached the National Credit Act in court papers that were filed in both Cape Town’s High Court and the Magistrates Court in nearby Stellenbosch over the past ten days and served on the lender, Summit chief executive officer Clark Gardner said by phone on Wednesday.

“Capitec Bank remains committed to operate and keep operating within the laws of South Africa,” spokesman Charl Nel said in an e-mailed response to questions. The company is aware of the court challenge and will respond accordingly, he said. “Our unique business model has given millions of South Africans access to financial services.”

Capitec subsequently tweeted:

 

Summit has focused on Capitec’s so-called multi loans and its alleged refusal to supply contracts and other paperwork when requested to do so by clients, it said. With a multi loan, a customer signs one contract and can access the facility every month for 12 months. After the first month, affordability assessments are no longer done, while a 12% initiation fee is charged every month, according to Gardner. 

“Capitec is a payday lender in disguise and payday lenders are killing our society,” he said. “Capitec’s multi loans are reckless, and a court could make them void and write them off. If we got rid of payday lenders, consumers in South Africa would be much better off.”

Shares in Capitec fell as much as 3.9% to R557 and were trading 2.3% down at R566.05 by 2:55pm in Johannesburg, the biggest decline on the seven-member FTSE/JSE Africa Banks Index, and the lowest level on a closing basis since March 16. It has outperformed the index over the past five years as the bank reported faster earnings growth than other South African lenders.

Capitec’s closest rival, African Bank Investments Limited, collapsed in August 2014 as bad debt soared and the lender failed to increase provisions. While African Bank relied on funding from capital markets for funding, Capitec has been able to build a large deposit base. Even though African Bank wasn’t considered as a systemically important institution, the central bank stepped in to rescue the company’s viable assets. Still, shareholders lost everything and bondholders took haircuts.

“African Bank was reckless and couldn’t collect on it’s loans, while Capitec can collect because of its smart play with bank accounts,” Gardner said. People with multi loans are banked with Capitec so the lender is able to take its repayments at source, he said, adding that the bank encourages clients to dispute any debit orders that get in the way of Capitec recouping its loans.

© 2016 Bloomberg

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Every shebeen is a “disguised payday lender”. Why do clients come to Capitec for a loan? These people are not stupid. There are many alternative lenders to go to.

The client chose to to business with Capitec because it offers the cheapest loan in a convenient manner. How can this be wrong in a free-market society?

Blaming Capitec for the ills in society is like blaming sugar farmers for the diabetes epidemic.

Every business offering credit sales are loading the deal with all sorts of extras which cost you an arm and a leg and which you as the customer will never use, Lewis does it, Capitec does it, everyone does it, if you scrutinize the motor car industry you’ll find it all the time, they are the biggest crooks on the face of the earth, they all walk with the Wesbank book (that’s a guide only) and rip you off so lets not talk about Capitec, Mr Gardner

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