National Credit Regulator v Khululeka Cash Loans CC (NCT/98951/2018/140(1)) [2018] ZANCT 68 (25 June 2018)

IN THE NATIONAL CONSUMER TRIBUNAL

HELD IN CENTURION

Case Number: NCT/98951/2018/140(1)

In the matter between:

THE NATIONAL CREDIT REGULATOR

APPLICANT

and

KHULULEKA CASH LOANS CC

RESPONDENT

Coram:

Ms H Devraj -

Presiding member

Prof B Dumisa - Tribunal Member

Prof K Moodaliyar - Tribunal Member

Date of hearing - 11 June 2018

JUDGMENT AND REASONS

APPLICANT

1. The Applicant in this matter is the National Credit Regulator, a juristic person established by section 12 of the National Credit Act 34 of 2005 ("the NCA" or "the Act"), hereinafter referred to as ("the Applicant").

2. At the hearing the Applicant was represented by Ms K Germishuys, an employee of the Applicant.

RESPONDENT

3. The Respondent is Khululeka Cash Loans CC, an unregistered Credit Provider, hereinafter referred to as ("the Respondent").

The Respondent was registered with the Applicant with registration number NCRCP1677. However the Respondent's registration has since lapsed from 13 January 2017, due to its failure to pay the full annual registration renewal fees. Its business address is Erf 4 Malelane, Hershal Building, Malelane.

4. The Respondent was not present at the hearing nor was there a representative from the Respondent present.

APPLICATION TYPE

5. This is an application in terms of section 140(1) of the NCA. Section 140(1) provides that -

"(1) After completing an investigation into a complaint, the National Credit Regulator may-

(a) ...;

(b) make a referral in accordance with subsection (2), if the National Credit Regulator believes that a person has engaged in prohibited conduct;"

SUMMARY OF THE APPLICANT'S FOUNDING AFFIDAVIT

Background information to the investigation

6. On 17 February 2017, the Applicant initiated an investigation into the conduct of the Respondent. The initiation was based on the

Respondent's failure to comply with a compliance notice that was issued by the Applicant.

7. On 21 March 2017, a duly appointed inspector, namely Mr Lekoko went to the Respondent's place of business to conduct an investigation. The business premises were closed. The Applicant alleges that numerous attempts were made to interview the Respondent, but that the Respondent failed to avail itself. On 6 June 2017, the Respondent provided the Applicant with a sample of 9 credit agreements.

8. The details of the contraventions based on the 9 credit agreements granted by the Respondent as alleged by the Applicant can be

summarized as follows:

8.1 The Respondent failed to conduct proper affordability assessments. In certain instances, the manner in which the affordability assessments

were conducted were insufficient. There were no credit bureau records in order to assess the debt repayment history of the consumers; bank statements were older than 3 months; in some instances there were no bank statements and in some instances there were no payslips;

8.2 By failing to conduct the necessary affordability assessments and credit checks, the Respondent therefore entered into reckless credit agreements;

8.3 The Respondent charged consumers interest in excess of the prescribed amount as allowed for in the Act; and

8.4 The Respondent failed to submit its annual financial and operational returns to the Applicant. The annual renewal registration fees were not paid in full and as a result the Respondent's registration lapsed. The Applicant therefore submits that all credit agreements

conducted during the period that the Respondent was unregistered are unlawful and void to the extent provided for in terms of Section 89 of the Act.

9 At the hearing the Applicant abandoned the charges relating to the overcharging of interest of the prescribed amount as allowed for in the Act.

10. The Applicant alleges that the Respondent is therefore in contravention of:-

10.1 Section 81(2) read with Regulation 23A which relates to entering into credit agreements without conducting a proper affordability assessment;

10.2 Section 81(3) which relates to the granting of reckless credit;

10.3 Section 40(3) which relates to failing to be registered as a credit provider; and

10.4 Section 62(1)(c) which relates to failing to submit annual financial and operational returns.

THE APPLICANT'S PRAYERS

11. The Applicant therefore prays for an order:

11.1 Declaring the Respondent to be in repeated contravention of the Sections of the Act and Regulations as mentioned in paragraph 9 supra;

11.2 Interdicting the Respondent from future breaches of the Act;

11.3 Imposing an administrative fine against the Respondent in the sum of R1 000 000 (one million rand);

11.4 Ordering the Respondent to appoint an independent auditor at its own cost to conduct an audit of consumers that were overcharged in interest. And to refund the consumers the said amounts; and

11.5 Making any other appropriate order required to give effect to the consumers' rights in terms of Section 150(i) of the Act.

12. At the hearing the Applicant abandoned the prayers relating to 11.4 supra.

THE APPLICANTS SUBMISSIONS AT THE HEARING

13. The Applicant made submissions at the hearing based on its founding affidavit and further referred the Tribunal to specific evidence that was submitted in its founding papers.

