Credit providers are giving credit to consumers who are already so indebted that they are under debt administration. And this is happening on the administrator’s watch.
A consumer with an administration order is a consumer in financial dire straits, to the extent that an administrator is in charge of making sure that the consumer’s creditors are paid. In terms of the National Credit Act (NCA), it is unlawful for a credit provider to give credit to a consumer under administration without the administrator’s consent.
Yet, at least two of the big banks have apparently done just that. Factory workers in Durban have been granted loans by First National Bank (FNB) and Standard Bank in spite of them being under administration.
Leon (full name withheld) went under administration in October 2010 with debt of about R12 500. But within two years, his debt had nearly doubled, to R22 000.
A letter sent in June 2012 from Leon’s administrator to his employer states that the “updated amount outstanding” is R21 748 and it provides a breakdown that shows about R2 000 owing to African Bank, three loans from First National Bank totalling about R16 000 and one from Capital Consulting of about R3 800.
The “updated” outstanding amount was given to Leon’s employer because it pays his administrator, Anand Mohan Sinayhakh, via an emoluments attachment order (EAO). An EAO is a court order compelling an employer to deduct from an employee’s wages money owed to creditors.
The letter to Leon’s employer indicates he has acquired new debt: the three loans from FNB. Leon admits he took the loans in 2011 after he went under administration, but says he didn’t know he wasn’t allowed more credit.
Sinayhakh denies that the debts are new ones; he says FNB is listed as a creditor on Leon’s administration order. The inflated balance is due to the administrator having obtained updated balances (“certificates of balance’’) from Leon’s creditors. When debtors apply to go under administration, their balances are “not always accurate”, Sinayhakh says. But he offers no explanation as to why it took almost two years for him to obtain these balances or why there is such a huge discrepancy in the amounts: R21 700 versus R12 500.
Personal Finance asked Sinayhakh if he had given consent to FNB to grant credit to Leon. He says at “no stage of the operation of the administration order did Leon make application to me for permission to make application for a loan, nor did I receive any correspondence from his credit providers to that effect”.
Kuben Gounden, the head of collections at FNB, denies that the bank granted loans to Leon in 2011 (while he was under debt administration). The loans were granted in 2009, Gounden says. “After numerous attempts were made to try to recover the funds, the bank opened bad debt recovery accounts in 2011, with new account numbers.”
But that’s not what the bank’s debt review department says. An FNB call centre agent says in a voice recording heard by Personal Finance that the loans were issued in 2011.
The agent was speaking to Deborah Solomon, the founder of the DCI, a debt counselling industry portal and company that offers debt counselling services. Solomon is trying to help Leon resolve his debt problems.
She contends that the FNB loans were granted “recklessly and unlawfully”. In December last year, Solomon asked FNB for: a copy of Leon’s credit reports and pay slips drawn at the time he applied for the credit on all three credit agreements; a copy of each of the credit agreements along with the affordability assessments and a full statement for each credit agreement from inception to date.
The bank has not provided any of these, Solomon says. It has, however, provided a “certificate of balance” on each account. These state that one loan was granted in September 2011 and two loans were granted in October 2011. All of the loans were taken over 60 months.
Solomon says that if the loans were issued in 2009, the debts have prescribed, or lapsed, because the bank did not start civil proceedings to recover the debt within three years of the last payment.
“If the loans were issued in 2011, as per the certificate of balance, then they were granted recklessly, because he could not afford the loans; he earns R963 a week. They were also unlawful, because he was under administration.
“Either way, he should not be held liable for this debt, especially if it was incurred on the administrator’s watch. How could the administrator, who is appointed by the court to take care of the consumer’s estate, allow the consumer to incur more debt?” she says.
Solomon says it is possible that an administrator could be unaware that a consumer is taking on more debt, but it would eventually come to the administrator’s attention. When the creditor tries to collect the debt, the creditor would pick up on the consumer’s credit report that the consumer is under administration and would then claim payment from the administrator.
“At that point, the administrator, who is in charge of the debtor’s estate, should call the creditor to account for giving the consumer credit while the debtor is under administration. But he has no incentive to do so, because his fee is a percentage of the amount he distributes to creditors.”
She says the creditor’s duty of care, which is a duty to act prudently when it lends money, is all the more weighty when the customer is a blue collar worker who is semi-literate.
“This doesn’t mean that these customers aren’t responsible for their actions or their debts, but it does mean that the credit provider should act like a parent in the relationship. Besides, the credit provider has access to the customer’s credit report, so it’s easy to check if the consumer has an administration order, before extending credit. Any responsible credit provider would do that at the least, and refrain from lending to such a consumer,” Solomon says.
Consumers are induced to go under administration not understanding what it entails or what it costs, Solomon says. “They might get handed a flyer at a station or taxi rank. Then they’re told that if they pay R50 a week, in five years all their debt is paid, which isn’t true. But it’s presented as a quick fix.”
When semi-literate workers go under administration, they never hear from the administrator again, and never get statements, Solomon says. “I don’t believe that it was ever explained to Leon that an administration order means that he can’t have more credit,” she says.
When Personal Finance contacted Sinayhakh on the number on his letterhead, the call was answered by some- one at “Capital Consulting”. Personal Finance then emailed questions to Sinayhakh, asking him to explain the R3 802 fee to Capital Consulting.
“I am prohibited to disclose information pertaining to any matter other than to the vested interested parties,” he said. “Capital Consulting is a debt management company rendering advice, assessments and administration solutions,” he said.
An administrator is entitled to charge an initial fee for taking the consumer under administration and getting the order granted. That fee would have been due to Sinayhakh prior to any distribution being made.
Solomon has lodged a complaint against FNB with the National Credit Regulator. “But there is no one regulating administrators,” she says.
STandard Bank loans
Sibongile is a co-worker of Leon’s. She was granted an administration order in July 2008. The order was for about R12 842, stemming from loans from African Bank in 2006 and 2007. But in 2012, after going under administration, she took two personal loans from Standard Bank, and another in 2013.
When Solomon reviewed Sibongile’s debts, she saw the Standard Bank loans and asked the bank to provide a copy of its affordability assessment plus copies of Sibongile’s credit report and pay slip drawn at the time of the applications for credit, copies of the credit agreements and a full statement for each credit agreement from inception to date.
About three months later, the bank’s reckless lending unit provided a copy of the affordability assessments plus copies of Sibongile’s pay slips and bank statements, but no copies of her credit report.
“We confirm that the required bureau checks were conducted as part of the credit evaluation process, which indicated that the customer did not have an administration order in place at the time of application. This is also confirmed by the customer by way of signature on the attached affordability assessment,” Standard Bank said.
Sibongile’s Experian credit report drawn last year clearly shows she has been under administration since 2008.
In 2013, when her administrator, Johannes van der Merwe Booysen, re-issued the EAO to her employer, it was for a balance of R5 922. The order states that “sheriff fees and administrators fees to be added before last payment”.
Solomon has since had the administration order rescinded and taken the consumer into debt counselling. She has reported Standard Bank to the regulator for reckless and unlawful lending.
Standard Bank declined to comment.
DEFINITION
An administration order is a debt-relief mechanism governed by the Magistrates’ Courts Act (MCA), for people with debts of less than R50 000. Administration protects you from your creditors. It predates the National Credit Act (NCA), which introduced debt counselling. Under the NCA, it’s unlawful for a creditor to give credit to a consumer with an administration order, unless the administrator gives consent. Under the MCA, it’s a criminal offence for a consumer to incur debt without disclosing that he or she is subject to administration. A person guilty of doing this can be imprisoned for up to 90 days.