How banks routinely over-charge on vehicle loans in arrears

Written by Ciaran Ryan. Posted in Journalism

This article first appeared in Moneyweb.

Eight years ago debt counsellor Fanie Grové started looking at vehicle loan statements from his clients and was staggered by what he saw: in every one of more than 80 cases he examined where the borrower had fallen into arrears, he says the bank was unlawfully overcharging interest.   

In some cases, the overcharge was 40-50% more than the interest allowable in terms of the National Credit Act (NCA), says Grové.

Considering the number of vehicles sold in SA each year – 557 000 last year alone – the implications could be huge. Wesbank, the market leader, reported R2.6 billion in profits from its SA retail activities last year.

The matter was raised with the National Credit Regulator in 2014 over a Standard Bank customer who missed some monthly payments in 2013. The NCR took the view that the bank was not in violation of the NCA and that it had calculated the interest correctly – despite the fact that the bank later reduced the loan amount payable by the client. The NCR’s dismissal of the case is puzzling to some in the debt industry. An actuary who reconstructed the bank statements and applied what he says is the correct interest charge found that the bank had overcharged the customer by 40%.

Standard Bank spokesman Ross Lindstrom says charging interest on interest when a client falls into arrears on a vehicle loan is “in line with the contractual agreement, which complies with all relevant legislative requirements.”

Why did the bank then reduce the client’s loan amount? Is this not an admission of wrongdoing? “Definitely not an admission of any wrongdoing, as this was an attempt by Standard Bank to assist the customer,” says Lindstrom.

Banks are clogging the system, says court

Written by Ciaran Ryan. Posted in Journalism

From GroundUp. This is Part 2 of a two-part series. Part 1 is here.

A full bench of the Pretoria High Court ruled last week that magistrates’ courts should be the first port of call for banks seeking judgment against their clients. On Wednesday we explained the arguments in the case that dealt with access to justice for distressed debtors. But another important part of the case was how these applications to the court by banks have clogged up the high courts. 

The Pretoria High Court judges said the number of new cases coming before the Pretoria High Court had increased to nearly 100,000 in 2016 from 74,000 in 2012. In the Johannesburg High Court the case load is more stable, increasing to nearly 50,000 in 2017 from about 48,000 in 2012.

The two courts had about the same number of judges: 40 permanent judges and 23 acting judges in Pretoria, and 38 permanent judges and 24 acting judges in Johannesburg. Judges sat in court almost every day and were forced to write judgments after hours or on weekends, the judges said.

“This results in inordinate delays in delivering judgments. Obviously this is an untenable situation that needs to be addressed in the interests of justice,” reads the Pretoria High Court judgment.

They said judges were also taking longer in trial preparation due to changes to court rules allowing for reserve prices to be set in cases where repossessed homes are sold at auction. All this resulted in delays of four to five months for cases to be heard. The problem was aggravated by banks bringing cases before the high court which should properly be heard in the magistrates’ courts.

The judgment says it becomes untenable for a single judge to hear 80 unopposed matters (where the defendants put up no opposition) in a day. This has now been limited to 60 matters per judge per day.

Another victory for distressed debtors – court tells banks “take your cases elsewhere”

Written by Ciaran Ryan. Posted in Journalism

From GroundUp. This is Part 1 of a two-part series. Part 2 is here.

The Pretoria High Court struck another blow on behalf of distressed debtors last week. A full bench of three judges ruled that magistrates’ courts should be the first port of call for financial institutions seeking judgment against their clients, where matters fall within the lower courts’ monetary jurisdiction.

This follows the ruling two weeks ago by a full bench of the Johannesburg High Court. That court ruled that repossessed homes must be sold with reserve prices at sheriffs’ auctions. This is to stop homes from being sold for a fraction of their market value.

Banks frequently go to the high courts for judgment against defaulting clients, even when relatively small amounts of money are owed.

The Judge President of the Pretoria High Court convened a full bench to decide whether the high court should entertain cases that should be heard by the lower courts just because both courts have jurisdiction under the law. He also asked the court to consider whether there is “an obligation on financial institutions to consider the cost implication and access to justice of financially distressed people” in deciding which court to use.

