National Credit Regulator v Cash Converters South Africa and Others (NCT/18013/2014/140(1) NCA) [2015] ZANCT 16 (27 February 2015)

1INTHE NATIONAL CONSUMER TRIBUNAL HELDIN CENTURION

Case number: NCT/18013/20141140(1) NCA

Inthe matter between:

NATIONAL CREDIT REGULATOR

APPLICANT

and

CASH CONVERTERS SOUTH AFRICA FIRST

RESPONDENT

PRE-OWNED ASSET TRADING CC T/A CASH SECOND RESPONDENT

CONVERTERS BENONI

MANZISEC CC T/A CASH CONVERTERS BOKSBURG THIRD RESPONDENT

KIADEV TRADING (PTY) LTD T/A CASH

FOURTH RESPONDENT

CONVERTERS KEMPTON PARK

Coram:

Ms Dterblanche - Presiding Member

Dr B Dumisa - Member

Ms Hdevraj - Member

Date of Hearing - 27 February 2015

FULL JUDGMENT AND ORDER

(NCR and MANZISEC CC Ua CASHCONVERTERS BOKSBURG)

1. The Applicant lodged an application in terms of section 140 of the NationalCredit Act 34 of 2005 ("the Act") for an order declaring the Respondents to have engaged in prohibited conduct and for the imposition of an administrative fine as well as other relief.

2. The matter was set down for hearing on 27 February 2015. On 25 February 2015, the Applicant and First, Second and Fourth Respondents submitted a deed of settlement and requested the Tribunal to confirm it as a consent order.The Third Respondent was not part of the settlement agreement.

3. The Tribunal granted the consent orderwith the following amendments:

3.1 Paragraph 3.2, reference to "the Honourable National Consumer Tribunal" be deleted as the Tribunal is not a party to the proceedings. The paragraph should beamended to read as follows :-

"The First, Second and Fourth Respondents shall within 90 (ninety) days of this order submit to the Applicant a report compiled by the accounting officer or auditor of the First, Second and Fourth Respondents, as appointed in terms of the requirements to submit an assurance report, which report shall be compiled at the cost of the aforementioned Respondents and which report shall contain the following detail:.•

4. The parties agreed to the amendment.

4.1 After consideration by the Tribunal,the Settlement Agreement entered into between the Applicant and the First, Second and Fourth Respondents on 24 February 2015 was made an order of the National Consumer Tribunal in terms of Section 138 of the National Credit Act, Act 34 of 2005 as amended.

4.2 No orderwas made as to costs. ORDER PRAYEO FOR

5. The Applicant prays for the following orders to be granted by the Tribunal against the third Respondent:-

5.1 Contravention of the following sections and Regulations be declared prohibited conduct:

(i) Regulation 55 (1) (b);

(ii) Sections 90(1) read with sections 90(2)(a)(i) and 90(2)(b)(ii) and further read with section 99(1)(b) of the Act of 2005;

(iii) Section 101 (1) ( c) (iii) read with Regulation 44;

5.2 The Third Respondent is interdicted from charging consumers to pay an administrative returned debit order fee, which fee when added to the monthly service fee, causes the monthly service fee to exceed the prescribed maximum permissable fees.

5.3 The Third Respondent shall within thrity days of this order submit a copy of a revised Pre-agreement statement and quotation form which the offending provision/term is deleted and which contains in its stead a provision/term which complies with the National Credit Act 2005;

5.4 The Third Respondent shall within 90 (ninety) days of this order submit to the Applicant and the Honorable Tribunal a report compiled by its auditors, as appointed in terms of the requirments to submit an assurance report, which report shall be compiled at the cost of an aforementioned Respondent and which report shall contain the following details:

(i) the details of all consumers whose goods were lost or damaged while in the posession of the Third Respondent and which consumers were paid the amounts equivalent ta the total amount repayable by the consumer in terms of the credit agreements concluded between the consumers and the Third Respondent;

(ii) The fair market value of each item that was lost or damaged whilst in the possession of the Third Respondent;

(iii) The difference between the value that was paid by the Third Respondent to each consumer for each such item that was lost or damaged while in the possession of the Third Respondent and the fair market value of each item;

(iv) The name and number of consumers who paid the returned debit order fee of R57.00 and the totalof paid consumers in this regard.

