You might have read that the National Credit Regulator (NCR) referred 13 micro-lenders to the National Consumer Tribunal for reckless lending, failing to provide pre-agreement quotations to consumers, and other misdeeds. The press release issued by the NCR when it made this announcement states that the regulator is “intensifying its effort to detect reckless lending”.
Unfortunately, I can’t muster anything but a cynical response to this. Yes, it’s good that the regulator is going after errant credit providers. What I have a problem with is that the NCR is hunting easy prey. Where is the “intensive effort” when it comes to tackling the more powerful credit providers, such as the big banks?
A friend received the following SMS from First National Bank (FNB) recently: “You’re about to reach your credit card limit. You qualify for a R297 700 limit increase, valid till 17/03/2016. Go to www.fnb.co.za to apply.”
Her credit card limit is R31 000. She owes about R27 000 on the card. “I manage to keep it at about that, paying about R3 000 a month, but spending about R2 000 a month on it,” she says.
She was horrified by the offer to increase her credit limit tenfold.
“A cursory glance at my banking history would show that there is no way on earth I could afford that sort of credit, especially considering I’m self-employed and my income is erratic and doesn’t get paid into my account at any set time.”
It gets worse.
“I frequently take out short-term loans from FNB to buy food. The bank is privy to this information, if they just checked my account.”
After receiving the SMS, she phoned FNB to find out how the bank could make her such an offer. “I called the number for Premier clients, and was told they would have to find out where the SMS originated before they could comment. But they never came back to me.”
Five days later, she received another SMS, reiterating the offer to increase her credit card limit to R297 700, as well as an email offering her a personal loan of an undisclosed amount, with a sweetener to “enjoy a fixed interest rate based on your individual risk profile, with repayment options up to 60 months” as well as “a payment holiday in January”.
“FNB really seems to want me to get into some serious debt with no fixed income to bail me out. I am appalled,” she says.
She’s not the only one. Stephen Logan, an expert in the National Credit Act (NCA), says a practice such as this is “reckless”. He says the bank is out on three strikes:
* The consumer clearly cannot afford the credit offered to her;
* The bank has detailed knowledge of her affairs; and
* The customer’s use of credit indicates she’s probably over-indebted, which is acknowledged in the SMS – “you’re about to reach your credit card limit”.
In terms of the National Credit Act (NCA), a credit provider can present a consumer with a “written proposal” to increase a credit limit. FNB’s SMS constitutes a proposal. If the consumer accepts it, the credit provider must carry out a new affordability assessment.
“It’s very concerning,” Lesiba Mashapa, the company secretary at the NCR, says commenting on FNB’s SMS.
Nico van Staden, the head of credit for FNB Credit Card, says: “All credit granted in terms of the NCA is based strictly on the customer information meeting the bank’s credit and affordability assessment criteria. These criteria include transactional behaviour on the personal cheque account. All offers are subject to a full credit assessment and agreement [acceptance] from the customer.”
But that’s not what the offer says. It says, “you qualify for a R297 700 limit increase”.
After Personal Finance contacted FNB, my friend received a phone call from Tania de Jager, the divisional manager of private clients at FNB, to address her “complaint”.
“It wasn’t a complaint; it was an enquiry,” my friend says. “It’s a shame it took a journalist asking questions for FNB to respond to me.”
In a nutshell, FNB’s response was to assure her that the bank complies fully with the NCA, and that if she had accepted the offer, the bank would have done an affordability assessment.
What a daft strategy to tell customers that they qualify for a higher credit limit before assessing whether or not they can afford the additional credit! Imagine you are a customer who gleefully accepts such an offer only to be told later that you actually don’t qualify for it. This strategy could well be working for FNB, because it induces customers to consume more credit. But it’s doing nothing to encourage the responsible use of credit, because the message is, “We see you’re reaching your limit; have some more credit!”
This week, a debt counsellor told me of an FNB customer who wanted to do renovations and applied for a home loan of R150 000, but was declined on the basis of a lack of affordability. The repayments on the home loan would have been about R1 500 a month. After being declined by FNB, the customer received an unsolicited offer of a personal loan from DirectAxis (FNB is a division of FirstRand, which owns a major stake in DirectAxis). Her instalment: R4 800 a month. She passed the affordability assessment by DirectAxis. Surprise. Surprise. (Interest on an unsecured loan is substantially higher than interest on a home loan.) We’ve seen this movie before.
FNB’s payoff line “How can we help you?” might as well be “How can we help you to take out loads of the most expensive credit?”.