Why banks prefer suing in the high courts

A key reason why banks prefer suing in the high courts is to keep up pressure on a defaulting client. Armed with a high court judgment against a client in arrears, banks are able to keep alive the threat of sale in execution order, even if the borrower catches up on arrears. If they default a second time, the bank can sell the person’s home without again having to approach the court. This is less likely to happen in a magistrates’ court, where the order expires after a year.

The Pretoria High Court ruled that if banks brought their cases to the high courts when the lower courts had proper jurisdiction, the high courts could kick the cases down to the lower court. This would save legal fees for the debtor.

FSB whistleblower’s legal challenge hits the end of the road

Written by Ciaran Ryan. Posted in Journalism












This article first appeared in Moneyweb.

Pension fund whistleblower Rosemary Hunter’s campaign to force the Financial Services Sector Authority (FSCA), formerly known as the Financial Services Board (FSB), to investigate irregularities surrounding the cancellation of 4 600 pension funds was rejected in the Constitutional Court on Thursday (September 20).

Hunter achieved a few minor victories, including gaining access to the previously withheld reports by Judge Kate O’Regan and KPMG. She was also granted leave to appeal (though lost the actual appeal) and was found to have sufficient standing in court to represent the public interest. The court further softened the blow by refusing to grant a costs award against her.

But the big fight – to force an investigation into the so-called cancellations project and any prejudice suffered by beneficiaries – was lost on the grounds that the FSCA had already launched investigations by engaging O’Regan, KPMG and pension funds attorney Jonathan Mort. In a minority judgment, three judges said it was “common ground that the cancellations project was infested with unlawfulness” and that “the FSCA had a lax approach to lawfulness in the cancellations project.”

Hunter, a former political activist, was appointed deputy registrar of pension funds at the FSB in 2013. Within a month of starting her three-year contract, she started raising red flags over the wholesale cancellation of pension funds which have been found to still have unclaimed benefits and other assets. Many fund administrators have established special purpose unclaimed benefits funds to receive transfer of these funds, though others have been accused of making little or no effort to find the beneficiaries.

Hunter became a thorn in the side of FSB management and was offered R6 million to leave. She declined, choosing to see out her full three years. She was subjected to disciplinary proceedings that were abandoned by the FSB after a day and a half. Several investigations were launched to pronounce on the legality of the cancellations project, and whether there were any unclaimed benefits in these cancelled funds. KPMG and Mort found there were indeed unclaimed benefits and other assets in some of these cancelled funds, based on a limited sample reviewed by them.

Sun City prisoners accuse staff of cheating them out of canteen money

Written by Ciaran Ryan. Posted in Journalism

This article first appeared at GroundUp.

Inmates at Johannesburg’s “Sun City” prison say officials have stonewalled their attempts to open a fraud case against staff members for cheating them out of profits from the prison canteens.

They accuse the staff of profiteering at the expense of inmates and also of withholding profits from canteen sales supposed to go to the prisoners’ sport and recreational facilities.

Sun City prison has two canteens, one for staff and one for the nearly 3,000 inmates. Till slips from the two canteens appear to show that inmates are being charged 20% more than staff for the same items. Inmates say this is in contravention of Section 118 of the Correctional Services Act which prohibits any staff member deriving “any benefit or advantage from the sale or supply of any article to or for the use of any offender or correctional centre.”

Long-standing prison policy is to add a 5% mark-up on items sold at the inmates’ canteen, with this 5% profit going to sports and recreation. This is in addition to the 5% of total profits inmates are supposed to receive from the staff canteen.

However, it emerged in a recent South Gauteng High Court case that prisoners had not received any share of profits from the canteen since 2011.

Deputy chairperson of the inmates’ Participative Management Committee (PMC) at the prison, Lucas Mokholo, says a complaint was registered with the prison’s complaints official, and a request made to open a case of fraud against staff members for unlawfully profiting from goods sold through the inmates’ canteen. He says the complaint was met with silence from prison officials. The request to open a fraud case with SAPS (South African Police Services) has likewise been stonewalled, despite promises of assistance from prison officials.

In January this year Sun City inmates brought an action against prison officials in the South Gauteng High Court after it emerged that prisoners were going up to 20 hours between meals because of a shortage of manpower, the result of a labour dispute.

Prisoners were being fed both lunch and supper at 1pm each day, and had to wait till 8am the next morning for their next meal. Judge SM Wentzel handed down judgment in June with an order compelling prison officials to space meals throughout the day and serve “a hot meal of meat and vegetables in the evening to sustain them until breakfast the following mornings…”.