(v) The Third Respondent shall pay to the consumers identified in paragraph (i) and (iv) above the amounts identified in terms of paragrah (iv)

5.5 The Third Respondent shall pay an administrative fine, in the sum of 1 million rands.

THE CASE AGAINST THE THIRD RESPONDENT: MANZI SEC CC t/a CASH CONVERTORS BOKSBURG

6. The Third Respondent, Manzisec CC l/a Cash Converters Boksburg was not part of the Settlement Agreement entered into between the Applicant and the First, Second and Fourth Respondents on 24 February 2015.

7. The Applicant decided to proceed with the application against the Third Respondent, on a default basis in terms of Regulation 25(3).

0.02in; margin-bottom: 0in; line-height: 150%"> 8. The Tribunalproceeded with the hearing against the Third Respondent, in absentia, on grounds that the Third Respondent did not send any correspondence nor make any representations to the Applicant nor to the Tribunal to indicate their basis far opposing the application lodged by the Applicant against the four Cash Converters Respondents; neither did the Third Respondent oppose the Settlement Agreement between the Applicant and the other three Cash Converters respondents.

MANZI SEC CC t/a CASH CONVERTORS BOKSBURG

9. The Third Respondent, Manzisec CC l/a Cash Converters Boksburg,operates as a credit provider at Shop 1-5 Trichard Street,Baksburg.

10. At the time of the contraventions, the Third Respondent was not (yet) registered as a credit provider with the Applicant.

11. The matter brought against the respondents was triggered by a formalcomplaint lodged against this franchisee by one Kavalan Dorasamy.

THE COMPLAINT

12. According to the complainant, Dorasamy •

13. He pawned his 22ct gold chain at the Third Respondent's branch, in Boksburg, on the 181h October 2011 and entered into anagreement with the Third Respondent as follows:

13.1 The agreement would come to an end a month later on the 17111 of November 2011;

13.2 The consumer would beexpected to pay a total amountof R535.00 in return for his pledged gold chain on the 17th of November 2011;

14. However,on the 15111 of November 2011 he renewed the agreement as follows:

14.1 The new expiry date was the 16111 of December 2011;

14.2 He was expected to pay an(interim) amount of R135.00 at the time of the agreement renewal;

15. On the 6th of December 2011 he approached the store to pay the full outstanding balance and collect the pledged item.

15.1 He was initially advised that the pledged item could not be located;

15.2 He was later told by a staff member, Yolande Jooste, that, according to the store's records,he had already collected his goods; presenting him with a purported signed collection note;

15.3 He advised the Third Respondent's staff that he had in fact not collected his goods;

15.4 He was subsequently advised that there had been a theft in the store which was reported to the police under case number CC.CAS445/10/2011.

THE THIRD RESPONDENT'S CASE

16. The Third Respondent's relies on an exclusion clause, Part E of the Pawn Agreement, under the heading "Borrower's Warranties and Undertakings (Declaration)":

16.1 When the consumer enquired about compensation for his loss, he was accordingly advised that the credit provider cannot be held liable;and that the insurance would not cover the said loss;

16.2 Part E reads as follows "I agree that in the event of loss or damage to the Security in the circumstances beyond your reasonable control the value of the Security will be deemed to be equal to the Total Amount Repayable, and your liability will be limited accordingly I therefore accept that where I consider the Total Amount Repayable to be less than the actual value of the Security the risk of any losses incurred in the circumstances beyond your reasonable control (and the Responsibility to insure in relation to such risk) is mine".

16.3 The Third Respondent is of the view that the theft of the pawned goods by the store manager is a circumstance beyond their reasonable control;and that they are therefore not liable to compensate the complainant consumer.

