National Credit Regulator v Bambanani Brokers II CC (NCT/147392/2019 140(1)) [2021] ZANCT 20 (2 July 2021)

IN

THE NATIONAL CONSUMER TRIBUNAL

HELD IN CENTURION

Case Number: NCT/147392/2019 140(1)

In the matter between:

NATIONAL CREDIT

REGULATOR

APPLICANT

AND

BAMBANANI BROKERS

II CC

Trading as BAMBANANI CASH LOANS

RESPONDENT

Coram:

Dr MC Peenze -

Presiding member

Ms P Beck - Tribunal Member

Mr A Potwana - Tribunal Member

Date of hearing:

29 June 2021

Date of judgment: 2 July 2021

JUDGMENT

AND ORDER

APPLICANT

1. The Applicant in this matter is the National Credit Regulator (“the NCR”), a juristic person established in terms of Section 12 of the National Credit Act (“the NCA” or “the Act”)[1], with its offices situated at 127 Fifteenth Road, Randjespark, Midrand, in the Gauteng Province.

2. At the hearing, Mr R Stocker, the Applicant’s Senior Legal Advisor: Investigations and Enforcement, represented the Applicant.

3. The hearing was held via Teams audio and video transmission.

RESPONDENT

4. The Respondent is Bambanani Brokers II CC trading as Bambanani Cash Loans (“Bambanani”), incorporated and registered in terms of the Republic of South Africa’s company laws, with its registered office situated at 505 Charles Street, Menlo Park, 0081, and its principal place of business situated at Shop 19, Van Erkom Arcade, Pretorius Street, Pretoria, in the Gauteng Province. The Respondent is registered with the Applicant as a credit provider, with registration number NCRCP9988.

5. At the hearing, the Respondent was represented by Mr AJ McConnell from Brazington & McConnell Attorneys.

APPLICATION TYPE

AND JURISDICTION

6. The Applicant brought an application in terms of Section 140 (1) of the National Credit Act 34 of 2005 (“the NCA”). The NCR wants a finding of prohibited conduct to be made against the Respondent and appropriate sanctions to be imposed.

7. In terms of Section 27 of the National Credit Act 2005 (“the Act” or “NCA”), the National Consumer Tribunal (“the Tribunal”) has jurisdiction.[2]

TERMINOLOGY

8. A reference to a Section in this judgment refers to a Section in the Act. A reference to a Regulation refers to the National Credit Regulations, 2006 (the Regulations).[3]

9. A reference to a form refers to a Form as prescribed in the Regulations.

BACKGROUND

APPLICANT’S

SUBMISSIONS

10. The Applicant’s case is stated in its founding affidavit. The deponent is Anne-Carien du Plooy (Ms Du Plooy). Ms Du Plooy is an acting manageress in the Applicant’s Investigations and Enforcement Department. According to Ms Du Plooy, the Respondent is registered as a credit provider with the Applicant under NCRCP9988.

11. The referral to the Tribunal originates from a complaint initiated by the Applicant in terms of Section 136 (2). The complaint emanates from the Applicant’s information from the South African Social Security Agency (SASSA) and an anonymous tip-off to the effect that, among other things, the Respondent allegedly charged excessive interest rates under its credit agreements and was not conducting proper affordability assessments prior to granting credit. As a result of the information, the Applicant formed a reasonable suspicion that the Respondent was engaged in prohibited conduct.

12. On the 19th of July 2019, the Applicant’s Chief Executive Officer appointed Kgadi Sepuru (“Sepuru”) and Tshepo Mahobye (“Mahobye”) as inspectors for purposes of investigating the Respondent’s business practices. The scope of investigation for these inspectors was that they select ten samples of consumer files at the Respondent’s place of business and assess the Respondent’s lending practices to determine the following:

(i) Whether the Respondent granted credit recklessly in terms of Section 80 of the Act;

(ii) Whether the Respondent entered into credit agreements without first taking reasonable steps as required in terms of Section 81(2) of the Act;

(iii) Whether the Respondent complied with Regulation 23A when conducting affordability assessments; and

(iv) Whether the cost of credit levied in terms of the credit agreement complied with the allowable amount to be charged in terms of the Act.[4]

13. On the 26th of July 2019, the inspectors visited the Respondent’s principal place of business at Shop 19, Van Erkom Arcade, Pretorius Street, Pretoria. At the Respondent’s place of business, the inspectors interviewed Emily Mokoena (“Mokoena”), who identified herself as the Respondent’s Manager. The inspectors duly produced their certificates in terms of Section 25 of the Act. Further, they explained Section 139 (4) of the Act, which entitles the inspectors to question the Respondents.

14. During the investigation, Mokoena offered the following information about the Respondent’s business practices:

(i) The Respondent offers short term loan agreements to the working class;

(ii) On application for a credit agreement, the consumer must submit three months’ bank statements, the latest payslip, proof of address, and an identity document;

(iii) The Respondent obtains the credit history of the consumers before the granting of credit agreements;

(iv) The Respondent provides consumers with pre-agreement statements and quotations; and

(v) The Respondent charges interest at a rate of 5% per month on approved credit agreements;

3% is charged when a consumer applies for a loan within 12 months.

15. Mahobye requested Mokoena to provide them with a list of loans approved from January 2019 and advised that he be selecting ten credit agreements to assess compliance in terms of the Act. The inspectors emphasised to Mokoena that each file must contain the following documents:

(i) Pre-agreement statements and quotations;

(ii) Credit agreements;

(iii) Bank statements and salary advices;

(iv) Consumer’s disclosed monthly expenditures;

(v) Consumer’s credit profiles; and

(vi) Mechanisms used to conduct affordability assessments.

16. The inspectors assessed the selected files and compiled an investigation report. Based on the inspectors’ report, the Applicant alleged that the Respondent contravened the following provisions:

(i) Section 81 (2) (a) (ii) and (iii), read with regulation 23 A, in that the Respondent failed to take reasonable steps to assess the debt repayment history of the consumers under credit agreements as well as the consumers’ existing financial means, prospects, and obligations;

(ii) Section 81 (3), read together with Section 80 (1) (a), in that the Respondent has extended credit recklessly to consumers. In particular, the Respondent failed to assess consumers’ living expenses, debt repayment history, financial means, prospects, and obligations, thereby failing to conduct any or proper affordability assessments;

(iii) Section 81 (3), read together with Section 80 (1) (b) (ii), in that the credit agreements are perceived reckless due to the preponderance of information available to the Respondent at the time the credit agreements were entered into, indicating that entering into those credit agreements would make the consumers over-indebted;

(iv) If the Respondent would submit that it did conduct proper affordability assessments, the Applicant submitted that the Respondent contravened Section 170, read together with Regulation 55 (1) (b) (vii), in that the Respondent failed to retain the proof of the steps taken to conduct the affordability assessment;

(v) The interest charged on all consumer files exceeded the maximum amounts allowed in terms of the Act. As a result, the Respondent contravened Section 100 (1) (b) and Section 101 (1) (c) (iii) read with Regulation 44; and

(vi) Section 52 (5) (c), read together with General Condition 3 of the Respondent’s conditions of registration as a credit provider, as well as Regulations 64 and 66, in that the Respondent has failed to submit to the Applicant the prescribed Form 39 Statistical Return as well as the prescribed Form 40 Annual Financial and Operational Return.