Police investigate Tubular directors for fraud and corruption

Written by Ciaran Ryan. Posted in Journalism

This article first appeared in Moneyweb.

The Directorate for Priority Crime Investigation confirms that it is investigating various complaints against directors of Katenge Tubular Construction who are alleged to have illegally paid R25 million to the Industrial Development Corporation (IDC) in settlement of a loan facility owed by an unrelated company within the Tubular group. This was done without the consent of its board or the knowledge of its 30% BEE partner.

The Tubular group has recently been shrouded in controversy over claims of bribery and corruption related to Eskom and other contracts.

In July, Moneyweb reported that BEE partners in a subsidiary of Tubular Holdings had applied for provisional liquidation of Tubular Technical Construction (TTC) for defaulting on settlement payments of R24 million. The application for provisional liquidation was brought by Revenue Management and Protection Solutions (RMPS), the 30% BEE partner in Katenge Tubular Construction. The balance of 70% is owned by TTC. Katenge was formed in 2009 as a BEE company to secure construction contracts under the Tubular umbrella, and succeeded in winning contracts from Exxaro, Murray & Roberts and the Kalagadi group.

The application for the liquidation of TTC, now before the Pretoria High Court, claims money that should have been paid out as dividends to shareholders was siphoned off to other companies in the Tubular group, or in settlement of liabilities that had nothing to do with Katenge.

The two directors in control of affairs at Katenge were Antonio (Tony) Trindade and Pieter Vorster. Mike Lomas was chairman of the Tubular Group.

NCR spares no expense getting rid of “insubordinate” employees

Written by Ciaran Ryan. Posted in Journalism























This article first appeared in Moneyweb.

At first glance, Thandile Gubevu’s dismissal from the National Credit Regulator (NCR) in March may appear a relatively trifling matter, the kind of thing that goes on daily in the South African workplace.

But on closer inspection, Gubevu’s story is far from an isolated instance. Several other former NCR employees were dismissed under similar circumstances in recent years, suggesting all is not well at the credit regulator. In Gubevu’s case, and those of other dismissed employees, senior counsel was brought in at considerable cost to dignify what seems on the face of it a dysfunctional human resources policy. All of this paid for by the taxpayer.

Gubevu was employed in 2012 at the NCR as a research and special projects consultant, a mid-level position. By all accounts, he was a diligent worker and well-liked by colleagues, though some of his seniors held an entirely different view of him.

In November 2017, seemingly out of the blue, he was hauled into a disciplinary hearing and charged with insubordination, disrespectful conduct and non-adherence to standard rules and procedures. In one instance, Gubevu apparently paged through a magazine during a departmental meeting and failed to answer emails from his line manager, Ngoako Mabeba. Then, in apparent violation of internal rules, Gubevu engaged the services of a firm of attorneys to represent him in his dispute with the NCR.

Hardly explosive stuff, but Gubevu was suspended in July 2017, pending a review by an internal disciplinary committee chaired by an independent legal firm appointed by the NCR. In November the committee found him not guilty on all charges and recommended his suspension be lifted with immediate effect.

Not satisfied with the outcome of the disciplinary hearing, the NCR rejected the findings and dismissed him outright. Gubevu felt he had no choice but to approach the Pretoria High Court and ask it to compel the NCR to accept him back at work. The court came to the same conclusion as the internal disciplinary committee, dismissed all the charges, and ordered that Gubevu be re-hired.

Judge Manamela went further, awarding punitive costs against the NCR, with the following words: “Counsel for the respondent (NCR) submitted that there was no basis for a punitive cost order as the respondent pursued a very legitimate interest in in this matter. I disagree. The respondent’s conduct no matter the noble or legitimate nature of the underlying motives as suggested by his counsel, does not trump the fact that there was no logical or reasonable basis for the interpretation of the impugned policies offered by the respondent.” Judge Manamela further charged the NCR with bad faith in its disclosure of facts related to its disciplinary policies. That’s two strikes against the NCR. Armed with a court order, Gubevu returned to work, receiving a hero’s welcome from colleagues. However, the NCR wasn’t done with him yet. It dragged its heels in reinstating him as per the court order. Gubevu was forced to take the matter back to court, this time before Judge AJ Strydom, who confirmed the earlier court order by Judge Manamela. Judge Strydom ordered that Gubevu be reinstated.