THE COLLECTIVE I MPACT OF THE SETTLEMENT AGREEM ENT ON THE THI RD RESPONDENT

17. The Applicant, First, Second, and Fourth Respondents entered into a Settlement Agreement, where Cash Converters operators conceded they had engaged in prohibited conduct, in that:

17.1 They entered into credit agreements with consumers without conducting proper affordability assessments as contemplated in the NationalCredit Act 2005 (the NCA). This was in contravention of Section 81(2)(a)(ii),in that they failed to assess the debt repayment history of the consumers they gave credit to. Their failure to conduct such affordability assessments could, under certain circumstances, constitute granting reckless credit under Section 40 of the NCA.

17.2 They also conceded that they failed to maintain the necessary documentation in support of their NCA obligations; this was in breach of Regulation 55(1)(b)(vi) which requires that such documentation must be maintained.

17.3 They further conceded that they charged consumers an administrative returned debit order fee, which fee, when added to the monthly service fee, causes the monthly service fee to exceed the prescribed maximum pennissible fees.

17.4 They also conceded that the existing exclusion clause, contained in the Pre-Agreement Statement &

Quotation (see Para 11.2) was unlawful; this was in breach of Section 99 of the NCA.

18. 1n terms of the Settlement Agreement:

18.1 The Second and Fourth Respondents are interdicted from entering into credit agreements with consumers without conducting proper affordability assessments as contemplated in the NCA;

18.2 The Second and Fourth Respondents are interdicted from using the Pre-Agreement Statement and Quotation that contain the exclusion clause (referred to IPara 11.2);

18.3 The First Respondent is interdicted from prescribing to its franchisees or providing to its franchisees a Pre-Agreement Statement & Quotation which contains such exclusion clauses;

18.4 The Second and Fourth Respondents are interdicted from charging consumers administrative returned debit order fees which, when added to the monthly service fees, cause the monthly service fees to exceed the prescribed maximum permissible fees.

18.5 The First, Second, and Fourth Respondents shall within thirty days of the conclusion of this Settlement Agreement being made an Order of the Tribunal submit to the Applicant a copy of the revised Pre-Agreement Statement & Quotation form from which the offending provision /term set forth in paragraph 17.2 above is deleted and which contains in its stead a provision I term which complies with the NCA;

18.6 The First, Second, and Fourth Respondent shall within thirty days of the conclusion of this Settlement Agreement being made an Order of the Tribunal submit to the Applicant a report compiled by the accounting officer or auditor of the First, Second, and Fourth Respondents, as appointed in terms of the requirements to submit an assurance report, which report shall be compiled at the cost of the aforementioned Respondents and which shall contain the details as specified in the Deed of Settlement.

18.7 The First, Second and Fourth Respondents shalljoinHy pay anadministrative fine, as contemplated in Section 150 of the NCA, in the sum of R400 000 (Four Hundred Thousand Rand) in respect of all the contraventions set forth above. Such administrative fine shall be paid within 90 days of this Deed of Settlement being made an order of the Tribunal.

CONSIDERATION OF THE EVIDENCE ON A DEFAULT BASIS

19. The Applicant filed the Section 57(1) application with the Tribunal on 29 September 2014. The Applicant attached a copy of a courier waybill as proof that the application was served on the parties. There is a signature on the courier waybill confirming the receipt of the documentation. To date the Third Respondent has not filed any answering affidavit or a response to the application.

20. Rule 13(5) provides as follows:

•Any fact or allegation in the application or referral not specifically denied or admitted in the answering affidavit, will be deemed to have been admittecr

21. Therefore, in the absence of any answering affidavit filed by the Third Respondent, the Applicant's application and allof the allegations contained therein are deemed to be admitted.

CONSIDERATION OF THE APPLICABLE LAW AND THE TRIBUNAL'S FINDINGS

Application for a default judgment

22. Rule 25(2)(3) provides as follows:

"(3) The Tribunal may make a default order·

(a) After it has considered or heard any necessaty evidence and

(b) If it is satisfied that the application documents were adequately served".

23. The Tribunal is satisfied that the Applicant served the application on the Third Respondent. Furthermore, the Tribunalis satisfied with the necessary evidence that was considered during the hearing and on the papers that were filed by the Applicant, that the requirements for a default order were met.

