National Credit Regulator v A-Z Micro Loans CC (NCT/78949/2017/57(1)) [2018] ZANCT 3 (28 February 2018)

IN THE NATIONAL CONSUMER TRIBUNAL

HELD IN CENTURION

Case Number: NCT/78949/2017/57 (1)

In the matter between:

NATIONAL CREDIT REGULATOR APPLICANT

And

A-Z MICRO LOANS CC RESPONDENT

Coram:

Adv FK Manamela - Presiding Member

Ms Nomfundo Maseti - Member

Mr Andisa Potwana - Member

Date of the hearing: 13 February 2018

JUDGMENT AND REASONS

INTRODUCTION

1. The Tribunal is asked to cancel the registration of a Registrant, A-Z Micro Loans, the Respondent in this matter. The NCR is the Applicant in this matter. The Applicant seeks an order in terms whereof the Respondent is found to be in repeated contravention of the National Credit Act[1] and the Regulations by: “failing to conduct affordability assessments; charging consumers fees or amounts in excess of what the NCA allows and costs not permitted by the said Act; and failing to keep records of steps taken when conducting affordability assessments. The Tribunal is further asked to make a finding of reckless lending in view of certain transgressions allegedly perpetrated by the Respondent, and for this and other grounds mentioned, the Respondent’s registration be cancelled, and an administrative penalty imposed.

THE PARTIES

2. The Applicant is the NATIONAL CREDIT REGULATOR (“the NCR”), an organ of state and a juristic person within the public

administration, established in terms of Section 12 of the National Credit Act 34 of 2005. The NCR has its address at 127 Fifteenth Road, Randjespark, Midrand, (“hereinafter, the Applicant”).

3. The Founding Affidavit of the Applicant is deposed to by Ms Jacqueline Peters, the Manager for Investigation and Enforcement in the employ of the Applicant. At the hearing, the Applicant was represented by Mesdames Sphiwe Mashaba and Katharine Germishuys, both legal advisors from the NCR.

4. The Respondent is A-Z MICRO LOANS CC (“A-Z Micro loans”) a registered credit provider (NCRCP 1636) in terms of section 40 of the NCA. The Respondent has its physical address at Shop 4, Donna Cheese Borough Building, Meriam Avenue, Vereeniging, Gauteng

province. The Respondent was represented by Mr Daniel Gerhardus Perold, the legal advisor of the Respondent.

RELIEF SOUGHT

5. The Tribunal is asked to cancel the registration of a Registrant, A-Z Micro Loans CC. The Applicant also seeks an order in terms whereof the Respondent is found to be in repeated contravention of the National Credit Act>[2] and the Regulations by: “failing to conduct affordability assessments; charging consumers fees or amounts in excess of what the NCA allows and costs not permitted by the said Act; and failing to keep records of steps taken when conducting affordability assessments. The Tribunal is further asked to make a finding of reckless lending in view of certain transgressions allegedly perpetrated by the Respondent, and for this and other grounds mentioned, the Respondent’s registration be cancelled, and an administrative penalty imposed.

JURISDICTION

6. The National Consumer Tribunal (“Tribunal”) has jurisdiction to hear this matter and has powers conferred upon it in terms of section 150 of the NCA to make orders in relation to a registrant who allegedly contravenes this Act, or fails to comply with any condition of its registration.

ISSUES TO BE DECIDED

7. The issues to be decided are:

- whether or not the Respondent has engaged in prohibited conduct by repeatedly contravening the provisions of the Act, the Regulations and the conditions of its

registration, and in view of that;

- whether or not its registration must be cancelled, and

- whether or not an administrative penalty be imposed by the Tribunal as prayed for by the Applicant.

Section 150 provides for Orders of the Tribunal, and reads thus:

“In addition to its other powers in terms of this Act, the Tribunal may make an appropriate order in relation to prohibited or required

conduct in terms of this Act, or the Consumer Protection Act,2008, including-

(a) declaring conduct to be prohibited in terms of this Act;

(b) …;

(c) imposing an administrative fine in terms of section 151, with or without the addition of any other order in terms of this section, or

(g) suspending or cancelling the registrant’s registration, subject to section 57 (2) and (3)”