17. During the hearing of the matter, the Applicant advised that it is discarding its prayers relating to the transgression of the following provisions :

(i) Section 81 (3) read together with Section 80 (1) (b) (ii); and

(ii) Section 100 (1) (b) and Section 101 (1) (c) (iii), read with Regulation 44.

The Applicant’s prayers

18. The Applicant prays for an order against the Respondent in the following terms:

18.1 Declaring the Respondent to have repeatedly contravened:

(a) Section 81 (2) (a) (ii), Section 81 (2) (a) (iii) and Regulation 23 A of the Act;

(b) Section 81 (3), read with Section 80 (1) (a) of the Act;

(c) Section 170, read together with Regulation 55 (1) (b) (viii) of the Act;

(d) Section 52 (5) (c) of the Act, read with General Condition 3 of the Respondent’s conditions of registration as a credit provider, as well as Regulations 64 and 66 of the National Credit Regulations; and

(e) Section 40 (3) of the Act, read with Section 52 (4) (b) (iii) of the Act.

18.2 Declaring the Respondent’s conduct in contravention of the relevant Sections of the Act outlined above as prohibited conduct in terms of Section 150 (a) of the Act;

18.3 Interdicting the Respondent from future breaches;

18.4 Imposing an administrative fine upon the Respondent in the amount of R1 Million or 10% of the Respondent’s annual turnover, whichever is greater;

18.5 Declaring the Respondent’s credit agreements with consumers, contained in Annexures D1 to D10 of the Applicant’s Investigation Report, as reckless in terms of Section 80 (1) (a), read with Section 81 (3); and

18.6 Ordering the Respondent to:

a) Within 30 days, appoint an independent auditor at its own cost;

b) Such independent auditor to identify all open credit agreements, and of those agreements, the appointed auditor must identify which of such agreements the Respondent entered into without properly conducting assessments by obtaining a Credit Bureau Report in terms of Section 81 (2) (a) (ii) and (iii) read with Regulation 23 A of the Act. Once the auditor has identified those agreements, the auditor must issue a written report to the Applicant within one hundred and twenty (120) days after the Tribunal order has been obtained; and

c) Once the auditor has identified those agreements, and the Applicant has received the auditor’s report in this regard, the Applicant may apply to the Tribunal for an order declaring such agreements as reckless in terms of Section 80 (1) (a) read with Section 81 (3); and

18.7 Further or alternative relief as the Tribunal may consider appropriate to affect the consumers’ rights under the NCA as per Section 150 (i) thereof.

The Applicant’s submission on Penalty

19. As motivation for the appropriate penalty, the Applicant submits as follows:

Nature, duration, gravity, and extent of the contraventions

20. The Applicant extracted a sample of ten credit agreements concluded by the Respondent and found that every one of those agreements had been concluded recklessly by the Respondent;

21. Reckless credit granting and failing to conduct proper affordability assessments are serious contraventions of the Act. Consumers risk becoming over-indebted by the Respondent granting credit without taking reasonable steps to determine the consumer’s ability to afford the credit repayments. The conduct of the Respondent cannot be benevolently considered because the gravity and regularity of the offences committed by the Respondent have the potential to cause consumers extreme prejudice;

22. The Respondent entered into credit agreements while not being registered as a credit provider. This contravention is serious, even though the Respondent eventually paid its annual fees retrospectively. The failure to make timeous payments implies that an unregistered entity can engage in credit lending recklessly and unlawfully for extended periods without the Applicant detecting contraventions. Therefore, the Respondent’s practice of acting as a credit provider without being registered poses a material risk to the entire credit industry.

23. Although all the credit agreements sampled ranged from February to July 2019 – 5 months, it is clear that the Respondent contravenes the Act habitually as part of its business model. Thus the actual duration of the contraventions is far lengthier than five months, most likely since its registration as a credit provider in November 2017 to date.

24. The gravity of the offences depicts the Respondent’s callous disregard of the legislation for the regulated activity which it undertakes.

Loss or damage suffered as a result of the contraventions

25. Consumers have suffered loss and damage as a result of the Respondent’s conduct. The Respondent exploited consumers by entering into loan agreements with the Respondent without the Respondent first taking reasonable steps to ensure that the loans are affordable. The damage to consumers’ economic status is far-reaching if they, due to over-indebtedness, apply for and are placed under debt review.

The behaviour of the Respondent

26. There is no plausible reason for the Respondent to be unaware of the Act’s provisions and its statutory obligation to adhere to all of the Act’s provisions. The very fact that the Respondent elected to become a registered credit provider is indicative that the Respondent is aware of the prescripts of the Act. The Respondent’s behaviour is concerning as it pays lip service to its duty to grant credit responsibly. An example is a pretence to follow the prescribed procedure for conducting affordability assessments without really conducting proper affordability assessments.

27. The Respondent allowed its registration as a credit provider to lapse in August 2019, yet seeming to have carried on granting credit. This Act of negligence is an indicator of someone who has very little regard for the law, and a substantial fine needs to be imposed to deter the Respondent from contravening the Act in the future.

Market circumstances under which the contraventions occurred

28. It is submitted that the Respondent’s conduct illustrates that the market circumstances within which the contraventions occurred are such in which consumers are not educated about their rights relating to access to credit. Many of the consumers are exploited to the unjust benefit of the Respondent.

Level of profit derived from contraventions

29. A substantial profit was likely derived from the unlawful activities undertaken by the Respondent. However, the Applicant is unable to provide detailed information as to the level of profit derived by the Respondent due to the Respondent’s failure to submit prescribed financial and statistical reports to the Applicant; and

30. The Applicant requests that the Tribunal orders the Respondent to provide copies of its management accounts and audited annual financial statements over the relevant period so that the appropriate level of profit may be determined for purposes of determining a fine.

Degree of co-operation between the Respondent and Applicant

31. The Respondent co-operated with the Applicant during the investigation.

Prior contraventions committed by the Respondent

32. There are no prior investigations or enforcement actions instituted by the Applicant against the Respondent. However, the contraventions’ nature and duration indicate that the Respondent’s conduct has been ongoing before the investigation.

THE RESPONDENT’S

SUBMISSIONS

33. The Respondent’s case is contained in their Answering Affidavit, as deposed to by Ms Retha Smit, a Respondent member. Based on the Answering Affidavit filed, it appears Bambanani is disputing every aspect of the allegations made by the NCR. It specifically denied that the Respondent repeatedly contravened the Sections referred to in the Applicant’s Founding Affidavit and put the Applicant to the proof thereof.

34. In response to the Applicant’s allegations of prohibited conduct, the Respondent denied being in contravention of the Act. It submitted that the only contraventions that have application are minor, having resulted from an administrative oversight, and have been rectified or were in the process of being rectified.

35. The Respondent denied the failure to consider credit bureau reports of consumers when doing the affordability assessment. The use of credit bureau reports or not have been viewed in the context of an overall assessment. According to the Respondent, pre-existing credit bureau reports were indeed obtained before the extension of credit to consumers, and it attached proof thereof to the answering affidavit. However, the Respondent explained that Mokoena misunderstood what the investigators were looking for on the day of the investigation. She believed the investigators required the most recent credit bureau report.

