The National Credit Regulator (NCR) has stepped in to investigate a case of alleged reckless lending against Nedbank after reading about it in the press.
Moneyweb previously reported that retired education specialist, Myrlene Pieterse, approached the Ombudsman for Banking Services on behalf of a financially uneducated employee, contending that Nedbank engaged in reckless lending practices by not adequately explaining the implications of the credit.
The employee, who cares for Pieterse’s 94-year old mother, is experiencing financial stress. She received a personal loan of R30 182 from Nedbank, roughly 5.5 times her average monthly salary at an interest rate of 35.4%, which has to be repaid over a period of four years. She was also granted two credit cards.
Nedbank previously said it could not comment on individual cases due to legal considerations, but that it was committed to promoting a fair and transparent credit market.
In a letter to the Ombud, a Nedbank official argued that the interest rate was in line with the guidelines of the National Credit Act (NCA) at the time, that an appropriate credit assessment was done and that it did not believe the credit was granted recklessly.
Lebogang Selibi, media relations officer at the NCR, confirmed that the regulator was investigating the matter, but said it couldn’t provide further information.
As a result of the regulator’s decision to intervene, the Ombud for Banking Services had to close the case. The jurisdiction of the NCR takes precedence in this instance.
In an e-mailed response to Pieterse on the matter, an adjudicator for the Ombud’s office noted that the office did not prescribe to the banks what their credit assessment policies should entail and that it couldn’t interfere with the bank’s commercial discretion. He also indicated that the office did not have the necessary technical skills or resources to do a detailed and financially scientific credit assessment and that it would not be able to determine whether the employee could afford the loans at the time.
“It is evident that the NCA is not designed to afford one-sided protection only to credit consumers. A court will look at all the circumstances and rights and liabilities of both the credit provider and the credit applicant, before making a finding. Should you remain of the view that the loans were granted recklessly, you may refer it to the Tribunal for a finding in this regard,” the adjudicator wrote.
When the Ombud requested additional information from Nedbank, the bank’s response was delayed on numerous occasions which unnecessarily delayed the finalisation of the investigation.
“This office accordingly awarded you the amount of R500 for the unnecessary delay caused by the bank, which the bank has agreed to pay… into your Amex credit card account.”
In its conclusion, the Ombud notes: “Our assessment and finding is based on the information submitted by both you and the bank and we have considered it carefully. As we are unable to make a finding in your favour and since there is no reasonable prospect of us being able to take the matter further we have closed the case.”
When the Ombud’s office requested details of its investigation from the NCR, the regulator said it couldn’t disclose any confidential information which it might have received as it was an offence under the NCA.
Pieterse is still awaiting feedback from the NCR about the matter.
A thorny issue
In terms of the NCA, a credit agreement would be considered “reckless lending” if the credit provider failed to do an affordability assessment, if it became clear that the client did not understand the risks of the credit, or if the debt pushed the client into a situation where he or she became over-indebted.
The aim of the NCA is to “promote and advance the social and economic welfare of South Africans, promote a fair, transparent, competitive, sustainable, responsible, efficient, effective and accessible credit market and industry, and to protect consumers”.
In a country with high unemployment and poverty levels, reckless lending is a thorny issue, particularly amid widespread efforts to encourage financial inclusion. Although financially vulnerable individuals in particular are at risk of being exploited by lenders, there are also instances where individuals take on credit to build a house or pay the tertiary tuition fees of their children, which could improve their lives considerably.