8. In deciding these issues, the Tribunal had to first determine the individual foundational claims by the Applicant as canvassed in the notice of motion, relating to the alleged contraventions of the provisions of the Act (that is: sections 80(1); 81(2) & (3); 82; 100(1) (b) and (c); 101(1)(c) 105(1)(a)), the conditions of registration and the Regulations (regulations 23A; 42 and 44)

BRIEF BACKGROUND FACTS

9. The Applicant’s evidence on the founding affidavit, points to the investigation conducted in November 2015, by Mr Mojalefa Lekoko (“Lekoko”), an inspector appointed by the Applicant to conduct an investigation into the activities of the Respondent in terms of section 136(2) (c) of the Act. The investigation was triggered by a complaint received by the Applicant in March 2015 from one

Mzolisi Richard Manyosi (“Manyosi”) which gave a suspicion to the Applicant that the Respondent could be engaging in conduct in contravention of the NCA, thereby committing acts prohibited by the Act;

10. During the investigation; the Applicant randomly selected and copied ten credit agreements which were then assessed for compliance with the NCA. The Applicant allegedly found out that the Respondent was in repeated contravention of the provisions of the Act. A detailed report on the investigation carried out by the Applicant is compiled in Annexure “FA6” of the Applicant’s founding documents.

THE APPLICANT’S SUBMISSIONS

11. According to the Applicant, the Respondent has repeatedly failed to conduct its business in a manner which is consistent with the purpose and requirements of the NCA. In that regard, the Applicant asserts that the Respondent has exhibited serious contraventions of the Act, as shown in the Applicant’s investigation report that the Respondent:

11.1 is in repeated contravention of the National Credit Act and Regulations 23A and 44 (the Act);

11.2 failed to conduct affordability assessments as required by sections 80 (1) (a); 81(2) (a) and 81 (3)

1.25cm; line-height: 200%">11.3 charged consumers fees or amounts in excess of what the NCA allows and costs not permitted by the Act in contravention of sections 100 (1) (c) read with Regulation 42 ; 101 (1) (c) read with section 105 (1) (a); and

1.25cm; line-height: 200%">11.4 failed to keep records of steps taken when conducting affordability assessments in contravention of section 170 read with Regulation 55 (1) thereby entering into reckless credit lending with consumers.

12. One such case in point, among the files that the Applicant sampled during the investigation, is a consumer and a client of the Respondent called Manyosi. The Applicant avers that the Respondent failed to assess Manyosi’s financial means to service the debt that had accumulated due to the loans he had acquired from the Respondent, many of which were split and in close proximity to each other;[3]

13. According to the Credit Bureau report which was part of the record of the file, the Respondent advanced loans to Manyosi while he was under debt review, and when he had very little or no prospect at all of ever repaying his debt. In fact, Manyosi was not eligible to be granted credit in the first place, the Applicant argues.

14. According to the Applicant, the affordability assessments were fatally flawed to warrant the granting of credit. The Respondent advanced credit to Manyosi even in instances where it was impossible for him to repay the first loan. By splitting the loans, the Respondent charged double the amount for the cost of credit.

15. The Credit Bureau record shows that the Respondent obtained 15 judgments against Manyosi in the Magistrates court of Sasolburg[4], for defaulting on the repayment of the loans. The reason for this is simple, the Applicant avers- Manyosi has been entangled and trapped in a debt spiral since 2010 due to the Respondent’s conduct in contravention of the NCA. According to the Applicant, Manyosi owes in total, the amount of R16747.00 of loan debt that has accumulated over the years.

16. In another case of one Twala, also a client of the Respondent, the Respondent failed to conduct affordability assessments, but relied on the household expenses of the consumer. No bank statement was sourced from the Consumer, and no credit checks were done before the loans were advanced[5]. Applicant submits that the conduct of the Respondent is tantamount to reckless credit granting and exposes consumers to over-

indebtedness.[6]

RESPONDENT’S SUBMISSIONS

17. The Respondent was represented by its Legal Advisor, Mr Perold (“Perold”). It must be recorded that the Respondent had earlier raised technical legal issues in limine in a separate hearing preceding this one. Those preliminary issues were dismissed by the Tribunal on the basis of lack of merit.

Hence the current proceedings.