36. As the credit bureau reports were in most cases only on the Respondent’s computer files, Mokoena drew new reports from the credit bureau system to attach to the documents requested by the investigators. The Respondent believes it was unfortunate that the impression was subsequently created that Mokoena attempted to mislead the investigators. It was not her intention, according to the Respondent.

37. The Respondent explained the history of each consumer investigated by the Respondent, denying that the consumers were at any point over-indebted or became over-indebted as a result of the granting of the loans. It also disputed ever having granted credit to any of its clients without considering each client’s affordability situation. According to the Respondent, most of its clients are long-term clients. Accordingly, the financial situation when considering any new loan would be known to the Respondent.

38. Concerning the alleged overcharging of fees, the Respondent admitted such, explaining that the overcharge arose due to erroneous information supplied to the Respondent by Delfin. As this error was through no fault of the Respondent, all consumers have been refunded accordingly after realising the error.

39. Regarding the failure to complete and submit Forms 39 and 40, the Respondent admitted the transgression, indicating that it is in the process of completing the relevant forms for submission by the end of January 2020. Similarly, the Respondent explained its failure to pay the annual fee due on the 31st of July 2019 as an administrative oversight. It confirmed the subsequent payment thereof and therefore submitted that the Respondent had remained registered as a credit provider at all times.

40. The Respondent explained that no financial loss was suffered by any of the sampled consumers, as they could afford the loans granted and have maintained regular payment of such. In this respect, the Respondent denied that it exploited the consumers.

41. Regarding the suggested fine, the Respondent submitted that the contraventions are minor and do not in any way warrant a fine. Alternatively, it submitted that, if a fine is to be imposed, such fine should mirror the minor nature of the contraventions.

THE HEARING

42. The Tribunal provided the parties with the opportunity to stand down and discuss inter partes any admissions of fact to narrow the matters in dispute.

43. The following matters subsequently remained in dispute:

(i) Whether the Respondent conducted proper affordability assessments before extending credit to consumers concerning the sampled files; and

(ii) Whether the credit agreements as concluded were reckless concerning the sampled files.

44. According to the Applicant, the affordability assessment as required in terms of Section 81 (2) of the Act must be conducted in terms of Regulation 23 A, which requires, inter alia, considering the consumer’s debt repayment history as contained in a credit bureau report. The Applicant argued that this consideration of the consumer’s credit profile, as held by the Credit Bureau, must occur within seven business days immediately before the extension of credit. Accordingly, as the Respondent failed to consider the consumer’s credit profile within this specific timeframe, the Applicant argued that the Respondent failed to take the required steps to properly assess consumers’ existing debt repayment history as consumers before extending credit to such consumers.

45. The Applicant submitted that the Respondent failed to provide information allegedly contained electronically to the investigators on the day of the investigation. The information contained electronically allegedly included the credit bureau reports the Respondent submitted to have been obtained before the extension of credit to the consumers. The Applicant argued that, even if the electronic information about credit bureau reports obtained by the Respondent, as submitted to the Court in these proceedings, would be accepted as correct, it would still not comply with the legal prescripts of 7 days before entering into a loan agreement. The Applicant outlined that the electronic information submitted in evidence by the Respondent confirmed that credit bureau reports were obtained more than seven days before the date of any loan agreement in the sampled files. Accordingly, it did not comply with the legislative prescripts regulating affordability assessment.

46. According to the Respondent, the legislative requirement of considering credit bureau reports only applied when consumers engage a credit provider for the very first time as a “new client.” The Respondent subsequently argued that it provides adequate evidence of having obtained credit bureau reports when credit was extended to consumers the first time, which occurred in some instances as far back as 2015. The Respondent submitted further that, as these consumers were long-term or regular clients, the Respondent subsequently complied with the requirement of affordability assessment by referring to other means when an existing client approached them for a new short-term loan. The Respondent believes it was not always necessary to obtain a credit bureau report, as the financial commitments of the consumer were outlined in the bank statements and other information provided by the consumer.

47. The Respondent confirmed that irrespective, it obtained credit bureau reports in most instances. It argued that the time-lapse between obtaining these credit bureau reports and the date of extending credit was never huge.

48. The Respondent also argued the difference between “extending credit” and “entering into a credit agreement.” According to the Respondent, credit is extended when a credit provider approves a consumer loan for the first time. The Respondent argued that, in contrast, a credit agreement could be entered into at various points in time following the initial “approval of credit” to a consumer.

49. Accordingly, as the Respondent was not required to scrutinise credit bureau reports in subsequent credit agreements entered into with an existing client, the Respondent submitted that it did not transgress the legal prescripts requiring scrutiny of the credit bureau reports.

50. According to the Respondent, the preponderance of information available to it when entering into all credit agreements indicated that the consumers would not be over-indebted. Accordingly, it argued that the credit agreements were not reckless.

51. The Applicant argued, concerning Section 80 (1) (b) (ii) and Section 81 (3), that the Respondent extended credit recklessly, as the Respondent failed to assess the consumers’ debt repayment history properly in line with Section 81 (2), which requires the consideration of credit bureau reports.

52. The Applicant conceded to the Respondent’s reply to the contravention of overcharging of cost of credit. The Applicant accordingly abandoned this contravention and did not persist with it further. Similarly, the Respondent admitted to its failure to submit the prescribed form 39 and form 40 timeously. The Respondent provided evidence by e-mail that it submitted its completed form 39 on the 15th of June 2021. However, no evidence was provided of the submission of the required form 40.

53. The Respondent also admitted to having conducted business as a credit provider while registration has lapsed. In this instance, the Respondent confirmed its retrospective payment of annual renewal fees.

THE

LAW

54. Only those provisions and regulations that the Applicant relies on will be stated hereunder. Also, the provisions of Rule 13 (5) of the Tribunal Rules will be noted.

55. Section 3 (e) (ii) states -

“The purposes of this Act are to promote and advance the social and economic welfare of South Africans, promote a fair, transparent, competitive, sustainable, responsible, efficient, effective and accessible credit market and industry, and to protect consumers, by addressing and correcting imbalances in negotiating power between consumers and credit providers by providing consumers with adequate disclosure of standardised information in order to make informed choices.”

56. Section 81 (2) states -

“A credit provider must not enter into a credit agreement without first taking reasonable steps to assess-

(a) the proposed consumer’s-

(i) general understanding and appreciation of the risks and costs of the proposed credit, and the rights and obligations of a consumer under a credit agreement;

(ii) debt repayment history as a consumer under credit agreements;

(iii) existing financial means, prospects, and obligations; and

(b) whether there is a reasonable basis for concluding that any commercial purpose may prove to be successful if the consumer has such a purpose for applying for that credit agreement.”

57. Regulation 23A (1) states -

“These Regulations apply to –

(i) Current prospective and joint consumers;

(ii) All credit providers; and

(iii) All credit agreements to which this Act applies, subject to Regulation 2.”

