National Credit Regulator v Microloans Two Go (Pty) t/a Microloans 2 Go (NCT/158471/2020/57(1)) [2021] ZANCT 4 (15 April 2021)

IN THE NATIONAL

CONSUMER TRIBUNAL

HELD IN CENTURION

Case Number: NCT/158471/2020/57(1)

In the matter between:

NATIONAL

CREDIT REGULATOR

APPLICANT

And

MICROLOANS TWO GO (PTY) T/A MICROLOANS 2 GO

RESPONDENT

Coram:

Prof T Woker - Presiding Member

Prof B Dumisa - Tribunal Member

Dr M Peenze - Tribunal Member

Date of the hearing: 8 April 2021

Date of judgment: 15 April 2021

JUDGMENT

AND REASONS

APPLICANT

The Applicant is the NATIONAL CREDIT REGULATOR (“the NCR”), an organ of state and a juristic person within the public administration, established in terms of Section 12 of the National Credit Act 34 of 2005. The NCR has its address at 127 Fifteenth Road, Randjespark, Midrand, (“the Applicant”).

The Founding Affidavit of the Applicant is deposed to by Ms Anne-Carien Du Plooy, the Acting Manager for Investigations and Enforcement in the employ of the Applicant. At the hearing, the Applicant was represented by, Mr Moosa Vardalia, a legal Advisor from the NCR.

RESPONDENT

The Respondent is Microloans Two Go (Pty) LTD T/A Microloans 2 Go previously (until 8 June 2020) a registered credit provider (NCRCP 9840) in terms of section 40 of the NCA. The Respondent is also a registered company (Registration Number:2017/07551/07) in terms of the South African company laws.

The Respondent did not file an answering affidavit. Neither did it appear, nor was it represented during the hearing.

Due to its non-appearance, the Tribunal proceeded to hear the matter in their absence in terms of Rule 24(1) (c) of the NCA.[1]

TYPE

OF APPLICATION AND THE RELIEF SOUGHT

This application is in terms of section 57 (1) of the NCA.[2] The Applicant originally approached the Tribunal in order to cancel the registration of the Respondent.

However, at the hearing of 8 April 2021, the Applicant informed the National Consumer Tribunal (The Tribunal) that the Respondent had voluntarily cancelled its registration with the NCR. The cancellation was effective from 8 June 2020.[3]

The Applicant therefore abandons its application for cancellation of registration.

The Applicant also seeks an order in terms of which the Respondent is found to have repeatedly contravened the National Credit Act[4] and the Regulations by engaging in reckless credit lending (as it failed to conduct proper affordability assessments) charging interest rates in excess of the prescribed amounts and failing to record small credit agreements in the prescribed form.[5]

The Applicant seeks an order that the Respondent’s credit agreements contained in Annexures E1 to E10 of the Investigation Report complied by the NCR’s investigators are reckless credit agreements in terms of Section 80 (1) (a) off the Act and that:

all the consumers obligations under those credit agreements are set aside;

the Respondent at its own cost refund all the costs of credit charged and recovered from consumers under all those agreements be refunded;

the Respondent refrain from taking any enforcement action against such consumers; and that

the extent that the Respondent may already have taken enforcement action which is pending against any such consumers, the Respondent shall formally withdraw such action and tender payment of the consumer’s legal costs where the action is defended or opposed and take all such steps as may be necessary to ensure that any adverse credit bureau reports which may have arisen as a result of a consumer having concluded such agreements with the Respondent are removed; and any civil judgments taken by the Respondent against such consumers in respect of such agreements are rescinded or, if rescission is not possible abandoned.

11. Further to the above, the Applicant wants the Respondent to be ordered to appoint an independent auditor, at its own cost, within 30 days. The appointed independent auditor must determine and compile a list of all the consumers who were charged interest that exceeded the prescribed maximums, and by which amounts these consumers have been overcharged by the Respondent. Once the auditor has compiled the list, the Respondent must refund the amounts to each consumer within 30 days from the date of the auditor’s report.

12. Once the refunds have been made, the Respondent must provide a written report to the Applicant, detailing the identity of consumers and the refunds made. This report must be provided to the Applicant within 120 days after the order is made.

13. In addition to the above, the Applicant seeks an order compelling the Respondent to appoint an independent auditor, at its own cost, to determine and compile a list of all the consumers who were granted loans recklessly by the Respondent. Once the auditor has compiled the list, the Respondent must submit this list to the Applicant, so that the Applicant can take the appropriate action.

14. The last prayer that the Applicant seeks is further or alternative relief as the Tribunal may consider appropriate to give effect to the consumers’ rights under the NCA as per section 150(i) thereof.

JURISDICTION

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

BRIEF

BACKGROUND FACTS

16. The investigation was initiated because of an advertisement which appeared on social media where the Respondent advertised that it was granting credit at an interest rate of 20% per month. This interest rate exceeds the allowable interest rate set out in the Act and the Regulations. The advertisement gave rise to a reasonable suspicion that the Respondent could be engaging in conduct in contravention of the NCA, thereby committing acts prohibited by the Act.

17. The Applicant appointed two investigators, Jacob Sabelo and Kgadi Sepuru, in terms of section 25 of the NCA. Their appointment empowered them to conduct an investigation into the activities of the Respondent in terms of section 136(2) (c) of the Act.

18. During the on-site investigation at the Respondent’s business premises on 30 October 2019, the Applicant interviewed Mr Shaun Du Plessis who introduced himself as the Respondent’s acting manager. Du Plessis explained that the advertising material was outdated and provided copies of new advertising material. He could not explain however, why the outdated material was still being circulated on social media.