18. Perold made oral submissions without handing up any documented arguments or submissions, but responded briefly to allegations

levelled against the Respondent, and more specifically to the investigation report on Manyosi’s complaint.[7] He intimated that he relied more on information available at their offices, than information kept by Credit Bureaux. Further, that he suspected that there was collusion between someone at the Respondent’s offices and Manyosi; that there were human errors and possible oversight in their systems, which may have occasioned all these issues before the Tribunal;

19. Perold denied that there was the splitting of loans [which attracted separate costs of credit even though granted on the same day]and claimed that the separate loans were taken at separate branches of the Respondent . This, at the detriment of consumers because they were charged twice on the same day for two separate accounts[8]. He said the Respondent had a long-standing relationship with Manyosi and that is why they would not hesitate to grant him loans[9], because of a good relationship they enjoyed. He claims the affordability assessments were done on the strength of what the consumer had declared when the decision to grant loans was made;

20. He denied that the Respondent acted recklessly when granting credit and that each branch of A-Z Microloans did their own thing differently without any wilful intent to plunge consumers into debt.

21. Further that when the Respondent’s business started, the Respondent operated on a manual system without computers, but that presently all the branches operate on an electronic system.

CONSIDERATION OF THE SUBMISSIONS AND THE APPLICATION OF THE LAW

22. The allegations made by the Applicant regarding the Respondent’s conduct paint a picture of a situation that has been in practice over a lengthy period of time, dating back to 2007, when the Respondent first opened its doors for business, up to and including the establishment of branches thereafter. On a balance of probabilities the Tribunal accepts the evidence submitted by the Applicant that the Respondent is in contravention of certain provisions of the NCA, in that the Respondent:

- failed to conduct affordability assessments, (and if it did), conducted same inadequately or improperly;

- charged consumers fees or amounts in excess of what the NCA allows and costs not permitted by the NCA; and

- failed to keep records of steps taken when conducting affordability assessments

23. The following provisions of the NCA find application:

23.1 Section 81(2) (a) - taking reasonable steps to assess consumer’s understanding of risks, costs associated with proposed credit, rights and obligations under a credit agreement; debt repayment history and existing financial means, prospects and obligations;

23.2 Section 81(3) read with section 80 (1)(a) - prevention of reckless credit agreement with consumers by imposing an obligation on the part of the credit provider to conduct an assessment before granting credit

23.3 Section 170 read with regulation 55 (1) (b) (iv) - failure to keep records of steps taken when conducting an affordability assessment exercise.

23.4 Section 100(1)(c) read with Regulation 42; and Section 101(1)(d) read together with section 105(1)(a) of the NCA- charging interest above the prescribed maximum rate of interest

24. These contraventions occurred during the period 2014 to date. The Respondent’s submissions in response to these contraventions,

did not convince the Tribunal that indeed there was a proper defence to such allegations. With respect, these amounted to bare denials without substantive contradiction to the Applicant’s case. Manyosi, as earlier mentioned, is one case in point. On 21 December 2012, Manyosi was advanced loans of R2000 each, twice on the same day, but the affordability assessments differed in consideration for the granting of credit. These were short term loans payable over a period of 3 months. There was another loan of R500 on 31 December 2012, ten days later.- All three separate loans had individual costs charged for credit granted. In February 2013, two months later, two loans of R2000 each were also granted to Manyosi separately on the same day, also with different affordability assessments[10]. On 26 March 2013, another loan of R3000 was granted to Manyosi, and another of R500 was granted on 13 April 2013 also.

25. The Respondent literally plunged Manyosi into a situation where he had become a habitual borrower who got trapped in a debt web[11]. The whimsical extension of credit to Manyosi at the pretext of being in a good, long-standing relationship with him, was careless if not reckless, and is inexcusable, and cannot be countenanced. I now turn to address the issue of the administrative fine.

ADMINISTRATIVE FINE

26. The Applicant prays for an administrative fine of R1 000 000.00 (one million rand) or 10% of the Respondent’s annual turnover during the preceding financial year, to be imposed by the Tribunal. The Applicant canvassed oral submissions in support of its prayer for the imposition of the administrative fine.

27. In order to determine the appropriateness of the imposition of an administrative fine, the Tribunal must consider the provisions of Section 151 of the NCA;

Section 151(3) of the Act states:-

(3) “When determining an appropriate fine, the Tribunal must consider the following factors:

(a) the nature, duration, gravity and extent of the contravention;

(b) any loss or damage suffered as a result of the contravention;

(c) the behaviour of the Respondent;

(d) the market circumstances in which the contravention took place;

(e) the level of profit derived from the contravention;

(f) the degree to which the Respondent has co-operated with the National Credit Regulator, or the National Consumer Commission, in the case of a matter arising in terms of the Consumer Protection Act, 2008, and the Tribunal; and

(g) whether the Respondent has previously been found in contravention of this Act, or the Consumer Protection Act, 2008, as the case may be.”