58. Regulation 23A (2) states -

“These Regulations do not apply to a credit agreement in respect of which the consumer is a juristic person and do not apply to –

(i) A developmental credit agreement;

(ii) A school loan or a student loan;

(iii) A public interest credit agreement;

(iv) A pawn transaction;

(v) An incidental credit agreement;

(vi) An emergency loan;

(vii) A temporary increase I the credit limit under a credit facility

(viii) A unilateral credit limit increase in terms of Sections 119 (1) ©, 119 (4); and 119 (5) of the Act under a credit facility;

(ix) A pre-existing credit agreement in terms of Schedule 3 item 4 (2) of the Act;

(x) Any change to a credit agreement and/or any deferral or waiver amount under an existing credit agreement in accordance with Section 95 of the Act; and

(xi) Mortgage credit agreements that qualify for the Finance Linked Subsidy program’s develop by the Department of Human Settlements and credit advanced for housing that falls within the threshold set from time to time.”

59. Regulation 23A (3) states -

“A credit provider must take practicable steps to assess the consumer or joint consumer’s discretionary income to determine whether the consumer has the financial means and prospects to pay the proposed credit instalments.”

60. Regulation 23A (12)(b) states -

“When conducting the affordability assessment, the credit provider must –

(i) Calculate the consumer’s discretionary income;

(ii) Take into account all monthly debt repayment obligations in terms of credit agreements as reflected on the consumer’s credit profile held by a registered credit bureau; and

(iii) Take into account maintenance obligations and other necessary expenses.” (own emphasis)

61. Regulation 23A13 states -

“A credit provider must take into account the consumer’s debt repayment history as a consumer under credit agreements, as envisaged in Section 81 (2)(a) and must ensure that this requirement is performed –

(i) Within seven (7) business days immediately prior to the initial approval of credit or the increasing of an existing credit limit; and

(ii) Within fourteen (14) business days with regards to mortgages.”

62. Section 81 (3) states -

“A credit provider must not enter into a reckless credit agreement with a prospective consumer.”

63. Section 80 (1) states -

“A credit agreement is reckless if, at the time that the agreement was made, or at the time when the amount approved in terms of the agreement is increased, other than an increase in terms of Section 119 (4)-

(a) the credit provider failed to conduct an assessment as required by Section 81 (2), irrespective of what the outcome of such an assessment might have concluded at the time.

(b) the credit provider, having conducted an assessment as required by Section 81 (2), entered into the credit agreement with the consumer despite the fact that the preponderance of information available to the credit provider indicated that -

(i) the consumer did not generally understand or appreciate the consumer’s risks, costs, or obligations under the proposed credit agreement; or

(ii) entering into that credit agreement would make that consumer over-indebted.”

64. Section 170 states -

“A credit provider must maintain records of all applications for credit, credit agreements and credit accounts in the prescribed manner and form and for the prescribed time.”

65. Regulation 55 (1) (b) (viii) states -

“(1) In addition to any records that must be kept in terms of the Act, a registrant must maintain the following records relating to its registered activities, which records may be kept in electronic format: …

(b) Credit Providers, in respect of each consumer: …

(viii) documentation in support of any steps taken after default by consumer.” (own emphasis on selected clauses)

66. Section 100 (1) (b) states -

“A credit provider must not charge an amount to, or impose a monetary liability on, the consumer in respect of an amount of a fee or charge exceeding the amount that may be charged consistent with this Act.”

67. Section 101 states-

“(1) A credit agreement must not require payment by the consumer of any money or other consideration, except-

(i) the principal debt, being the amount deferred in terms of the agreement, plus the value of any item contemplated in Section 102;

(ii) an initiation fee, which-

a) may not exceed the prescribed amount relative to the principal debt; and

b) must not be applied unless the Application results in the establishment of a credit agreement with that consumer;

(iii) a service fee, which-

a) in the case of a credit facility, may be payable monthly, annually, on a per transaction basis or on a combination of periodic and transaction basis; or

b) in any other case, may be payable monthly or annually; and

c) must not exceed the prescribed amount relative to the principal debt;”

68. Regulation 44 states -

“The maximum monthly service fee, prescribed in terms of Section 105 (1) of the Act, is R60,00.

(4) A service fee must be charged for a calendar month in which it is due and payable and on a pro rata basis where the credit agreement was concluded during the course of that calendar month.”

69. Section 52 (5) (c) states -

“A registrant must comply with its conditions of registration and the provisions of this Act;”

70. Regulation 64 states -

“(1) A credit provider whose annual disbursements exceed R15 million must complete and submit the statistical return in Form 39 to the National Credit Regulator in respect of the quarters and by the due dates set out in the table below.

(2) All other credit providers must complete and submit the statistical return in Form 39 to the National Credit Regulator by the 15th of February each year for the period the 1st of January to the 31st of December.”

71. Regulation 66 states -

“A credit provider must submit an annual financial and operational return in Form 40 to the National Credit Regulator, within 6 months after the registered credit providers financial year-end.”

72. Section 40 (3) states -

“A person who is required in terms of sub-section (1) to be registered as a credit provider, but who is not so registered, must not offer, make available or extend credit, enter into a credit agreement or agree to do any of those things.”

73. Section 52 (4) (b) (iii) states -

“A registration remains in effect until it has lapsed on the last day upon which the prescribed renewal fee should have been paid in terms of Section 51 (1) (c).”

74. Section 150 (a) states-

“In addition to its powers in terms of this Act, the Tribunal may make an appropriate order in relation to prohibited conduct or required conduct in terms of this Act, or the Consumer Protection Act, 2008, including declaring conduct to be prohibited conduct in terms of this Act.”

75. Section 150 (g) states-

“In addition to its powers in terms of this Act, the Tribunal may make an appropriate order in relation to prohibited conduct or required conduct in terms of this Act, or the Consumer Protection Act, 2008, including suspending or cancelling the registrant’s registration, subject to Section 57 (2) and (3).”

76. Section 150 (i) states-

“In addition to its powers in terms of this Act, the Tribunal may make an appropriate order in relation to prohibited conduct or required conduct in terms of this Act, or the Consumer Protection Act, 2008, including any other appropriate order required to give effect to a right, as contemplated in this Act or the Consumer Protection Act, 2008.”

77. Rule 13 (5) of the Tribunal Rules states that “any fact or allegation in the application or referral not specifically denied or admitted in an answering affidavit will be deemed to have been admitted.”

ANALYSIS OF THE

EVIDENCE

Affordability Assessment

78. The central facts, being credit extended and credit bureau reports being obtained at some point, are not in dispute. Rather, it is the legal nature of these transactions which must be considered. More particularly, the Tribunal reflects whether the sampled agreements constitute de novo credit agreements and whether credit bureau reports should have been considered within seven days before having entered into such credit agreements.

79. If the transactions are, in fact, credit agreements to which Part D of the NCA applies and not a temporary increase in the credit limit under an existing credit facility, then there are various consequences. The failure to do an affordability assessment by, inter alia, considering credit bureau reports within seven days before the initial approval of credit will constitute prohibited conduct. As an unregistered credit provider at the time, the Respondent will further have concluded these transactions unlawfully.