Submissions regarding the default application

14. The Applicant addressed the Tribunal on the issue of the matter being considered on a default basis and went on to prove to the Tribunal that there was proper service of the application on the Respondent.

15. The Applicant submitted that it served the application via registered mail on 25 January 2018. The Applicant also served the application

via courier.

16. The Applicant therefore submitted that there was proper service in terms of Rule 25(3)[1].

Submissions regarding the merits of the matter

17. The Applicant's summarized submission was that:-

17.1 The Respondent failed to conduct proper affordability assessments. The Applicant initially contended that on all 9 consumer files, the bank statements that were used to conduct the affordability assessment were older than 3 months. However, at the hearing the Applicant conceded that it was only in some instances that the bank statements were older than 3 months. Rather it was the payslips that were older than 3 months on all the consumer files. The applicants submission was that since there were no credit bureau records the Respondent therefore did not take the necessary steps to accurately assess the debt repayment history of the consumers;

17.2 The applicant took the Tribunal through the affordability assessment that was conducted for one consumer, a Mr Nkuna. The affordability

assessment reflects the total expenses of the consumer as R189.00 which is below the minimum expense norms as set out in the Regulations. The Applicant further argued that all expenses as reflected on the bank statement of Mr Nkuna were not considered during the affordability assessment. The Applicant submitted that the affordability assessments were conducted at a superficial level to create the impression that proper affordability assessments were conducted. The result of this is, as alleged by the Applicant is that the Respondent granted credit recklessly. The Applicant informed the Tribunal that Regulation 23A was still valid and applicable at the time the investigation was conducted and that the Respondent was required to comply with the Regulation;

17.3 While the Respondent was initially registered with the Applicant under registration number NCRCP1677, the Respondent however failed to meet its statutory requirements. According to the records of the Applicant, the Applicant submitted that the Respondent has failed, neglected and/or refused to pay its annual registration renewal fees. The Applicant put forward as evidence the statement of account for the Respondent which showed that the Respondent failed to pay its annual registration renewal fees in full since January 2017. The Respondent's registration has therefore since lapsed;

17.4 In order to explain the contraventions of the failure of the Respondent to submit its annual financial and operational returns to the Applicant, the Applicant referred the Tribunal to the requirement as set out in the Respondent's initial conditions of Registration. The Applicant's submission is that Regulation 62(1) (c) establishes a mandatory obligation on the Respondent to submit its statutory

returns and financials; and

17.5 The Applicant finally submitted that an order for an administrative fine is warranted in these circumstances, taking into account the provisions of the Act that have been contravened by the Respondent. This also applies to the failure of the Respondent to comply with the compliance notice issued by the Applicant.

CONSIDERATION OF THE MATTER ON A DEFAULT BASIS

18. The Applicant filed the Section 140(1) application with the Tribunal on 8 January 2018. The Applicant attached a copy of a registered post slip with a tracking number to show that the application was sent to the Respondent's postal address. The application was also served via courier on 4 April 2018 and the Application was received and signed for on 5 April 2018. The Registrar's office sent the Notice of Complete Filing as well as the initial Set Down notice of 20 March 2018 to the Respondent's postal address via registered mail. At the hearing of the matter on 20 March 2018, the Respondent appeared and requested a postponement in order to allow it to file a condonation application for the late filing of its answering affidavit. The postponement was granted. However, the Respondent did not file or serve any answering affidavit or a response to the application, thereafter.

19. The matter was set down on a default basis for 11 June 2018 in terms of Rule 25(2).

Rule 25(2) and (3) provides that:

"An applicant may make application by way of form T.I r25 (2) for purposes of obtaining a default order, if no response to the application was filed within the time stated in the application.

The Tribunal may make a default order-

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

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

20. The Tribunal is therefore satisfied that the requirements for a default judgment have been met, as the application was adequately served on the Respondent via registered mail and courier. The fact that the Respondent appeared at the initial hearing of 20 March 2018, indicates that the Respondent was aware of the case pending against it at the Tribunal.

21. Rule 13(5) provides that:

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

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

ASSESSMENT OF THE EVIDENCE

22. The Applicant submitted copies of some of the 9 sample files that were assessed during the investigation. From the evidence before the Tribunal, the Respondent attempted to obtain some information in order to conduct some form of an affordability assessment. However, there were no records of any credit bureau records in the consumers' files. In some instances; such as the cases of consumers Ms NP Khoza and Mr J Manyisa; there were no bank statements. The payslips of the consumers used for the assessment were outdated. In the case of consumer Mr FD Nkuma, the affordability assessment was conducted in February 2017, but the payslip used for the assessment was dated 15 July 2015. For consumer Mr BT Mkhatshwa; there were no records of a payslip in the consumer's file. There is also no record of any credit checks being conducted for all 9 consumers.