28. The Applicant addressed the Tribunal on all the aspects mentioned above and asked the Tribunal to consider the following:

- That the Respondent had nine branches, eight of which were active. The extent of the

contraventions is broad and widespread, the nature of which is severe, prejudicial to consumers with the Respondent having no regard for the law. This practice continued for a period of eleven years, causing consumers substantial loss by splitting the loans and over- charging consumers cost of credit and interest. The Respondent, according to the Applicant, owned a profitable enterprise

- That the Respondent exploited consumers who were from needy backgrounds and vulnerable persons without feeling any remorse or taking remedial steps to rectify the situation. The Respondent relied on consumers’ “say –so” when conducting assessments, but failed to do what the NCA prescribed under sections 80; 81; and 82. These sections are instructive- they say what the credit provider has to do. According to the Applicant, the Respondent cannot be excused from culpability on the basis of mistakes it claims happened, when its branches were flouting the law.

- The Applicant concedes that the Respondent co-operated with the investigation process, and had not been found to have been involved

in prior contraventions, but that, that does not absolve the Respondent from being held responsible for the contraventions which

are the subject of these proceedings.

29. In NCR v Werlan Cash Loans t/a Lebathu Finance[12] the Tribunal made these considerations regarding the imposition of an administrative fine and proceeded to state the following:

“When determining an amount, the Tribunal must consider the legislation from which its own mandate derives and when determining an

appropriate fine the Tribunal must consider the following factors: the nature, duration, gravity and extent of the contravention; any loss or damage suffered as a result of the contravention; the behaviour of the Respondent; he market circumstances in which the contravention took place; the level of profit derived from the contravention; the degree to which the Respondent has co-operated with the National Credit Regulator, or the National

Consumer Commission, in the case of a matter arising in terms of the Consumer Protection Act, 2008, and the Tribunal; and whether the Respondent has previously been found in contravention of this Act, or the Consumer Protection Act, 2008, as the case may be.”

30. The imposition of an administrative penalty is an important decision that cannot be taken lightly as it has serious consequences for the Respondent. Therefore, the Tribunal is of the view that it is imperative for the Applicant to fully canvass argument in support thereof, (in terms of Section 151(3)), so as to provide the Respondent with an opportunity to know what case it needs to meet, in relation to the Applicant’s arguments in support of an administrative fine. The Tribunal, in light of this matter being considered on a default basis; does not have the benefit of hearing the Respondent’s side in mitigation of the allegations raised by the Applicant at the hearing. However, the Tribunal accepts the Applicant’s oral submissions in support of its pursuit for the imposition of the administrative fine.

31. In the same vein, the Tribunal recognises the fact that the prohibited conduct perpetrated by the Respondent, is of a serious

nature and warrants the imposition of a penalty. In NCR v Midwicket[13] the Tribunal found the following:

“One of the main purposes of an administrative fine is to serve as a means of deterring an offender from engaging in the prohibited conduct again. Where the offender’s registration is cancelled and is thus no longer permitted to conduct business as a credit provider, one of the main reasons for the imposition of a fine falls away. The imposition of the fine then becomes purely punitive which would generally only be warranted in the most extreme of circumstances.”

32. One of the prayers of the Applicant is for an order in terms whereof the Respondent is to refund, after conducting audit at its own cost, all past and present consumers any amounts which the Respondent received in the form of fees which the Respondent was not entitled to. These fees were charged to consumers in excess of the prescribed maximum amounts permitted by the NCA. The Applicant asserts that this conduct by the Respondent caused consumers huge financial loss. There is no doubt that the Respondent derived financial benefit at the expense of consumers, by over-charging fees and excessive interest in contravention of the NCA[14].

CONCLUSION

33. The Tribunal, after considering the evidence before it, finds that the Respondent has repeatedly contravened the NCA, its Regulations and the conditions of its registration as a credit provider. These contraventions amount to prohibited conduct and are serious in nature. The Respondent has closed its business and has placed the aggrieved consumers in a more vulnerable position in that the consumers’ prospects of getting their refund are slim. No reasons have been provided as to why the Respondent has ceased its operations. The Tribunal views all these factors in a serious light as they have the character of undermining the NCA and its purpose.