80. From the evidence and arguments presented by both parties, it appears that the parties’ understanding of the definition of “affordability assessment” differ. The Respondent believes that an affordability assessment can be done without the scrutiny of a credit bureau report. Alternatively, the Respondent submitted that a credit provider only needs to consider the credit bureau report when a consumer is applying for a loan the first time. In that instance, the credit provider is expected to consider the credit bureau report within seven (7) business days before such initial approval of credit for the particular consumer. According to the Respondent, any subsequent or further approvals of credit to the particular consumer may be granted after a fair and objective assessment as determined by itself, which does not necessarily include scrutiny of a more recent credit bureau report. On the other hand, the Applicant’s view is that the initial approval of credit is established by signing the credit agreement. Accordingly, every credit agreement signed must be preceded by a scrutiny of the credit bureau report within seven (7) business days directly before credit approval. The Applicant submits that when conducting affordability assessments, credit providers cannot exclude considering the debt repayment history of consumers. Also, the Applicant submits that the repayment history of consumers is exclusively contained in credit bureau reports. The only exclusion, by implication, is when an existing credit agreement is amended, and no de novo agreement is signed. In such an instance, no “initiation fee” will be charged either.

81. It is clear from the evidence before the Tribunal that all consumers whose names appear in the sampled files entered into credit agreements that met the criteria set out in Section 8 of the NCA. All sampled credit agreements include an initiation fee, confirming that the contracts are new. In the absence of any proof to the contrary, the Tribunal interpreted the consumers’ promise to advance or pay money to the Respondent strictly in line with their obligations outlined in the sampled credit agreements. As any prior deferral of payment of money owed to the Respondent had seized to exist, any subsequent credit agreement automatically constituted a new credit agreement due to the full settlement of such debt towards the Respondent.

82. According to the evidence before the Tribunal, none of the sampled credit agreements resulted from a change to an existing credit agreement or a deferral or waiver of an amount under an existing credit agreement. Accordingly, the sampled agreements are not falling under the Section 95 exceptions, and the Tribunal treated the provision of credit in these instances as new credit agreements.

83. Accordingly, the “initial approval of credit” applies to the “initial approval” of the sampled credit agreement for each respective consumer and not the “initial approval” of the first or former credit agreement of a consumer, which was already terminated at the time of entering into the sampled credit agreement.

84. The Respondent further failed to provide evidence that the sampled credit agreements constituted incidental credit agreements, temporary increases in the credit limit under a credit facility, pre-existing credit agreements in terms of Schedule 3 item 4(2) of the Act, or any other exception to the Regulations as ruled in Regulation 23A. Accordingly, the Tribunal finds that the Regulations apply to the sampled credit agreements as credit agreements to which the Act applies.

85. When applying the Regulations to the sampled credit agreements, it follows that compliance to the “criteria to conduct affordability assessment”, as outlined in Regulation 23A, must occur. Regulation 23A makes it a requirement to assess the existing financial means and obligations of a consumer as envisaged in Sections 78 (3) and 81 (2) (a) (iii).

86. Therefore, when conducting the affordability assessment, the credit provider:

(i) Must, as directed by Section 23A(12)(f), take into account all monthly debt repayment obligations in terms of credit agreements as reflected on the consumer’s credit profile held by a registered credit bureau;[5] and

(ii) Must take into account the consumer’s debt repayment history as a consumer under credit agreements, as envisaged in Section 81 (2) (a); and

(iii) Must ensure that this requirement is performed within seven (7) business days immediately prior to the initial approval of credit or increasing an existing credit limit.[6]

87. As the legislator chose the word “must” when describing the credit provider’s responsibility to consider the credit bureau report when conducting the affordability assessment, the legislative interpretation of “must” needs scrutiny.

88. The Tribunal believes that a credit provider does not have discretion in this regard. The word “must” is to be interpreted as imperative, expressing a requirement or obligation to be fulfilled by the credit provider.

89. Section 39 (2) of the Constitution of the Republic of South Africa, 1996 directs that when any legislation is interpreted, the result must be a construction that promotes “the spirit, purport and objects of the Bill of Rights”. The Constitutional Court has interpreted this provision in Investigating Directorate: Serious Economic Offences and Others v Hyundai Motor Distributors (Pty) Ltd and Others v Smit NO and Others[7], where Langa DP stated that:

“The Constitution requires that judicial officers read the legislation, where possible, in ways which give effect to its fundamental values. Consistently with this, when the constitutionality of legislation is in issue, they are under a duty to examine the objects and purport of an Act and to read the provisions of the legislation, so far as is possible, in conformity with the Constitution.” [8]

90. Our Constitution requires a purposive approach to statutory interpretation. In Bato Star Fishing (Pty) Ltd v Minister of Environmental Affairs and Tourism and Others,[9] Ngcobo J confirmed this and stated:

“The technique of paying attention to the context in statutory construction is now required by the Constitution, in particular, s 39 (2). As pointed out above, that provision introduces a mandatory requirement to construe every piece of legislation in a manner that promotes the ‘spirit, purport and objects of the Bill of Rights.’” [10]

91. In line with a purposive approach to statutory interpretation, it is appropriate to consider the Respondent’s submission that the 7 (seven) business day requirement is not compulsory and that sufficient compliance can be achieved if the credit bureau report(s) had been obtained within a reasonable time before the conclusion of a (new) credit agreement. As the Court has laid out in Hyundai: “It follows that where a legislative provision is reasonably capable of a meaning that places it within constitutional bounds, it should be preserved. Only if this is not possible should one resort to the remedy of reading in or notional severance.” [11]

92. When determining whether the interpretation of “must” in the context of obtaining credit bureau reports is resulting in a meaning that places it within constitutional bounds, the Tribunal reflects firstly on the constitutional principles that the NCA aims to enhance. The preamble of the NCA aligns the objective of the Act with promoting the achievement of equality when protecting or advancing persons or categories of persons disadvantaged by unfair discrimination[12]and with regulating the practice of applicable trades, occupations or professions impacted on by the credit industry[13]: The preamble outlines the objectives as follows:

“to promote a fair and non-discriminatory marketplace for access to consumer credit and for that purpose to provide for the general regulation of consumer credit and improved standards of consumer information; to promote black economic empowerment and ownership within the consumer credit industry; to prohibit certain unfair credit and credit marketing practices; to promote responsible credit granting and use and for that purpose to prohibit reckless credit granting; to provide for debt re-organisation in cases of over-indebtedness; to regulate credit information; to provide for registration of credit bureau, credit providers and debt counselling services; to establish national norms and standards relating to consumer credit to promote a consistent enforcement framework relating to consumer credit; to establish the NCR and the Tribunal; to repeal the Usury Act, 1968, and the Credit Agreements Act, 1980; and to provide for related incidental matters.” (own emphasis)

93. As the Regulation to obtain credit bureau reports within seven (7) days immediately before signing the credit agreement forms part of the national standards set to promote a consistent enforcement framework relating to consumer credit, compliance without exception to such Regulation is important to promote the objectives of the Act. It is so that there is a legitimate and compelling public interest in the control of the large and enormously powerful credit provider industry in South Africa. The protection of consumers through the thorough consideration of existing debt obligations when seeking initial credit approval is critical to the effective promotion of fair consumer credit practices and the prevention of reckless lending practices.

