The Public Protector has launched an investigation into the National Credit Regulator (NCR) and the National Consumer Tribunal (NCT). This follows a complaint to the protector that the regulator has “utterly failed” to fulfil its mandate and that the tribunal is “ineffective”.
The complaint was initiated by businesswoman and philanthropist Wendy Appelbaum and submitted by financial education company Summit Financial Partners. The pair were the driving force behind the highly publicised court case which successfully challenged unconstitutional parts of the law relating to the way in which emoluments attachment orders (EAOs) or garnishee orders can be imposed on debtor’s salaries. Although the main application was brought by the University of Stellenbosch Legal Aid Clinic, on behalf of consumers with EAOs, Appelbaum and Summit were the masterminds behind the case. Appelbaum also exposed the practice of “ghost bidding”, which led to the demise of Auction Alliance.
A source at the Western Cape office of the Public Protector confirmed to Personal Finance this week that an investigation had commenced.
Summit’s complaint to the Public Protector says the NCR has failed in its responsibility, as set out in the National Credit Act (NCA), to “promote and support the development… of a fair, transparent, competitive, sustainable, responsible, efficient, effective and accessible credit market and industry”.
The fact that nearly half of all credit-active South Africans are not in good standing with their creditors should prompt an investigation into the workings of the NCR, says the damning complaint.
Summit cites the number of investigations opened by the regulator versus the number of investigations completed since 2011/12. The NCR came into existence in 2006.
Since the publication of the 2011/12 annual report, the regulator no longer reports on the number of investigations concluded in the year under review (see NCR investigations), the complaint says. The 2014/15 annual report does not even report on the number of investigations opened. But, under the heading “reckless lending investigations” the report states that the regulator issued 23 compliance notices, and under the heading “special investigations and enforcement” it reportedly carried out four raids and took enforcement action in three cases.
The lion’s share of the NCR’s funding is from the state. The regulator also receives funding from other sources: fees paid by registrants – credit providers, credit bureaus, debt counsellors and payment distribution agents – and interest earned on money collected by distribution agents.
Funding from the government increases annually. In 2011, the NCR received R53 million and last year R65.7 million.
Last year, about R6 million was paid in bonuses, Summit says.
The complaint says that the NCR publicly stated that it was aware of probable misconduct by African Bank as far back as 2011 (the bank collapsed in 2014). Yet the regulator made no attempt to lodge “a full-scale investigation” into the bank, despite numerous complaints by consumers and debt counsellors.
Only after African Bank itself disclosed that it was in breach of the NCA, did the regulator act against the bank by calling on the tribunal to fine the bank R300 million for reckless lending, the complaint says. (African Bank has always contended that its auditors uncovered fraud in one the bank’s branches – the manipulation of affordability assessments resulting in reckless lending – and disclosed this to the regulator before the regulator called for the bank to be fined.)
Judging by the regulator’s reaction, it can be concluded that the bank had been found guilty of gross misconduct and contravention of the NCA, the complaint says. However, after entering into settlement negotiations, “the NCR seemed to change its tune” and accepted a fine of R20 million – or R280 million less than originally demanded.
Due to the settlement agreement reached between the NCR and African Bank, only consumers at the bank’s Dundee branch received relief, the complaint says. No other branches of African Bank were “extensively investigated”.
“On June 8, it was reported that the NCR refused to aid the Myburgh Commission’s investigation into the collapse of African Bank. Instead of answering questions pertaining to the R20 million fine, the NCR’s chief executive, Nomsa Motshegare, wrote a letter explaining that a request for information undermined the regulatory authority and decision-making powers of the NCR. As a result of the NCR’s lack of transparency, the Myburgh Report was unable to conclude that African Bank had been guilty of reckless lending,” the complaint states.
Given that “there is no incentive for debt counsellors to take on reckless lending themselves, and no provision to charge for such an application,” it is of paramount importance that the NCR fulfils its mandate in regulating all infractions, the complaint says.
