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 Credit card debts scandal
    Edwin Naidu
    April 22 2007 at 09:21AM 		Get IOL on your
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Financial institutions have been accused of taking advantage of their customers by increasing the interest they charge on credit cards without adequate notice - and before new laws regulating credit come into effect on June 1.

Most lenders have increased their interest rates on credit card debit balances by between two and three percentage points in the past month.

Standard Bank confirmed that interest rates on debit balances had gone up from 17 percent to 19 percent, and from 20 percent to 22 percent, depending on the card held.

First National Bank pushed up its fees from 17 percent to 20 percent. Nedbank's debit interest rates range from 16,5 percent on its platinum card to 19,9 percent on its classic and gold cards.
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Absa also announced a price hike, effective on April 1. Holders of silver cards are now charged 21 percent interest if they have a debit of under R10 000 and 17 percent if they exceed that amount. Holders of platinum cards are charged 19,5 percent on debit balances of less than R10 000 and 16,5 percent on larger amounts.

South Africans owe almost R40 billion on their credit card accounts.

The banks have justified the interest rate increases by saying that they did not pass on an increase in interest rates imposed on them by the Reserve Bank last year.

That increase resulted from changes to the Usury Act, initiated by the National Credit Regulator (NCA). To comply with the Usury Act (and NCA requirements from June), banks will charge an interest rate that varies with the repo rate (the rate at which the Reserve Bank lends money to financial institutions, currently 9 percent).

But credit card holders have not been adequately informed of the changes, according to consumer groups.

"Credit providers have no right to unilaterally increase interest charges on outstanding credit card balances," said Shawn Bartlett, of Johannesburg law firm Deneys Reitz.

He said increasing the interest rate was tantamount to changing the terms of the contract between the cardholder and his bank. He said financial institutions should not able to do this, even if there were changes to the repo rate.

"Banks are not allowed to make such changes, it is prohibited by the regulations," Bartlett said.

He said newly issued credit cards would be subject to the new interest rates but existing accounts should be maintained at the rates in force before the rates were "quietly pushed up".

"Banks say that by issuing statements they have informed their clients of what is taking place, but that is wrong and is against the spirit of the act. They're not just breaking the law, there seems to be an element of opportunism," he said.

"It's not great business practice and borders on the unethical."

Ina Wilken, the chairperson of the South African National Consumer Union, said financial institutions should provide adequate reasons for pushing up interest rates instead of hiding behind legislation.

"I cannot recall seeing any notification from banks announcing the interest rate hikes on debit balances … their conduct is not ethical and does seem like opportunism," she said.

Wilken said banks have been increasing the credit available to cardholders because, from June 1, they would be compelled to review credit profiles before handing out credit.

"Consumers do not realise that this means they will have to pay much more interest," she said.

She said there had been no outcry from consumers about the interest rate hikes on credit cards.

"We cannot carry on being apathetic over price hikes, bad service and the ever-increasing costs of basic foods and health commodities. If consumers just accept what is given to them, the message we give to the retailers and the government is: 'You carry on doing whatever you like, we'll pay'," she said.

Thami Bulani, the head of the National Consumer Forum, said he was concerned that people were being sucked deeper into credit and that there would be problems when higher interest rates made monthly repayments higher.

"Consumers are being taken advantage of. We are extremely worried about the behaviour of the financial institutions," he said.

Graham Holmes, the head of consumer card services at Nedbank, said the interest rate charged depended on the type of account.

"This is allowed by the law. The recent increase was, in part, a response to a change in the maximum rate allowed by the Usury Act. Prior to this, the Usury Act rate wasn't changed despite the recent cycle of increasing repo rates," he said.

Holmes said more flexibility in setting interest rates would help financial institutions to give credit to people previously considered bad risks.

"Often these people are forced into agreements with micro-lenders, who charge significantly higher interest rates," he said.

"We did tell clients of the increase in debit interest rates on their statements. The information is also on our website."
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