DETERMINATION OF CONTRAVENTIONS AND PROHIBTED CONDUCT BY THETHIRD RESPONDENT

24. The Third Respondent did not keep records of the assessments conducted in respect of the Pay Day Advance loans. This was a contravention of Regulation 55(1)(b)(vi) read with Section 81(2) of the NCA.

a. Section 81(2) of the Act , on the Prevention of reckless credit, stipulates that a credit provider must not enter into a credit agreement without first taking reasonable steps to assess the consumer's credit worthiness;

b. Regulation 55(1)(b)(vi) stipulates that documents must be kept in support of steps taken in terms of Section 81(2); these documentswere not provided by the Third Respondent.

25. In all its Pay Day Advance Pre Agreements, the Third Respondent requires the consumers to pay a debit order fee which when added to the R50 service fee, causes the service charged by the Third Respondent to exceed the maximum prescribed rate. This was a contravention of Section 101(1)( c )(iii) read with Regulation 44, which stipulates that a credit agreement must not contain an interest rate or service fee which exceeds the prescribed amount relative to the principal debt.

26. The Third Respondent relied on an unlawful provision, as discussed under paragraph 15.2, which sought to absolve the Third Respondent from fully compensating Kolavan Dorasamy for the pledged 22 carat gold chain purportedly lost while in the custody of the Third Respondent. This was a contravention of a numberof the NCA provisions, namely:

a. The Clause being relied on by the Third Respondent is unlawful on grounds that it contravenes Section 90(2)(a)(i) in that it seeks to defeat the purposes or policies of the Act in that;

b. It seeks to set aside or override the effects of the Act,interms of Section 90(2)(b)(iii);

c. Which, under Section 99(1)(b), obliges the credit provider to retain, at its own risk, until the end of the credit agreement any property of the consumer that is delivered to it as security under that credit agreement.

27. The Tribunal therefore finds that the Respondent repeatedly contravened Sections 55 (1)(b)(vi), Sections 90(1) read with sections 90(2)(a)(ii) and further read with 99 (1) (b); Sections 101(1) (c) (iii) of the Act. The Respondent is therefore guilty of prohibited conduct in accordance with Section 150(a) of the Act.

DETERMINATION OF INTERDICTING PROHIBITED CONDUCT

28. The evidence before the Tribunal is that the clauses in the Pre-agreement statement and quotation are unlawful. Furthermore, the Third Respondent has over charged consumers by requiring consumers to pay an administrative returned debit orderfee.

29. In terms of Section 150(b), the Third Respondent is interdicted from engaging in further prohibited conduct relating to the issues raised in Par 28.

DETERMINATION OF REPAYMENT TO CONSUMERS

30. The Tribunalhas found the Third Respondent to be guilty of charging consumers excessive fees.

31. ln terms of Section 150 (h), the Tribunal can make the order requiring repayment to the consumer of any excess amount charged, together with interest at the rate set out in the agreement.

32. However, the Applicant has also prayed for the Tribunalto make an order to refund consumers whose goods were lost or damaged while in the possession of the Third Respondent and which consumers were paid the amounts equivalent to the total amount repayable by the consumers.

33. In the reading of the Act, this power of the Tribunal is specifcally mentioned under Section 99(2)(b) which states:

"If a credff provider contemplated in this section fails to deliver any properly to the consumer as required in subsection (1) (c) the Tribunal, on application by the consumer, may order the credff provider topay to the consumer an amount equal to -double the fair market value of the properly, less the settlement value at the time of failure to deliver that properly, as determined by the Tribunal, if the reason for the failure to return the properly is other than as contemplated in paragraph (a). However, it would appear that this order can only be made upon an application from a consumer in terms of Section 99(2) of the Act for compensation from a pawnbroker in lieu of properly. In the matter K Dorasamy vs Manzisec cc tla Cash Converters (NCT/653712012199(2) , which was an application by a consumer for compensation from a pawnbroker in lieu of properly, the Tribunal dismissed the application and found that the payment agreed between the parties and received and retained by the Applicant, had settled the matter of payment between the parties. •

34. Therefore it would appear that the Tribunalcannot grant this order and that each matter would have to be considered on its own merits andthe evidence put forward and by application of the consumer.

