Thousands of black homebuyers on the books of FNB have been overcharged by up to 100 percent, according to bond recalculator Emerald van Zyl.
The home loan accounts were inherited by the banking giant when it took over the bond book of failed finance provider Saambou in 2002. But Van Zyl says FNB has done little to sort out the problems left behind when Saambou crashed.
Van Zyl, who has been fighting Saambou overcharges since he discovered his own bond had been miscalculated, said each of his nearly 2 000 clients had been overcharged by the bank, but black home buyers suffered far more excessively than whites.
Black bond holders were overcharged by R60 000 on bonds of R60 000 on average, Van Zyl found. In the case of their white counterparts the average overcharge stood at R20 000 on R200 000 bonds – only 10 percent, as opposed to the 100 percent overcharge for black home buyers.
Earlier this year, Weekend Argus reported Saambou had overcharged home loan clients across the board to the tune of R2 billion – firstly by charging interest in advance, and secondly by charging interest at rates out of line with those set by the Reserve Bank.
Just how bad the discrimination was against blacks emerges from a comparison of four bond accounts, two held by whites and two by blacks.
In the case of the white bond holders, analysis shows interest rates did in fact fluctuate from Reserve bank settings – but never by more than 0.75 percent.
The disparity can be linked to Saambou failing to register timeously fluctuations which favoured the client when prime lending rates were adjusted by the central lending institution.
On the two black-held accounts (accounts A and B), however, the home owners were routinely paying between three and six percent interest above the levels agreed in the original bond contract.
In addition, interest had been levied in advance on Account A, creating a situation in which, in the first three months, the bond holder paid over 40 percent interest each month – way more than the maximum interest rates set out by the Usury Act.
The overcharges on all four accounts continued even after FNB took over the bank’s home loan book in 2002.
In July 2002, the holder of Account A was paying 20.25 percent interest – 4.75 percent more than the agreed upon rate.
By December 2009, the home owner was still being charged an additional 4.75 percent interest every month – seven-and-a-half years later.
Similarly, Account B was paying 3.25 percent more interest than agreed upon, from 2002 right up until the end of 2009.
The white account holders were overcharged by only 0.25 percent per month over the same period.
“With current interest rates of just over 10 percent, an overcharge of 3.25 percent amounts to a 32 percent extra payment for interest (Account B) or an overcharge of 4.75 percent, a nearly 50 percent overpayment in the interest bill (Account A). Think of what this means for FNB profits – nearly an extra 50 percent income with no associated costs on these accounts,” said forensic accountant Greg Johnson.
He estimates that if FNB inherited 40 000 similar accounts from Saambou and the average overcharge was 35 percent (estimated by looking at the overcharges on accounts A and B), FNB would be earning an estimated R70 million per year – one percent of the R8 billion profit it posted in the last financial year.
He also says that if interest had been correctly charged, both accounts A and B would already have been settled in full – though current statements show the bond has hardly been brought down at all.
Van Zyl said that none of the accounts he had looked at had been risky – the bond holders had been good payers and had not defaulted on their loans.
In 2006, First Rand Bank launched a massive campaign to pay back the interest in advance overcharges on 50 000 accounts – but this amount, R154 million, did not factor in the much bigger error of the interest rates – which Saambou would either not drop when the Reserve Bank dropped the prime lending rate, or did not drop it sufficiently.
According to an affidavit that Saambou curator Tobias John Louw made in 2002, Saambou’s mortgage loan book was valued at R5.4 billion.
They had, in addition sold R2.6 billion worth of mortgage loans to First Rand Bank before his appointment.
FNB spokeswoman Virginia Magapatona refused to comment on the overcharges, saying “the issue of the movement of interest rates is sub judice”.
She declined to comment on the overcharges “subject to litigation”.
However, she insisted the bank denied “in the strongest possible terms that it engages in discrimination of any form”.
In response to questions as to why the overcharges on white accounts were less than on black accounts, Magapatona said: “Your comments as they may be directed against FNB are misplaced, incorrect and insofar as may be necessary are denied.”
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