THE TRIBUNAL’S FINDINGS

34. The Tribunal has considered and evaluated all the evidence before it and concludes that the Applicant has made out a case against the Respondent. The Respondent, in consequence thereof, is found to have repeatedly contravened the provisions of the NCA, the Regulations and the conditions of its registration, by contravening the following sections and regulations:

- Section 81(2) (a); Section 81(3) read with section 80 (1)(a)

- Section 170 read with regulation 55 (1) (b) (iv); Section 92(1) read with regulation 28(1)(b);

- section 100(1)(c) read with Regulation 42; and

- section 101(1)(d) read together with section 105(1)(a) of the NCA.

ORDER

35.Accordingly the Tribunal makes the following order:

35.1 the Respondent is ordered to refund all the affected consumers, past and present, who were charged excess amounts in the form of fees, or amounts which exceeded the prescribed maximum allowed by the NCA, which the Respondent was not entitled to, within 60 days of the date of this judgment.

35.2 In order to achieve 35.1 above, the Respondent is ordered to appoint an auditor at its own cost, to verify and confirm that the Respondent has accurately calculated the amounts owing to each consumer who has been affected by the Respondent’s

overcharging in respect of these fees.

35.3 The Respondent is further ordered to submit to the Applicant, a report in respect of the aforesaid audit within 60 days of this order, detailing the following:

34.3.1 the amount of all repayments made by the Respondent and confirmed by the auditor;

34.3. 2 the recipients of all repayments; and

34.3. 3 the steps taken by the Respondent to locate any consumers which the Respondent was not able to locate;

35.4 In terms of Section 151 of the NCA, and having considered all the circumstances of this case, the submissions presented by the Applicant in support of its prayers and the relief sought; the nature, gravity, extent of the contraventions; the conduct of the Respondent; the effect the Respondent’s conduct had on the economic lives of the consumers and the prejudice they suffered, the Tribunal imposes an administrative fine of R1 000 000.00 (One Million Rand ) payable by the Respondent to the National Credit Regulator;[15]

35.5 the Respondent is to pay the amount of R1 000 000.00 by no later than 31 May 2018;

35.6 There is no order as to costs.

DATED ON THIS 28th DAY of FEBRUARY 2018

[Signed]

______________________________

FK MANAMELA

(PRESIDING MEMBER)

Mr A Potwana (Member) and Ms N Maseti (Member), concurring

[1] Act no 34 of 2005.

[2] Act no 34 of 2005.

[3] The assessments differ, even though the loans were given on the same day. See pages 116; 116; 117 and 118 of the Credit Bureau record. Also pages 123 and 125 of the CB record. On 21/12/2012, Manyosi was advanced loans of R2000 twice on the same day, but the affordability assessments differ. These were short term loans payable over a period of 3 months. There was another loan of R500 on 31/12/2012- all of which had individual costs charged for credit. In February 2013, two months later, two loans of R2000 each were granted to Manyosi separately on the same day, also with different affordability assessments- see pages 123 and 125 of the record. On 26 March 2013, another loan of R3000 was granted to Manyosi, and another of R500 was granted on 13 April 2013

[4] Including Garnishee orders

[5] Page 144 of the record

[6] A-Z Microloans has been operating since 2007, using the same methods of granting credit,

[7] Pages 34 and 35 of the Investigations Report. Twala was another case among the sample of documents probed by the Applicant where the Respondent relied on the household income and expenses of the consumer without checking other documents.

[8] When probed by the Tribunal as to what his view and understanding was, regarding “cost of credit”, he had a lot of speculation to make, which turned out to be incorrect.

[9] On Manyosi’s “say so” when interviewed for affordability assessments

[10] see pages 123 and 125 of the record.

[11] The proximity of days apart from the granting of each credit and the splitting of these loans is a concern

[12] NCT/3867/2012/57(1).

[13] NCR v Midwicket Trading 525 CC t/a Butterfly Cash Loans NCT/7962/2013/57(1)

[14] Page 15 of the paginated bundle; Applicant’s founding affidavit, para 8- see also annexures B-K

[15] Penalties imposed by the Tribunal are paid into the National Revenue Fund