DETERMINATION OF IMPOSING AN ADMINISTRATIVE PENALTY

35. In its submissions, the Applicant's prayer was that an administrative fine of one million Rands must be imposed on the Third Respondent. No clear basis was given by the Applicant on how they arrived at the amount of one million Rands, save to say that it is provided for under Section 151(2)(b) of the Act. The Applicant has not provided the Tribunalwith the necessary financial data that is necessary for the necessary administrative fine; this is through no fault of the Applicant, the Third Respondent did not cooperate enough with the Applicant's Investigators for the latter to obtain such vital financial data. The Tribunal was previously faced with such a dilemma in NCR v Werlan Cash Loans tla Lebathu Finance where the Applicant did not put any evidence before the Tribunal on the Respondent's annualtum-over,it being unknown to the Applicant. In that case, the Tribunal made an assertion that where there is no basis for calculating the "10 percent of the respondent's annual turnover during the preceding financialyear" in line with Section 151(2)(a), the Tribunal has the option to simply follow Section 151(2)(b) by imposing an administrative fine not greater than or equal to R1 000 000 (one million Rand).

36. Section 151(3) will thus be important ta consider when determining an appropriate fine, if any; these factors will be considered: (a) The nature, duration, gravity and extent of the contravention; (b) Any loss or damage suffered as a result of the contravention; (c) The behaviourof the respondent; (d) The market circumstances in which the contraventions took place; (e) The level of profit derived from the contravention; (n 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, and the Tribunal; and (g) whether the respondent has previously been found in contravention of the Act, the CPA, as the case may be. Section 2 of the Act requires the Tribunalto interpret the NCA in a manner that "gives effect to the purposes of the Acr. The major factors the Tribunal may have ta take into consideration whether or not to impose any administrative fine in this particular case will be extent of prohibited conduct by the Third Respondent when resisting to compensate the consumer for the pledged goods which were lost by the third Respondent; the lack of cooperation by the Third Respondent when the other Cash Converters respondents decided to settle the matter amicably with the Applicant; and also the deal reached between the Applicant and the other Cash Converters respondents.

37. Under the circumstances, considering that the Third Respondent just refused to co-operate with the Applicant whereas the other respondents chose to co-operate and reached an amicable settlement with the Applicant, which included each paying part of a total of R400 000 administrative fine and also undertaking to refund the consumers who had been adversely affected by the prohibited conduct of the respondents; the Tribunal will need to take these factors into consideration when (iQ imposing. an administrative fine. The Third Respondent cannot benefit from not co-operating with the Applicant, at the detriment of the other co-operative parties.

ORDER

38. The Tribunal accordingly makes the following order:

38.1

The Third Respondent's conduct is declared to be prohibited in terms of the Act.

38.2

The Third Respondent is interdicted from using the Pre-Agreement Statement and Quotation that contains the provisions of Part Eof the current Pre-Agreement and Quotation;

38.3

The Third Respondent is interdicted from charging consumers to pay an admistrative returned debit order fee, when added to the monthly fee, causes the monthly service to exceed the prescribed maximum permissible fee.

38.4

The Third Respondent shall within thirty days of this order submit to the Applicant a copy of a revised Pre-Agreement & Quotation form, which complies with the National Credit Act.>

38.5

The Third Respondent shall within 90 (ninety) days of this order submit to the Applicant a report compiled by its auditor, as appointed in terms of the requirements to submit an assurance report, which report shall be compiled at the cost of the Third Respondent and which report shall containthe following details :

38.5.1 The name and number of consumers who paid the returned debit order fee of R57 and the total paid by consumers in this regard.

38.6

The Third Respondent shall pay to the consumers identified in paragraph 39.5.1 above the amounts identified in paragraph 39.5.

38.7

The Third Respondent shall pay an administrative fine of R400 000 (Four Hundred Thousand Rand) in respect of all the contraventions set forth above. Such administrative fine shall be paid within 90 days of this order being issued by the Tribunal.

DATED ON THIS 22nc1 DAY OF JUNE 2015

[signed]

Or B.Oumlsa

Member

Ms D Terblanche (Presiding Member) and Ms H Devraj (member) concurring.

1NCT/3887/2012/57(1)(P)

1NCT/3887/2012/57(1)(P)