Guiding consumers since 2009

Capitec Bank fails to put the customer first – Summit

By Jessica Anne Wood

Summit Financial Partners has lodged a case with the Stellenbosch magistrate’s court for reckless lending against Capitec Bank. The court papers were served on Wednesday morning (4 May). Summit claims that Capitec was in breach of the National Credit Act (NCA) through the sale and management of its multi loans product.

“If Capitec stands by the classification of the multi loan as a series of short-term loans, they are in breach of the National Credit Act by failing to do a full affordability assessment for each new withdrawal. If they claim it is a credit facility, then they are in breach by charging multiple initiation fees. Either way, Capitec is not putting consumers first,” explained Summit.

However, Capitec deny the allegations. Carl Fischer, executive of marketing and corporate affairs at Capitec Bank, had the following response to Justmoney’s questions: “The loan in question is a one-month loan similar to what other banks provide and is structured to enable easier access for clients. The dispute is of a technical nature and the process of credit assessment and pricing are in accordance with the requirements of the National Credit Act. We strongly disagree with the allegations made regarding its legality.

“We believe statements and allegations have been made that are not correct, due to a misunderstanding of the technicalities. The loan in question is a one-month loan, which most credit providers offer. Some other banks also offer this type of product.”

Summits side

Summit clarified: “If multi loans were correctly classified as a credit facility, or restructured as a standard personal loan, Capitec would only be able to charge one upfront initiation fee, for the entire duration of the loan or facility. This would be a more accurate reflection of reality, as Capitec only does one affordability assessment at the outset of each multi loan. Classified as a series of consecutive, individual loans, Capitec should be doing a new affordability check for each new withdrawal, but this is not the case.”

Clark Gardner, Summit Financial Partners CEO, explained that the company has been looking into the multi loan product offered by Capitec for a while. “It’s not primarily based on reckless credit, but rather on the fact that they are contravening the National Credit Act by charging multiple initiation fees on what is, in essence a revolving credit facility. This results in cost-of-credit as high as 500% in some cases.”

According to Summit, when Capitec was established, “their own regulations prevented a consumer from taking more than two consecutive pay day loans before they were forced to take a ‘pay day loan holiday’ month.” This regulation helped to prevent consumers from falling into a negative debt cycle. However, the policy has, Summit claim, since changed with the introduction of the multi loan product.

“Although Capitec officially discontinued the multi loan product in November 2015, they simply replaced it with a similar product. It’s clear that Capitec has no intention of slowing down until someone holds them accountable, which is exactly what we intend to do,” said Summit.

Reactions to the allegations

Fischer further explained that the bank adjusted its application process (which is being disputed) “to enable more convenient, easier access for clients. Once a client has physically applied in branch, the first time, the process enables the client to take another one-month loan, remotely in a following month.

“A credit assessment is redone for every loan application. The price charged for the loan is well within the pricing defined by the National Credit Act (NCA), and the loan is in accordance with the legal requirements of the NCA.”

Fischer added: “Clients are in no way exploited, and default rates on this loan are no higher than on 12 or 24 month loans.

“We will be replying to all specific allegations made by SummitFin in court papers and before the court.”

Industry reaction

Justmoney contacted various industry bodies to get their take on the situation. Bulelwa Boqwana, chief of staff at the South African Reserve Bank (SARB), stated: “The South African Reserve Bank engages with all banks as part of its supervisory role and does not comment on individual banks.”

The Ombudsman for Banking Services and Banking Association of South Africa had not responded to requests for comment at the time of publication.

Summit’s stance

“Our mission is to ensure a safer, fairer credit industry for all consumers, and tackling reckless credit is certainly part of that. South Africa has a massive over-indebtedness problem, mainly stemming from unsecured credit (such as personal loans, credit cards and short-term loans). Statistics suggest that nearly 50% of consumers have missed three or more debt instalments. When so many consumers are over-indebted, it implies that too many credit providers are providing reckless credit. It’s vital that credit providers, who are in a position of more power, take responsibility to prevent reckless lending,” revealed Gardner.

In addition, Gardner stated: “We hope the court orders Capitec to refund the excessive initiation fees charged. This court case is also part of our greater strategic attack on payday lending in South Africa. We’ve tackled unlawful garnishee orders quite extensively, and continue to do so. Now we are extending our fight to payday lenders, amongst others.”

This is not the first case of reckless lending that Summit has brought against a lender. Last year Summit made reckless lending claims against the Lewis Group. The Lewis investigation arose from a secret shopper experience that Summit conducted last year, and has resulted in Summit taking the Lewis Group to court in February this year.

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