23. From the statement of account of the Respondent, as the evidence provided by the Applicant, the Respondent has failed to pay its full annual renewal registration fees. The statement shows that as at 13 January 2017, there was still an amount of R4750 that was outstanding in renewal fees.

CONSIDERATION OF THE FACTS AND THE LAW

24. Section 81(2) of the NCA provides that-

"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 of the rights and obligations of a consumer under a credit agreement;

(ii) debt re-payment history as a consumer under credit agreements;

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

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

25. Section 81(3) of the NCA provides that-

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

26. Section 80(1) provides that -

"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; or

(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; and

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

27. Section 40 (3) provides that -

"A person who is required in terms of subsection (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."

28. Regulation 62(1) (c) provides that-

"A credit provider must submit the following to the National Credit Regulator -

Annual Financial and Operational Return”;

29. It is very clear from a plain reading of the relevant Sections of the Act and the Regulations that the Act has peremptory requirements in terms of the affordability assessments. A credit provider therefore must conduct an affordability assessment before granting credit. The facts before the Tribunal are that the Respondent appears to have conducted some form of an affordability assessment. In conducting the affordability assessment, the Act is clear that the credit provider must also consider the financial means and obligations of the consumer as well as the debt re-payment history of the consumer. However, according to the evidence; there were no credit bureau records on the files to consider the debt repayment history of the consumers and not all consumer files had bank statements or pay slips. Some payslips found were outdated. Regulation 23A sets out the criteria to be applied when conducting an affordability assessment. This Regulation also sets out the consumers minimum expense amounts, for various salary ranges .According to the Regulation 23A(11;)if the minimum expenses amounts are lower than that allowed for in the regulation; the credit provider can determine whether it is justified. And the consumer will need to complete a questionnaire as provided for in the Schedule.

30. The Tribunal accepts the evidence put forward by the Applicant, that for example in the case of consumer Mr FD Nkuna, the total expenses on the affordability assessment is R189.00. If the nett salary of Mr Nkuna is R6788.00 then according to Regulation 23A(11); his minimum expense norm would be R1167.88. There is no evidence on the consumer file to prove that the total expenses are justified and that the Respondent tried to verify the information provided by the consumer. By not conducting proper affordability assessments, the Respondent has granted credit recklessly.

31. The Tribunal is aware of Regulation 23A94) being set aside by the High Court in March 2018[2] in the Truworths matter. However, the Tribunal agrees with the Applicant's submission that Regulation 23A was still applicable and valid at the time that the investigation was conducted in 2017.

32. The evidence before the Tribunal is that there are some credit agreements that were entered into after January 2017 at the time at which the Applicant submits that the registration of the Respondent had lapsed. For example in the case of consumer Mr FD Nkuna the credit agreement was entered into on 15 February 2017. The Respondent has clearly still been operating and granting credit to consumers after its registration has lapsed.

33. In the absence of any contrary information put forward by the Respondent and the fact that this matter is being considered on a default basis, the Tribunal accepts the allegations made by the applicant that the Respondent failed to submit its annual financial and operational returns.

CONSIDERATION OF THE APPROPRIATE PENALTY

34. The Applicant has requested in its prayers that an administrative fine be imposed.

35. The Act sets out the factors that the Tribunal must consider when imposing an administrative fine in terms of section 151(3) of the NCA, and these consist of: -

(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 cooperated 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.”

36. The Applicant, motivated for the administrative penalty by submitting that:

(a) Under the nature, duration, gravity and extent of the contraventions

The Applicant submitted that the alleged contraventions have been continuous as these contraventions were also identified previously. The Respondent was made aware of the contraventions when the Applicant issued the Respondent with a compliance notice in October 2014.

(b) Loss or damage suffered as a result of the contraventions

The Applicant submitted that the consumers have been exploited and the granting of credit could result in the consumers becoming over-indebted. Furthermore, by failing to pay its annual registration renewal fee in full, the Respondent is unlawfully concluding credit agreements with consumers.

(c) Behaviour of the Respondent

The Applicant submitted that the Respondent still continues in engaging in prohibited conduct even though it was informed of such conduct through the issuing of a compliance notice.

(d) Market circumstances under the contraventions occurred

It is the Applicant's argument that the market circumstances in which the contraventions have occurred are one in which the consumers are not well informed of their rights relating to the access to credit.

(e) Level of profit derived from the contraventions

While the Applicant argued that the Respondent has derived a substantial amount of profit from consumers, there is no evidence before the Tribunal to support this allegation.