Banks slapped down over home repossessions in Joburg court

Written by Ciaran Ryan. Posted in Journalism










This article first appeared in Moneyweb.

A full bench of the Johannesburg High Court ruled on Wednesday that repossessed homes must be sold with a reserve price in all but exceptional circumstances. This puts an end to illegal bid-rigging by syndicates operating out of sheriffs’ auctions. It also means repossessed properties must be sold close to market price, rather than for R10 or R100, as has happened in the past.

The court also ruled that when banks bring legal action against defaulting clients, the money judgment and sale in execution order (allowing the property to be sold at auction) must be issued at the same time. Some banks argued that these should be split, though for reasons that were not always clear – other than that it suits the banks’ lawyers to milk a case for as much in fees as possible by having the same facts heard twice.

Standard Bank in its court papers argued that the money judgment issued separately from the sale in execution (SiE) order placed pressure on the defaulting client to catch up on arrears. The court took a different view and wants the matters heard together. This reduces the legal costs for consumers, but may make it more difficult to delay justice.

As Moneyweb previously reported, Gauteng judge president Dunstan Mlambo ordered a full bench of the High Court to decide on four cases involving Standard Bank and Absa. The full bench of three judges was asked to decide on several issues, including the setting of reserve prices to avoid homes being sold at auction for a trifling amount, and whether banks should be awarded a money judgment at the same time as an SiE order.

Court rules were recently changed to allow for judges to set reserve prices. However, some judges applied the new rules while others did not. This case was about setting a standard across the entire court.

Advocate Douglas Shaw, one of the architects of the recent change in court rules allowing for the imposition of reserve prices, says the ruling is a major victory for bank clients: “It is unbelievable in this day and age that the banks would continue to argue for the right to sell repossessed properties without a reserve price, but this is what they have done. This ruling changes that by forcing judges to impose reserve prices except in exceptional circumstances.

“A second major victory for mortgage bond holders is that once you pay off your arrears, your mortgage contract automatically revives, and this is not something that is at the discretion of the banks.”

In its papers before the court, the Lungelo Lethu Human Rights Foundation (LLHRF), which defends people against eviction, says in hundreds of cases it has seen, there is nothing left for clients once a property is sold at sheriffs’ auctions. The practice of allowing properties to be sold without a reserve price meant these auctions became nesting grounds for bid-rigging syndicates, who have been able to pick up properties for a pittance and then on-sell them for massive profits. Once the lawyers had taken their share of the spoils, the plate was licked clean, leaving nothing for the dispossessed homeowner.

The court ruled that the power to reinstate a credit agreement lies with the consumer, not the credit provider, once the arrears and “reasonable” costs have been settled.

King Sibiya, co-founder of the LLHRF, says the ruling will make it extremely difficult for banks to evict clients from their primary residences. Eviction, be it voluntary or by force, is the inevitable consequence of an SiE order. He says upwards of 100 000 families have been evicted from their homes since the Constitution came into effect. “In their papers before the court, the banks claimed they use sale in execution orders only as a last resort. We say they are lying, and we presented abundant evidence to prove they are lying.”

The court also dismissed the banks’ claims that by setting a reserve price, there would be less interest from prospective buyers. “A reserve price will balance the misalignment between the banks and the debtors where execution orders are granted,” says the court ruling. “It ensures that the debtor is not worse off due to unrealistically low prices being obtained and accepted at sales in execution.”

Says Sibiya: “This ruling makes it more difficult to evict people from their primary residences, and the setting of reserve prices means they get to keep most of the equity in the home that they have built up over the years.”

The Legal Resources Centre, which represented the LLHRF in the case, says in a statement “we are hopeful that the setting of reserve prices in sales in execution will stop the practice of homes being sold on auction for next-to-nothing and create the possibility of a debtor recovering some money from the sale.”

Though the ruling applies to the South Gauteng High Court, other courts around the country will be under pressure to apply the same judicial standards.

The court made no ruling on at what level reserve prices should be set, other than to say that information about market valuations must be placed before the court when a bank is seeking judgment against a client. The reserve price will be based on all relevant information placed before the court.