According to the complaint, Summit identified approximately 5 650 cases of contraventions of the NCA, all of which were reported to the NCR via the regulator’s complaints system.
As an indication of how the regulator deals with complaints, Summit refers to a recent case of complaints against “mainly” Capitec Bank. The relief sought was dismissed because of a reference to the Promotion of Access to Information Act (PAIA) in the letters of complaint.
“It was stressed in the NCR’s reply that we wanted help specifically in terms of the PAIA, but we required assistance from the regulator to enforce rules already in place … It is the duty of the NCR to be supportive to complainants not familiar with the complaints process followed by the NCR. Instead of a bare dismissal of any complaints lodged, it is expected of the NCR to be helpful in either assisting complainants or to direct them to the appropriate body to get the relief sought. We were, however, simply informed that they now consider the complaints closed,” Summit’s complaint says.
The regulator is not shy to take credit for the work of others, the complaint says. Summit carried out an investigation into the conduct of the Lewis Group, specifically the selling of retrenchment insurance cover to unemployed and elderly customers – who would not be able to claim the benefits of such insurance.
The outcome of the investigation was sent to the NCR, “which promptly took credit for ‘pouncing on Lewis’.”
The complaint says that Summit is not alone in its belief that the NCR and NCT are not doing enough to fulfil their duties, “while lacking transparency and accountability”. The complaint refers to press reports on meetings of the Portfolio Committee on Trade and Industry, which has oversight over the NCR, where members of Parliament asked the NCR why nothing had been done to hold the Lewis Group accountable for contraventions of the NCA and why African Bank executives have not been prosecuted.
According to the complaint, Summit reported to the regulator that a microlender, A-Fana Cash Loans, was insisting on retaining the bank cards and PINs of borrowers. In response, the regulator carried out a raid and had the owner of the business arrested. However, the creditor is still registered and able to operate.
The NCA gives the regulator the authority to refer a matter to the National Prosecuting Authority for prosecution.
The regulator and the tribunal were invited by Personal Finance to comment on the investigation. Motshegare said the regulator was not aware of any investigation and would await contact from the Public Protector.
The statistics (in the table, link below, showing state funding versus court applications and judgments) clearly show the ineffectiveness of the National Consumer Tribunal (NCT) and that its primary mandate – to operate for the benefit and protection of consumers – is being neglected, Summit Financial Partners says in its complaint to the Public Protector.
It says a large portion of state funds is being directed to the top-tier executive and managerial staff, which can only be acceptable if the tribunal fulfils its mandate, as required by law.
According to the complaint, in a recent case between the National Credit Regulator (NCR) and Capitec Bank, the tribunal ruled that it did not have the right to investigate and prosecute the bank because the regulator could not prove that it had received a complaint from an “external” party.
“The tribunal’s focus on procedural and technical issues has been criticised before, confirming that the above case is not an isolated one. It was reported that the infamous ‘holiday club case’ was halted due to red tape, depriving consumers of relief. The pause in the case came when the National Consumer Commission (NCC) filed an application that was not procedurally in line with the NCT’s new rules. The NCC was not aware of the changes in the NCT’s procedures and the NCT was criticised for enforcing rules without the insights of a key stakeholder, such as the NCC. This is another example of the ineffectiveness of the tribunal.”
Summit refers in its complaint to the University of Stellenbosch Legal Aid Clinic case, which was taken to the High Court because of the NCR and the NCT’s “refusal to act”.
“Private individuals were forced to approach the High Court directly in order to obtain justice. The applicants in that matter were low-income consumers in financial dire straits. Were it not for the generosity of benefactors, they would, in all likelihood, have continued to be exploited while the NCT made no attempt to come to their aid.”
Summit says there is a connection between the ineffectiveness of the NCR in investigating matters and the reluctance of the NCT to make a meaningful decision.
“If the investigating body does not operate as it should, the judicial body is at a disadvantage and cannot operate in line with its mandate. The NCR’s ‘influence’ is the basis for the complaint against the NCT,” the complaint says.