By Nicolette Dirk, finance writer, justmoney.co.za
A statement issued by the National Credit Regulator (NCR) this month regarding the terms of a settlement with African Bank has left many people wrongly believing that they would qualify to have their loans written off.
In a statement dated 4 October 2013, the NCR said: “In terms of the settlement agreement, African Bank has agreed to pay an amount of R20 000 000 (twenty million rand) into the National Revenue Fund, write off the loans, refund consumers, rescind judgments taken against consumers, remove judgment and adverse information listings from the credit records of consumers, and develop an active engagement process with the NCR.”
The terms of these conditions only pertain to the 397 customers affected by the fraudulent activity at African Bank’s Dundee branch in KwaZulu-Natal.
According to African Bank the fraudulent activity, that led to the initial probe by the NCR and the related suggested R300 million fine to the National Consumer Tribunal (NCT),- related to manipulation of African Bank’s affordability calculations that affected 397 customers and loans to the capital value of R15, 5 million, which was written off or restructured where applicable in early 2013 and reflected in the interim results for the six months ended 31 March 2013.
“After a thorough internal investigation, three agents were dismissed for fraud. It was found that in the majority of instances, customers colluded with these agents and made illicit payments to the agents in return for granting the loans.
Upon conclusion of the internal investigation, the bank wrote off or rescheduled the affected loans and corrected the customers’ profiles on the credit bureau where necessary”, said African Bank in its 8 February SENS statement.
More loans to be written off?
African Bank has confirmed in its Interim results SENS statement of 20 May 2013 that they will ‘write off’ a further R455 million in non-performing loans. However, they said that this was just to improve the quality of their loan book over the long term.
Unfortunately, it means that consumers owing them money will still be held accountable for outstanding loans and will have to repay them. The R455 million is in no way linked to the fraudulent activities conducted at African Bank’s Dundee branch.
Do all borrowers understand the loan terms and conditions?
So many consumers will be left disappointed knowing that they still have to pay up. But did they understand what they were getting into when they signed up for the loan?
The NCR said the National Credit Act states that a credit provider must not enter into a credit agreement without first taking reasonable steps to assess the proposed consumer's general understanding and appreciation of the risks and costs of the proposed credit.
African Bank said they do ensure their clients understand all the terms and conditions when the contracts are signed in the branch.
“It is in the branch where the consultant refers the customers to the terms and conditions of the contract that they are seeking to undertake. Loan documentation is available in English, Afrikaans and Zulu,” said African Bank.
How does African Bank ensure that borrowers can afford the credit?
“The bank complies fully with the NCA and in addition applies a strict set of criteria for when evaluating loan application and deciding whether to extend an offer to a potential customer applying for credit,” said African Bank.
With their credit scoring procedure each individual applicant is scored based on their own risk profile taking into account the size and term of the loan applied for.
“The loan terms and pricing are then determined from this process, and the client may indeed get a smaller or shorter loan than applied if the affordability criteria based on the risk profile is not fully met.
Credit scoring and product allocation is highly statistical to ensure that we do not grant credit to customers where the affordability simply doesn’t exist. In summary high risk customers that do qualify for credit based on affordability generally receive smaller loans, for shorter terms of repayment, and low risk customers receive larger offers, for longer terms,” said African Bank.
With their affordability calculations numerous credit policy rules apply to ensure that affordability is calculated conservatively to ensure that the customer can afford the proposed instalment.
They state that key data sets used include levels of income, living expenses, and existing debt obligations. “The Bank also applies further factors such as overlaying pre-determined minimum living expenses for customers to ensure that the living expenses declared by clients are reasonable. Several such “conservancy factors” are applied,” said African Bank.