94. Accordingly, the Tribunal finds the ordinary meaning of the word “shall” in the context of Regulation 23A 12 (f) and 23A 13 to enforce a strict requirement on all credit providers to obtain, without exception, a credit bureau report for every consumer that requests credit, irrespective whether or not such request would culminate in a credit agreement or not. This interpretation implies that, where a particular consumer eventually signs a credit agreement, the credit provider must provide evidence of having obtained a credit bureau report within seven (7) days immediately before entering into such credit agreement with the consumer. Where a consumer is an existing client or has entered into a credit agreement with the credit provider before, the latter is not exempt from the Regulation. The latter is still required to obtain a credit bureau report afresh within the prescribed period if the consumer is making a new credit request, irrespective of the status quo of any other present or former credit agreement(s) with the respective consumer.

95. This interpretation is supported by the purpose of the Act, which reads:

“The purposes of this Act are to promote and advance the social and economic welfare of South Africans, promote a fair, transparent, competitive, sustainable, responsible, efficient, effective and accessible credit market and industry, and to protect consumers, by…

(c) promoting responsibility in the credit market by –

(i) encouraging responsible borrowing, avoidance of over-indebtedness and fulfillment of financial obligations by consumers; and

(ii) discouraging reckless credit granting by credit providers and contractual default by consumers; …

(g) addressing and preventing over-indebtedness of consumers, and providing mechanisms for resolving over-indebtedness based on the principle of satisfaction y the consumer of all responsible financial obligations.” (own emphasis on selected clauses)

96. The interpretation, as contextualised above, also compare in sync with the well-established common law rule that precedes the injunction in Section 39 (2) of the Constitution, quoted as follows:

“It appears to me that the principle we should adopt may be expressed somewhat in this way — that when to give plain words of the statute their ordinary meaning would lead to absurdity so glaring that it could never have been contemplated by the legislature, or where it could lead to a result contrary to the intention of the legislature, as shown by the context or by such other considerations as this Court is justified in taking into account, the Court may depart from the ordinary effect of the words to the extent necessary to remove the absurdity and to give effect to the true intention of the legislature.”[14]

97. As Regulation 23A intends to prevent reckless credit activities from slipping through the gaps of the other more specific and restrictive provisions of the Act, the plain words of the Act should guide us. The Tribunal believes that an appropriate balance between the text and its context is achieved by limiting interpretation to the ordinary meaning of the words in Regulation 23A. By giving the plain words of Regulation 23A their ordinary meaning, no absurdity will result. Therefore, the Tribunal finds no reason to depart from the ordinary effect of the words in the Regulation. The Tribunal believes that the interpretation, as confirmed above, promotes the spirit, purport and objects of the Bill of Rights.

98. It follows that it is not sufficient for the Respondent to obtain credit bureau reports only once (where a client enters into multiple credit agreements over a period) or long in advance. Even though the financial obligations may be contained in the bank statements and other information, the only objectively reliable source to confirm the registered debt arrangements is a credit bureau report. More importantly, considering such a credit bureau report is a non-discretionary requirement. Therefore, if a consumer is applying for a new loan from the Respondent, irrespective of whether an existing or former loan had been settled, the Respondent is required to obtain a (new) credit bureau report on the particular consumer within the seven days immediately before entering into such a credit agreement, to comply with Section 81 (2).

99. According to the evidence before the Tribunal, the sampled files confirm the failure by the Respondent to obtain a credit bureau report before entering into the applicable credit agreements. The following specific instances are applicable:

(i) Consumer Mgidi: A credit bureau report was drawn on the 31st of October 2015, the 8th of March 2019 and the 26th of July 2019. The only credit agreement with consumer Mgidi presented to the Tribunal (which includes an initiation fee of R465.00) was signed on the 25th of July 2019. As the credit bureau reports either pre-date the credit agreement with more than seven business days or post-date it, the Respondent failed to convince the Tribunal that it complied with the statutory requirements for an affordability assessment in this case;

(ii) Consumer Mathe: A credit bureau report was drawn on the 26th of February 2016, the 24th of June 2019 and the 26th of July 2019. The only credit agreement with consumer Mathe presented to the Tribunal (which includes an initiation fee of R215.00) was signed on the 26th of April 2019. As the credit bureau reports either pre-date the credit agreement with more than seven business days or post-date it, the Respondent failed to convince the Tribunal that it complied with the statutory requirements for an affordability assessment in this case;

(iii) Consumer Mooka: A credit bureau report was drawn on the 21st of July 2017, the 28th of February 2019, and the 26th of July 2019. The only credit agreement with consumer Mooka presented to the Tribunal (which includes an initiation fee of R150.00) was signed on the 28th of February 2019. As a credit bureau report was seemingly drawn at 17:18 on the day of the credit agreement, the impression is created that the credit bureau report was scrutinised on the day that credit was granted. However, in that the search was conducted after hours and as no actual credit bureau report of that date was kept on file, the most probable deduction is that such report was requested after the signing of the agreement, alternatively not properly considered before extending credit to the consumer on the same day;

(iv) Consumer Mbina: A credit bureau report was drawn on the 24th of October 2017 and the 26th of July. The only credit agreement with consumer Mbina presented to the Tribunal (which includes an initiation fee of R315.00) was signed on the 28th of June 2019. As the credit bureau reports either pre-date the credit agreement with more than seven business days or post-date it, the Respondent failed to convince the Tribunal that it complied with the statutory requirements for an affordability assessment in this case;

(v) Consumer Motsukunyane: A credit bureau report was drawn on the 6th of May 2019. The only credit agreement with consumer Motsukunyane presented to the Tribunal (which includes an initiation fee of R265.00) was signed on the 8th of July 2019. As the credit bureau reports either pre-date the credit agreement with more than seven business days or post-date it, the Respondent failed to convince the Tribunal that it complied with the statutory requirements for an affordability assessment in this case;

(vi) Consumer Mahlangu: A credit bureau report was drawn on the 8th of March 2017 and the 26th of July 2019. The only credit agreement with consumer Mahlangu presented to the Tribunal (which includes an initiation fee of R75.00) was signed on the 17th of July 2019. As the credit bureau reports either pre-date the credit agreement with more than seven business days or post-date it, the Respondent failed to convince the Tribunal that it complied with the statutory requirements for an affordability assessment in this case;

(vii) Consumer Mthombeni: A credit bureau report was drawn on the 26th of July 2019. The only credit agreement with consumer Mthombeni presented to the Tribunal (which includes an initiation fee of R265.00) was signed on the 19th of July 2019. As the credit bureau reports either pre-date the credit agreement with more than seven business days or post-date it, the Respondent failed to convince the Tribunal that it complied with the statutory requirements for an affordability assessment in this case;

(viii) Consumer Kubeka: A credit bureau report was drawn on the 22nd of March 2019 and the 26th of July 2019. The only credit agreement with consumer Kubeka presented to the Tribunal (which includes an initiation fee of R665.00) was signed on the 14th of June 2019. As the credit bureau reports either pre-date the credit agreement with more than seven business days or post-date it, the Respondent failed to convince the Tribunal that it complied with the statutory requirements for an affordability assessment in this case;

(ix) Consumer Maano: A credit bureau report was drawn on the 7th of June 2016 and the 26th of July 2019. The only credit agreement with consumer Maano presented to the Tribunal (which includes an initiation fee of R365.00) was signed on the 16th of July 2019. As the credit bureau reports either pre-date the credit agreement with more than seven business days or post-date it, the Respondent failed to convince the Tribunal that it complied with the statutory requirements for an affordability assessment in this case;

(x) Consumer Melato: A credit bureau report was drawn on the 18th of March 2019 and the 26th of July 2019. The only credit agreement with consumer Melato presented to the Tribunal (which includes an initiation fee of R265.00) was signed on the 24th of July 2019. As the credit bureau reports either pre-date the credit agreement with more than seven business days or post-date it, the Respondent failed to convince the Tribunal that it complied with the statutory requirements for an affordability assessment in this case; and

100. The Respondent’s stance, that it could not provide copies of credit bureau reports as such were kept electronically, is not permissible in terms of Regulation 55 (3), which outlines that a “record that is kept in electronic format must be reproduced in paper form within a period of five business days after a request by the National Credit Regulator.” Accordingly, the Tribunal finds that the Respondent did not fully comply with the statutory requirements for an affordability assessment in all the sampled files, and failed to properly assess the consumers’ debt repayment history before the initial granting of credit to such consumers.

