African Bank’s R280 million discount settlement
African Bank only pay R20 Million
Recently the National Credit Regulator ( NCR ) asked the National Credit Tribunal (NCT) to fine African Bank (ABIL) R300 million for granting reckless credit to numerous consumers. This followed after an in depth investigation by the NCR. The investigation followed shortly after the unfortunate events at Marikana . The NCR raided the various creditors in the Marikana area. Soon afterward it was alleged that the NCR were investigating African Bank as well as Capitec in regard to illegal credit agreements and reckless credit granting. At first the NCR had denied it was investigating African Bank, Capitec and FNB. They later revealed that it was in fact true.Even the mention of such investigations hit Capitec and ABIL’s share prices.
All is not fine
Next, in February the NCR called for the NCT to issue a fine of R300 million against African Bank. This related to, at least, 700 cases where credit was recklessly granted. They also wanted to see the branch in KZN closed for 12 months. Some called the amount proposed to the NCT unfair or extreme. What is clear is that the NCR wanted to make a clear point that such matters were indeed extremely important and that such behaviour would see bigger credit providers taken to task as well.
In May 2013 the NCR next called for Capitec to be fined in regard to initiation fees being charged more than once on individual loans.
Settlement
African Bank and the NCR were able to eventually settle the matter, after fighting over the proposed fine for quite some time at the NCT. The Settlement called for African Bank to pay a R20 million fine and to to ‘write off’ the reckless loans, refund consumers and rescind any judgments that had subsequently been taken against consumers. They also have to remove judgment and adverse information listings from the credit records of the effected consumers.
Why did ABIL only end up paying R20 million?
So if the NCR called for a R300 million fine why did they end up only paying R20 million? Well first off R20 million is not to be sneezed at. True in terms of the banks revenue it is less than a hiccup but it is still a fine which sends an important message to others. It seems that the R300 million fine suggestion related to accounts amounting to around R15.5 million.
Also the fine is not the end of the matter. As mentioned the Bank had to write off loans and refund consumers (so that is another +- R15 million ). They also have to lose out on all the legal fees and cost of rescinding the judgments taken and collection costs etc. No doubt that all adds up (not to R300 million though). Keeping the KZN branch open also keeps other non involved staff members employed.
Interestingly it seems to be that the African Bank irregularities at their Dundee branch were reported on by African Bank themselves. This and the amounts involved may have been mitigating factors in the NCR relenting. Consideration also needs to be given to the hidden cost of the plummet in share prices that the investigation influenced (in conjunction with the recent increase on bad debt repayments on unsecured credit that ABIL are facing).
Reckless Lending
This is not the first time one of the larger banks has been taken to court over reckless lending. Debt Counsellors are assisting the courts and consumers look into these matters country wide. Recently Octogen Debt Counsellors also had a reckless lending matter against African Bank in KZN which also went in favour of the consumers. The credit agreements added up to R575 000 – no small matter. When a creditor grants a consumer credit that they realistically can see the consumer cannot afford to repay this is called Reckless Lending. This is an illegal practice. Even where consumers say they can afford it but a simple investigation reveals that this is not the case if a creditor grants credit this is reckless and can end up being written off.