Class action lawsuit aims to shut down scam lenders

Written by Ciaran Ryan. Posted in Journalism

Thousands of loan applicants deceived into signing monthly debit orders for unrelated services. From Moneyweb.

The Law Clinic has applied for an ‘opt-out’ class – meaning anyone who has been affected is assumed to be a member of the class unless they specifically opt out. Image: Supplied

The Law Clinic has applied for an ‘opt-out’ class – meaning anyone who has been affected is assumed to be a member of the class unless they specifically opt out. Image: Supplied

Stellenbosch University Law Clinic is bringing a class action suit to the Western Cape High Court, to stop internet loan lender Lifestyle Direct and 18 other respondents from deceiving the public into applying for bogus loans.

Customers who signed up complained that they did not receive any loans, but had their bank accounts debited for so-called “legal services packages”.

Read: Landmark court case seeks to stop over-charging by creditors

The Law Clinic also wants the court to stop Lifestyle from debiting the accounts of people who applied for what they thought were loan agreements, and from harassing or threatening them for payment.

Henno Bothma of attorneys Abrahams & Gross, which is defending most of the respondents, says Lifestyle intends defending the case. “Our instructions are to oppose the matter.”

Asked how Lifestyle intends to answer the claim of misleading the public, Bothma says numerous clients who qualified for loans were referred to lenders and received loans. “Our case will be more fully laid out in our opposing affidavit,” he says.

‘Unconscionable’

The Law Clinic says the lending practices of Lifestyle violate the Consumer Protection Act and are “unconscionable, unjust, unreasonable or unfair”. It wants any money deducted from consumers misled by these websites to be returned to them, as well as for the respondents to compensate them for wasted bank charges.

The loans are offered to the public via websites such as Loan Quest SA, Loan Locator SA and Loan Hub SA, none of which are registered credit providers.

The websites offer loans of up to R200 000 with no credit checks and a “hassle-free application process”.

Complaints started dribbling through to consumer website Hello Peter in 2016 when ‘loan applicants’ reported funds disappearing from their accounts, followed by harassing phone calls, after filling out what they assumed to be an online loan application. The dribble became a flood, with thousands of complaints online by consumers who have fallen victim to these scams.

There is also a Facebook group called ‘Action Against Lifestyle Legal, Loan Hub SA and other scams’.

Those who signed up thought they were applying for a loan or for assistance in finding a loan. They did not believe they were entering into an agreement to purchase unwanted services.

All the websites have virtually identical terms of service and legal disclaimers, and require the applicant to provide the date of salary payment to facilitate successful debit orders.

Deception intentional

The purpose of the websites is to deliberately mislead the public, says the court application. Some offer a 30-day cooling-off period during which applicants can cancel the agreement, but none knew they had entered into an agreement. Consumers also report that their pleas to cancel the unwanted agreements during this cooling-off period fell on deaf ears.

The Law Clinic has applied to the court for an ‘opt-out’ class – meaning anyone who has been adversely affected is assumed to be a member of the class unless specifically opting out.

In an affidavit before the court, the Law Clinic’s senior attorney Stephan van der Merwe says hundreds of complaints were received from members of the public who had visited one or more of the dozen websites operated by Lifestyle, which appear to offer loans or free loan-finding services.

Unrelated ‘services’

The websites all employ the same modus operandi: they invite consumers to submit an application online for what appears to be a loan or a loan-procuring service. Buried in the terms of service, consumers submitting applications are deemed to have entered into an ‘agreement’ for a service that has nothing to do with loans, such as “telephonic legal advice assistance”.

The agreement is usually for a fixed term of 12 months, with an initial subscription fee of R399 to R429 a month.

Consumers are required to fill in their bank account details as part of the loan application process, but what they appear not to realise is that they have consented to a monthly debit order against their bank accounts.

“Attempts to cancel the ‘agreements’ and to stop the debit orders are met by stonewalling and threats from companies behind the websites,” says Van der Merwe’s affidavit.

Most of the applicants for these loans are poor and often desperate people, he adds.

Despite acres of adverse publicity over the years, Lifestyle “continues to operate this scam with impunity and the number of consumers harmed is continuously growing”.

The Law Clinic is asking the court for recognition as a class, and for an interim interdict to shut down the offending websites and a prohibition on Lifestyle harassing and threatening ‘customers’ for the recovery of bogus debts.

One of the applicants in the case is Ignatius Heyns, who submitted an application through the Loan Zone SA website. Loan Zone SA then debited his bank account. Heyns reversed this, but was then hit with demands for payment and threats of “punitive” action.

The more-than-a-dozen websites offering loans are making fraudulent misrepresentations to the public, says the Law Clinic.

The websites are all connected to each other and to company directors Damian Malander and Nandie Paich.

All but one of the companies that operate the relevant websites were registered on the same day (May 20, 2015), and all share the same directors, namely Malander and Paich. Their websites are also hosted on the same server.

On June 10, 2016, Malander resigned as director of some of the companies and was replaced by Paich.

Lifestyle Legal, a subsidiary of the Lifestyle Direct Group, plays a critical role in the scam, says the Law Clinic.

Lifestyle Legal is a registered debt collector and the group’s in-house collections agency.

When a customer fails to make payment in terms of an ‘agreement’ allegedly concluded through one of the websites, they are handed over to Lifestyle Legal for debt collection.

In one case cited by the Law Clinic, after interacting with one of these websites, a consumer’s bank account was debited by an entity called All Wheel Auto (Pty) Ltd, despite the fact that the consumer had no prior interaction with the company. Malander is also a director of this business.

The case for the interdict to stop these websites from operating in this misleading way (or at all) will come before the court on November 27.

Ciaran Ryan

The Writer's Room is a curated by Ciaran Ryan, who has written on South African affairs for Sunday Times, Mail & Guardian, Financial Mail, Finweek, Noseweek, The Daily Telegraph, Forbes, USA Today, Acts Online and Lewrockwell.com, among others. In between he manages a gold mining operation in Ghana, and previously worked in Congo. Most of his time is spent in the lovely city of Joburg.