Reckless Credit

101. A credit provider is required to take reasonable steps to assess the debt repayment histories and financial means, prospects and obligations of consumers before entering into credit agreements. These reasonable steps are referred to as the affordability assessment mentioned above, which includes considering a credit bureau report as discussed.

102. Section 80 stipulates that a credit agreement will be reckless if the credit provider failed to conduct an assessment as required by Section 81 (2). The Respondent’s failure to consider the credit bureau reports in the sampled cases signifies the entering into reckless credit agreements.

103. The crux of the Applicant’s case is that the Respondent’s failure to take reasonable steps to assess the consumers’ debt repayment history and their existing financial means, prospects, and obligations, resulted in the Respondent entering into reckless agreements with consumers.

104. The Applicant has put forward details and information about several consumers allegedly being granted reckless credit by the Respondent. The Respondent submitted in defence that it had checked all the information provided by the respective consumers when they applied for credit and was convinced that the consumers would be able to make payments without being over-indebted. The Respondent, therefore, submitted that it did not grant credit recklessly.

105. The Tribunal did not accept the Respondent’s version, as the latter failed to convince the Tribunal on a balance of probabilities that it adequately considered the indebtedness of prospective consumers. Although the Respondent supplied evidence of bank statements and other commitments submitted by the indebted consumers, it failed to prove that the Respondent considered the most recent information and credit obligations when the agreements were entered.[15]

106. It follows that the “existing” financial obligations to be taken into account are those existing at the time of entering into the credit agreement and not the “future” or “historic” financial obligations. The correct application of Section 81 (2) (iii) is for a credit provider to verify and not merely assume the correctness of the consumer’s list of credit obligations when applying for credit. The Respondent did not do this.

107. Having regard to the preceding, the Tribunal finds that the Respondent repeatedly contravened Section 81(3), read with Section 80(1)(b)(ii) and 81(2)(a)(ii) and (iii) of the NCA through entering into credit agreements with consumers in Annexures D1 - D10 of the founding affidavit.

CONCLUSION

108. The Tribunal considered the cumulative provisions of Sections 80, 81 and 82 of the Act and found that reckless lending occurred due to the Respondent’s failure to properly conduct the affordability assessments as required by the Act.

109. Reckless lending, which is prohibited conduct, was committed by the Respondent in that it failed to follow the affordability assessment principles prescribed under Section 81. Despite thereof, it continued to conclude the proposed credit agreements with consumers.

110. In contravention of Section 80 (1) and 81 (2) of the NCA, the Respondent failed to take reasonable steps to assess the debt repayment histories of consumers, to examine bank statements properly, to read and apply credit bureau reports available, or to obtain the most recent credit bureau reports for purposes of assessing prospective consumers’ debt repayment histories before entering into credit agreements with consumers.

111. In contravention of Regulation 55 (1) (b) (vi) of the NCA, the Respondent failed to retain copies of the credit bureau reports utilised to assess prospective consumers’ debt repayment histories before entering into credit agreements with the consumers.

112. Section 83 of the NCA allows the Tribunal to impose specific relief where it found that the Respondent engaged in prohibited conduct and engaged in reckless credit.

113. The Applicant has presented sufficient evidence for the Tribunal to declare that the Respondent repeatedly contravened various provisions of the NCA. As envisaged under Section 150 (a) of the NCA, the Respondent’s contravention of various NCA provisions constitutes prohibited conduct. Prohibited conduct is defined under Section 1 of the NCA as “an act or omission in contravention of this Act other than an act or omission that constitutes an offence under this Act, by-

(a) an unregistered person who is required to be registered to engage in such an act; or

(b) a credit provider, credit bureau or debt counsellor.”

114. Having found that the Respondent repeatedly contravened various provisions of the NCA, it follows that the Applicant has established a clear basis for imposing a penalty on the Respondent and for the Tribunal to make an order interdicting the Respondent from any further breaches of the NCA.

115. In contravention with Regulation 64 (2) of the NCA, the Respondent failed to complete and submit a statistical return (Form 39) by the 15th of February each year. The Respondent has submitted its Form 39 on the 15th of July 2021, but such submission occurred late.

116. In contravention with Regulation 66, the Respondent failed to complete and submit an annual financial and operational return (Form 40) to the Applicant within six months after the Respondent’s financial year.

117. Given the averments that Ms Du Plooy made in her affidavit, the documentary evidence annexed to the Applicant’s founding affidavit, the Respondent’s failure to adduce and produce sufficient evidence refuting the Applicant’s allegations, and the provisions of Rule 13(5) of the Tribunal Rules, the Tribunal is satisfied that the Applicant has shown, on a balance of probabilities, that the Respondent breached its conditions of registration and repeatedly contravened the above-cited provisions of the NCA.

ADMINISTRATIVE

FINE

118. We now turn to the administrative fine that the Applicant wants to be imposed on the Respondent. In its application documents, the Applicant stated that it wants an administrative fine in the amount of R1 000 000.00 or 10% of the Respondent’s annual turnover, whichever is the greater.

119. The imposition of administrative fines as provided for in Section 150(c) read with Section 151 is as follows -

“151. Administrative fines.—

(1) The Tribunal may impose an administrative fine in respect of prohibited or required conduct in terms of this Act, or the Consumer Protection Act, 2008.

(2) An administrative fine imposed in terms of this Act, or the Consumer Protection Act, 2008, may not exceed the greater of—

(a) 10 per cent of the Respondent’s annual turnover during the preceding financial year; or

(b) R1 000 000.

(3) When determining an appropriate fine, the Tribunal must (emphasis added) 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.”

120. Section 151(4) deals with what is meant by “turnover” -

“(4) For the purpose of this Section, the annual turnover of—

(a) a credit provider at the time an administrative fine is assessed, is the total income of that credit during the immediately preceding year under all credit agreements to which this Act applies, less the amount of that income that represents the repayment of principal debt under those credit agreements; or

(b) any other person, is the amount determined in the prescribed manner.”

121. Per the provisions of Section 151 (3) of the NCA, in determining the appropriate administrative fine,

we will consider the following:

Nature, duration, gravity, and extent of the contraventions

122. Nature: Reckless credit granting is one of the most egregious forms of prohibited conduct under the NCA. The Respondent exploited consumers. By extending credit without conducting proper affordability assessments, the Respondent acted in a manner that undermined the NCA’s purpose and showed a callous disregard for consumers.