(f) Degree of co-operation between the Respondent and Applicant

The Applicant submitted that, the Respondent has frustrated the investigation by postponing various meetings with the inspectors. The Respondent also delayed the investigation by taking a few weeks in which to supply the sample of files required to conduct the investigation.

(g) Prior contraventions committed by the Respondent

37. The Applicant has submitted evidence of the Compliance notice that was issued to the Respondent in 2014, bringing certain contraventions to the attention of the Respondent. From the evidence presented by the Applicant, it is clear that the Respondent continued to engage in prohibited conduct and has failed to comply with all the issues raised in the compliance notice.

38. The Applicant referred the Tribunal to the cases of NCR v Werlan Cash Loans[3] whereby the Tribunal imposed a fine of R900 000 00 (nine hundred thousand rands), And the Tribunal was referred to NCR v Kutshiyele[4] whereby the Tribunal imposed a penalty of R 1000 000.00 (one million rand).The Tribunal has considered the submissions of the Applicant

regarding the imposition of an administrative penalty.

39. The rights of the consumers are severely prejudiced by the Respondent's practices and its continued contraventions of the Act. The Respondent entered into credit agreements with consumers, without conducting proper affordability assessments. The Respondent is engaging in the practices of a credit provider without being registered with the Respondent. This is severely prejudicial to consumers and is also in direct contrast with the purpose and spirit of the Act.

40. Section 151 of the NCA allows the Tribunal to impose an administrative fine that does not exceed the greater of 10 (ten) per cent of the respondent's annual turnover during the preceding financial year; or R1 000 000.00 (one million rand.)

41. The NCR did not provide any evidence as to the annual turnover of the Respondent.

CONCLUSION

42. The Applicant, representing the affected consumers, has set out the basis for a remedy under the NCA, by establishing the Respondent's contravention of the Act and Regulations.

43. The basis, upon which the Tribunal on the other hand, may grant a remedy and impose a punitive sanction on the Respondent, is apparent from the merits of the case presented to this Tribunal by the Applicant. There is no dispute that the Respondent has grossly contravened the Act and Regulations.

44. To this end, the Respondent is found to be in repeated contravention of the provisions of the Act and Regulations; and has consequently engaged in prohibited conduct. This is underpinned by the fact that the Respondent has contravened:

42.1 Section 81(2) read with Regulation 23A - by entering into credit agreements without conducting a proper affordability assessment;

42.2 Section 81(3)- by granting of reckless credit;

42.3 Section 40(3)- by failing to be registered as a credit provider; and

42.4 Regulation 62(1)(c)- by failing to submit Annual Financial and Operational Returns.

45. The evidence submitted by the Applicant, which is uncontested, clearly indicates that the requirements of Section 140(1) have been met in that the Respondent has repeatedly contravened the provisions of the Act. The specific contraventions alleged by the Applicant are supported by documentary evidence.

46. The Respondent is also found to have conducted its business as a credit provider, in a manner that is contrary to the Act and its Regulations; and that the nature, extent, and duration of such contraventions warrant the Tribunal's imposition of an administrative fine on the Respondent. Furthermore, an aggravating factor is that the Respondent ignored and failed to adhere to the Compliance notice that was issued to it in 2014; and continued to contravene the Act and Regulations. The Tribunal has fully considered the Applicant's prayer in respect of the imposition of the administrative fine.

47. While the Tribunal can still impose a fine of R1 000 000.00 (one million rand) under these circumstances, on the Respondent, it can impose a lesser fine if warranted. While the fine must deter others from committing the same prohibited conduct, it must further punish the offender. The Tribunal therefore finds it appropriate to impose an administrative fine of R100 000.00 (one hundred thousand rands.)

ORDER

48. The Tribunal makes the following order:-

46.1 The Respondent's contravention of the provisions of the Act and Regulations is declared prohibited conduct;

46.2 The Respondent with immediate effect, is interdicted from future breaches of the Act and Regulations;

46.3 The Respondent is hereby ordered to pay an administration fine in the amount of R100 000.00 (one hundred thousand rands) by no later than 31 December 2018; and

46.4 There is no order as to costs.

Thus done and handed down in Centurion this 25 June 2018

[signed].

Ms H Devraj

Presiding Member

Prof B Dumisa (Tribunal Member) and Prof K Moodaliyar (Tribunal Member) concurring

[1] GN 789 of 28 August 2007: Regulations for matters relating to the functions of the Tribunal and Rules for the conduct of matters

before the National Consumer Tribunal, 2007 (Government Gazette No. 30225). As amended.

[2] Truworths Limited and Others v Minister of Trade and Industry and Others (4375/2016) (2018) ZAWCHC 41; 2018 (3) SA 558 (WCC) (16March 2018)

[3] NCT/3867/2012/57(1)

[4] NCT/19294/2014/141(1)