Eight years after the collapse of Saambou Bank, thousands of former clients continue to be ripped off as FirstRand Bank - the financial institution which stepped into the economic breach to take over the Saambou bond book in 2002 - fails to rectify the dubious accounting practices that led to Saambou bondholders being overcharged to the tune of R2 billion in the first place.
This is according to a hard-hitting team of forensic experts threatening to drag FirstRand and its subsidiary, FNB, through the courts to force them to clean up their act and pay back about R2bn owed to former Saambou bondholders as a result of systematic overcharges in monthly payments.
While FNB five years ago admitted to one of the faults that corrupted the Saambou bond book - and moved to rectify the problem - the forensic trio alleges this only addresses a small fraction of the problem - just over R150 million.
The initiative is driven by bond recalculator Emerald van Zyl - who has long campaigned against the overcharges - backed up by forensic specialists, accountant Gregory Johnson and scientist Dr David Klatzow.
Already, Van Zyl, using accounting software designed by Johnson, has stopped 164 sales in execution arising out of supposed arrears in the bond book FirstRand got from Saambou, with only two clients he has represented found genuinely in arrears.
The majority of Saambou bondholders were civil servants - teachers, police officers and government bureaucrats in the low-income housing category - who were deliberately targeted for home loans during a massive drive by Saambou between 1989 and 1993. In regular and stable employment and in a position to pay bonds by monthly debit orders against salaries, this grouping was identified as low risk by the bank.
According to the Van Zyl team's calculations, those most affected were people who held small bonds of between R15 000 and R30 000 each. Just how badly the holders of such bonds were overcharged can be measured from the fact that the average overcharge, with interest, as calculated by Johnson, is R74 420.
Klatzow describes the bank's treatment of the bond accounts as "wrong - in both the legal and the moral sense".
But just what went wrong?
Johnson, who has developed software that enables the accurate calculation of bonds, explains there were, essentially, two mistakes in the way Saambou calculated their bonds.
First - as highlighted in a Carte Blanche expose in 2005 - for years before its eventual demise, Saambou was incorrectly charging interest in advance on the bond payout. That is to say, when the bond was granted and paid out to the client, interest was immediately charged on the whole amount, even though the bond holder had not yet had use of the money.
Then at the end of the first month, interest was charged again. This meant that in the first month, the client was charged interest twice.
Now here is where the bond holder gets into trouble. In the first stages of paying off a bond, payments are calculated in such a way that the largest part of the instalment goes towards paying off interest, rather than the capital sum. In the situation where the total sum has been inflated by the additional (advance) interest charge, the monthly payment is no longer big enough to cover both interest portions and the capital portion.
The result - as thousands of Saambou bond holders discovered - is that you start out in arrears and get caught in a debt trap where you pay many thousands of rands more than envisaged. In extreme cases you could end up never paying off your bond completely
As Johnson explains the calculations: "If you are repaying a R200 000 bond over 20 years at 20 percent interest, your monthly repayment would be R3 397.65. Because of the way Saambou calculates interest in advance, after 20 years, you would still owe Saambou R° 089 - while your bond would have been completely paid off at one of the other banks. You would continue to pay R3 397.65 for a further 10 years to Saambou before your bond was settled. You would therefore have paid Saambou R407 718 more than had your bond been provided by another bank."
Charging of interest in advance is not only incorrect, but a contravention of the Usury Act. Banks were warned not to do it in 1990, but Saambou only stopped charging interest in advance in 1999.
FNB head of corporate communications Virginia Magapatona admits that FNB was aware of "the legacy problems (arising from interest calculation methods) embedded in Saambou's Home Loan accounts" prior to their takeover.
"In September 2002, the Saambou Receiver placed adverts in major papers inviting claims by potential creditors - mostly home owners affected by the incorrect calculation methods.
"Only a handful of claims were raised and on September 2005, FNB took the decision to actively reimburse affected customers, even though they had not claimed. Thus, no Saambou customer had to submit a claim, as FNB took the position that every account had to be recalculated," Magapatona said.
In all, 80 000 accounts were recalculated, and FNB repaid R154m to 50 000 account holders.
However, Johnson said this figure took no account of the second, much bigger error uncovered in the original bond calculations - the way the bank responded to fluctuations in the interest rate. What Saambou was doing, Van Zyl, Klatzow and Johnson say, was raising interest rates when the interest rate went up, but not dropping them, or not dropping them in line with Reserve Bank stipulations, or, again, delaying when the interest rates came down again.
The net result of such inconsistencies, the Van Zyl team says, was an overcharge across the bond book that runs into billions of rands - an overcharge that has yet to be addressed by FirstRand Bank. Because of the errors in the calculation of interest, customers who had signed contracts stipulating a specific interest rate with Saambou have found themselves paying, in some cases, several percent more interest than they should.
In 2005, the Supreme Court of Appeal, in a matter between Absa bank and Johannes Lombard, addressed this same issue and ruled that if the rate was adjusted upwards in an increasing rate cycle, then it must be adjusted downwards in a decreasing one.
The battle is now getting FirstRand Bank into court to dispute the matter, something which Van Zyl has battled to do for years.
He says the bank is dragging its feet.
In 2006 FNB offered to pay the legal fees of anyone who wanted to take up legal action to dispute their bonds.
Very few of these matters have reached court.
"I've faced an Everest of a battle to try to get FNB to court," Van Zyl says, but apart from in a few cases, the issue has remained steadfastly unresolved.
What happened to Saambou bank?
- Saambou bank was put under curatorship in 2002, following a run on the bank that saw customers draw nearly R1 billion of their money in the space of a few days.
- With billions in debt to recoup, parts of Saambou were sold off piecemeal.
- The personal loan book, valued at R2.8bn, was sold to African Bank for R1bn.
- The bank's asset arm, Planet Finance, was sold to Imperial Bank for R838 million and various smaller assets were sold off.
- FirstRand Bank stepped in, taking over the claims against and shares in Saambou bank.
- The money that was not recouped from the Saambou assets was covered by taxpayers.
- Three of the bank's directors were arrested on 13 charges including fraud and contravening the Companies Act, but in 2008, Charles Edwards and Gerhardus de Clercq were cleared by the Pretoria High Court. The third, Johan Myburgh, died in 2007.