Credit Regulator Failing Consumers

The National Credit Regulator and the National Consumer Tribunal are ineffective to the extent that individuals and companies are turning to the courts to obtain justice on behalf of the consumer.

An investigation has been launched by the Public Protector alleging that the regulator has “utterly failed” to fulfill its mandate and that the tribunal is “ineffective”.

The complaint was initiated by businesswoman and philanthropist Wendy Applebaum and submitted by financial education company, Summit Financial Partners. The University of Stellenbosch Legal Aid Clinic launched a court case on behalf of consumers with EAO’s which successfully challenged unconstitutional parts of the law relating to the way emoluments attachment orders (EAOs) or garnishee orders can be imposed on debtor’s salaries. Applebaum and Summit were the driving forces – and the masterminds – behind the highly publicized court case.

According to the complaint submitted by the Summit to the Public Protector, the NCR has failed in its responsibility, as set out in the National Credit Act (NCA), to “promote and support the development… of a fair transparent, competitive, sustainable, responsible, effective and accessible credit market and industry”.

Nearly half of all credit-active South Africans who are not in good standing with their creditors should prompt an investigation into the workings of the NCR. Citing the number of investigations opened by the regulator versus the number of investigations completed since 2011/12, while the NCR came into existence in 2006/7.

According to the Summit, since the publication of 2011/12 annual report, the regulator no longer reports on the number of investigations concluded in the year under review. The 2014/15 annual report does not even report on the number of investigations opened. However, the complaint states that under the “reckless lending investigations” heading, that the regulator issued 23 compliance notices, and under the heading “special investigations and enforcement” it reportedly carried out four raids and took enforcement action in three cases.

Furthermore, the complaint states that the NCR publicly confirmed that it was aware of probable misconduct by African Bank as far back as 2011, even though the bank collapsed in 2014. The regulator made no attempt to lodge “a full-scale investigation” into the bank, despite numerous complaints by consumers and debt counsellors.

“After African Bank itself disclosed that it was in breach of the NCA, did they regulator act against the bank by calling on the tribunal to fine the bank R300 million for reckless lending,” the complaint says. According to African Bank, it has always contended that its auditors uncovered fraud in one of the bank’s branches – the manipulation of affordability assessments resulting in reckless lending – and disclosed this to the regulator before the regulator called for the bank to be fined.

The bank had been found guilty of gross misconduct and contravention of the NCA, however, after entering into settlement negotiations “the NCR seemed to change its tune” and accepted a fine of R20 million, which was R280 million less than the original demand. The settlement agreement only reached consumers at the bank’s Dundee branch, who then received relief. No other branches of African Bank were extensively investigated.

The complaint furthermore stated that there is no incentive for debt counsellors to take on reckless lending themselves, and no provision to charge for such an application, it is of paramount importance that the NCR fulfills its mandate in regulating all infractions. Summit identified approximately 5650 cases of contraventions of the NCA, all of which was reported to the NCR via the regulator’s complaints system.
Taking the complaint that happened recently with Capitec Bank, the relief sought was dismissed because of a reference to the Promotion of Access to Information Act (PAIA) in the letters of complaint.

“It was stressed in the NCR’s reply that we wanted help specifically in terms of the PAIA, but we required assistance from the regulator to enforce rules already in place… It is the duty of the NCR to be supportive to complainants not familiar with the complaints process followed by the NCR. Instead of a bare dismissal of any complaints lodged, it is expected of the NCR to be helpful in either assisting complainants or to direct them to the appropriate body to get the relief sought. We were, however, simply informed that they now consider the complaints closed,” Summit’s complaint says.

There are more complaints put forward by the Summit and according to Personal Finance, the regulator and the tribunal were invited to comment on the investigation, however, Motshegare said the regulator was not aware of any investigation and would await contact from the Public Protector.

NCR’s funding:

The NCR’s funding is from the state and the regulator also receives funding from other sources: fees paid by registrants – credit providers, credit bureaus, debt counsellors and payment distribution agents – and interest earned on money collected by distribution agents.

“The NCR received R53 million and last year R65.7 million, which increases annually, Last year, about R6 million was paid out in bonuses,” said the Summit.

What are Taxpayers paying for?

According to Summit Finance Partners, the state funding versus court applications and judgments, show the ineffectiveness of the National Consumer Tribunal (NCT), and that its primary mandate – to operate for the benefit and protection of consumers – is being neglected.

The largest portion of state funds is being directed to the top-tier executive and managerial staff, which can only be accepted if the tribunal fulfills its mandate as required by law.

According to the Summit, there is a connection between the ineffectiveness of the NCR in investigating matters, and the reluctance of the NCT to make a meaningful decision. The complaint says, “If the investigating body does not operate as it should, the judicial body is at a disadvantage and cannot operate in line with its mandate. The NCR’s ‘influence’ is the basis for the complaint against the NCT”.