123. Duration: The evidence presented to the Tribunal shows that contraventions took place over many months.

124. Gravity: The Respondent’s conduct shows a total disregard for the consumer protection measures provided for in the NCA and the regulated credit industry.

125. Extent: The fact that the Applicant found contraventions of the NCA in all the files its inspectors extracted from Respondent shows that the Respondent generally conducted its business illegally.

Loss or damage suffered as a result of the contraventions

126. Although the actual loss by consumers has not been computed, consumers have suffered loss and damage due to the Respondent’s conduct. The Respondent exploited consumers by entering into loan agreements with the Respondent without the Respondent first taking reasonable steps to ensure that the loans are affordable.

127. The damage to consumers’ economic status is far-reaching if they, due to over-indebtedness, apply for and are placed under debt review.

The behaviour of the Respondent

128. As a registered credit provider, the Respondent knew that it had to comply with the NCA’s prescripts but chose to exploit consumers nonetheless.

129. The Tribunal accepts the Applicant’s submission that the Respondent’s conduct illustrates that the market circumstances within which the contraventions occurred are those in which consumers are not educated on their rights relating to credit access. The Tribunal views the exploitation of vulnerable consumers with contempt.

130. The Applicant was unable to state what the total amount of profit was.

131. The Respondent co-operated with the Applicant’s inspectors?.

132. There are no prior investigations or enforcement actions instituted by the Applicant.

133. However, the Tribunal takes a very dim view that the Respondent has been found guilty of contravening numerous provisions of NCA.

Deterrence

134. In The Competition Commission of South Africa v Federal-Mogul Aftermarket Southern Africa (Pty) Ltd & Others[16] (Federal-Mogul case), the Competition Tribunal held that deterrence is the primary purpose of imposing administrative penalties.[17]

135. The above approach is aligned to the purpose of the NCA and is set out in Section 3 of the NCA. In summary, the purposes of the Act are to promote and advance the social and economic welfare of South Africans, promote a fair, transparent, competitive, sustainable, responsible, efficient, effective and accessible credit market and industry and to protect consumers “... by ... (c)...(ii) discouraging reckless credit granting by credit providers and contractual default by consumers.”

136. The Tribunal believes that the nature of the offence, namely entering into reckless credit agreements, justifies the imposition of an administrative fine. For this reason, we are of the view that the Tribunal may impose an administrative penalty without reference to annual turnover. Accordingly, where no evidence regarding annual turnover is available, the Tribunal still has the option to award a penalty not exceeding R 1 000 000.00.

137. On a conspectus of the evidence tendered by the Applicant, the Tribunal is of the view that the Respondent’s disdain for the law that is meant to protect consumers and its callous treatment of consumers warrant the imposition of a substantial administrative fine.

ORDER

138. The Tribunal makes the following order: -

a. The Respondent is found guilty of repeatedly contravening the following provisions of the NCA:

i. Sections 81 (2) (a) (ii) and (iii) read with Regulation 23A;

ii. Section 81 (3) read together with Section 80 (1) (a);

iii. Section170 read together with Regulation 55 (1) (b) (vii);

iv. Regulation 64 and 66 and Section 52 (5) (c) read with condition A3 of its registration conditions as a credit provider; and

v. Section 40 (3) read with Section 52 (4) (b) (iii);

b. The Respondent’s conduct stated in sub-paragraphs (a) above is hereby declared prohibited conduct in terms of Section 150 (a);

c. The credit agreements entered into between the Respondent, and the following consumers are declared reckless:

i. Mgidi S;

ii. Mathe CM;

iii. Mooka MS;

iv. Mbina NM;

v. Motsukunyane CT;

vi. Mahlangu ZMP;

vii. Mthombeni SM;

viii. Kubeka LA;

ix. Maano MT; and

x. Melato NL;

d. The Respondent is interdicted from any further breaches of the NCA; in the manners as listed in sub-paragraph (a) above;

e. The Respondent is interdicted from conducting business activities as a credit provider whilst it remains unregistered as a credit provider;

f. The Respondent’s credit agreements with consumers, contained in Annexures D1 to D10 of the Investigation Report, are declared reckless in terms of Section 80 (1) (a) read with Section 81 (3);

g. The Respondent must appoint an independent auditor at its own costs within thirty (30) days of issuing this order who must identify all open credit agreements concluded by the Respondent and determine which of such agreements the Respondent entered into without obtaining a credit bureau report in terms of Section 81 (2) (a) (ii) and (iii) read with Regulation 23 A. The auditor must report his findings within ninety (90) days after his appointment to the Applicant. After the Applicant has received the auditor’s report in this regard, the Applicant may apply to the Tribunal for an order declaring such agreements as reckless in terms of Section 80 (1) (a) read with Section 81 (3);

h. The Respondent must pay an administrative fine in the amount of R250 000.00 (Two Hundred and Fifty Thousand Rand) into the following bank account;

Bank Name: Standard Bank

Account Holder: The Department of Trade and Industry

Account Number: 370650026

Account Type: Business Current Account

Branch: Sunnyside

Branch code: 010645

Branch Code (electronic payments): 051001

SWIFT Address:

SBZA JJ

in terms of Section 151 (5) of NCA within 60 (sixty) ordinary days of issuing this order; and

i. There is no order made as to costs.

Thus, done and signed at Centurion on the 2nd of July 2021.

{signed}

Dr MC Peenze

Presiding Tribunal Member

Mr A Potwana (Tribunal Member) and Ms P Beck (Tribunal Member) concurring.

[1] Act 34 of 2005 as amended.

[2] Section 27(a)(i) provides that: “The Tribunal or a member of the Tribunal acting alone in accordance with this Act or the Consumer Protection Act, 2008 may adjudicate in relation to any application that may be made to it in terms of this Act in respect of such an application.”

[3] Published under Government Notice R489 in Government Gazette 28864 of 31 May 2006.

[4] See page 55 of the Tribunal Bundle.

[5] Section 23A(12)(b).

[6] Section 23A(13)(a).

[7] 2001 (1) SA 545 (CC); 2000 (10) BCLR 1079 (CC).

[8] Id at paragraph 21-2.

[9] 6 [2004] ZACC 15; 2004 (4) SA 490 (CC); 2004 (7) BCLR 687 (CC).

[10] Id at para 91.

[11] Investigating Directorate: Serious Economic Offences and Others v Hyundai Motor Distributors: In Re Hyundai Motor Distributors (Pty) Ltd and Others v Smit NO and Others [2000] ZACC 12; 2001(1) SA 545; 2000 (10) BCLR 1079 (CC) at para 26.

[12] Section 9 of the Constitution of South Africa.

[13] Section 22 of the Constitution of South Africa.

[14] Venter v Rex 1907 TS 910 at 914-5

[15] Section 80(1)(b)(ii) provides that -“A credit agreement is reckless if, at the time that the agreement was entered into (emphasis added)... that credit agreement would make the consumer over-indebted.”

[16] Competition Tribunal Case number: Case Number: 08/CR/Mar01.

[17] At para 166.