19. The inspectors randomly selected and copied ten credit agreements which were assessed for compliance with the NCA. The inspectors compiled an investigation report which is attached to the Applicant’s founding documents.[6] As a result of this investigation report the Applicant concluded that the Respondent was in repeated contravention of the provisions of the Act.

APPLICANT’S

SUBMISSION

20. At the hearing the Applicant informed that Tribunal that despite the fact that the Respondent has voluntarily deregistered, it was persisting with its other prayers because the Respondent has engaged in serious contraventions of the Act in that the Respondent:

a. engaged in reckless credit lending by failing to obtain credit bureau reports prior to granting consumers loans;

b. charged excessive interest; and

c. failed to utilise the correct forms for small credit agreements as required by section 93 (2) read with regulation 30(1) of the NCA.

THE

CONTRAVENTIONS

FAILURE

TO CONDUCT AFFORDABILITY ASSESSMENT

21. Section 81(3) of the Act provides that a credit provider must not enter into a reckless credit agreement with a prospective consumer. In terms of Section 80(1)(a) of the NCA, a credit agreement is reckless if at the time that the agreement is made, 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.

22. Section 81(2)(a) of the Act provides that a credit provider must not enter into a credit agreement without first taking reasonable steps to assess 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 repayment history as a consumer under credit agreements; and

(iii) existing financial means, prospects and obligations.

23. It appears from the attached sampled files and the annexures thereto,[7] that the Respondent failed to conduct affordability assessments in accordance with the NCA. This is because in 9 out of the 10 files the Respondent only accessed the credit bureau reports after the loan had been granted. This meant that at the time that the loan was granted the Respondent was not in a position to evaluate the consumers’ level of indebtedness.

24. For example, in the case of consumer D Dube (E1) the loan of R5000 was granted on 28 October 2019 and the credit bureau report was accessed on 29 October 2019. The credit bureau report indicated that the consumer was “very high risk” and had a default judgment of R34 616 against his name

25. Another example is that of consumer M Mashilo (E5). The credit bureau report indicated that the consumer was under voluntary debt review when he was granted a loan of R2000. He was also classified as “very high risk”.

26. The Applicant therefore argues that the attachment of credit bureau statements was done as a mere “tick box exercise” and was not done as a genuine attempt to make a proper assessment of the consumer’s current financial position.

INTEREST

27. The Respondent charged consumers interest in excess of the prescribed maximum limits in terms of the NCA, in contravention of section 100 (1) (c) and 101 (1) (d) (ii) read with Regulation 42(1).

0in; line-height: 200%"> 28. The Applicant makes the aforesaid submission because an assessment of the various files indicated that the Respondent did a simple exercise of taking the outstanding loan and calculating interest on the full amount for the time period of the loan instead of taking into consideration the fact that the loan would decrease on a monthly basis and that the amount of interest should then be calculated on the outstanding balance. The led to consumers being overcharged interest.

THE

CREDIT AGREEMENTS

29. Section 93(2) of the NCA provides that a document that records a small credit agreement must be in the prescribed form. Regulation 30(1) also provides that a document that records a small credit agreement must contain all the information as reflected in Form 20.2. The document used by the Respondent does not contain the information as set out in Form 20.2 and as a result the Respondent contravened section 93(2) read with Regulation 30(1) and Form 20.2 of the Act.

CONSIDERATION

OF THE EVIDENCE

30. The Tribunal accepts, on a balance of probabilities, the version of the Applicant, which has not been contradicted by the Respondent. The Tribunal is satisfied that the Applicant has made out a strong case against the Respondent. In particular it is noted that every credit bureau report except in the case of R Chitsa (E10), the consumer was identified has being very high risk. In the case of Chitsa the consumer was identified as being average risk. On the strength of the evidence presented before the Tribunal the Tribunal is satisfied that the Respondent was in contravention of certain provisions of the NCA and the regulations.

31. In contravention of section 80(1) and 81 (2) of the NCA, the Respondent failed to take reasonable steps to assess the debt re-payment histories of consumers, and to obtain credit bureau reports for purposes of assessing prospective consumers’ debt re-payment histories prior to entering into credit agreements with consumers.

32. In contravention of section 93(2) and Regulation 30 of the NCA, the Respondent failed to record small credit agreements with consumers in the prescribed Form 20.2.

33. In contravention of section 100(1)(c), 101(1) (d) (ii) read with Regulation 42 (1) of the NCA, the Respondent charged interest that exceeded the amounts of fees or charges that may be charged under the NCA.

34. In view of 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 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 repeatedly contravened the above-cited provisions of the NCA.

35. 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 provisions of the NCA 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.”

36. We now turn to the Applicant’s prayer for the appointment of an independent auditor, at its own cost, who will compile a list of all consumers that were charged interest that exceed the prescribed maximum, the evidence presented to the Tribunal shows that the Respondent charged consumers interest that exceed the prescribed maximum. Therefore, the Applicant has laid out a clear basis for the order sought and for the Respondent to be ordered to refund the amounts to consumers. Once the refunds have been made, the Respondent must provide a written report to the Applicant, detailing the identity of consumers and the refunds made. This report must be provided to the Applicant within 120 days after the order is made.

37. In addition, the independent auditor must, at the Respondent’s own cost, determine and compile a list of all the consumers who were granted loans recklessly by the Respondent. Once the auditor has compiled the list, the Respondent must submit this list to the Applicant, so that the Applicant can take the appropriate action.

38. We now turn to the administrative fine that the Applicant wants to be imposed on the Respondent. In its application documents, the Applicant states 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. However, during the hearing, it became obvious that this was a relatively small operation. The Respondent was only registered as a credit provider in October 2017. It only submitted one statistical return for the period 1 January 2018 to 31 December 2018 which indicated that during that period it had only received 289 applications for credit and that the gross value of its debtors’ book was R389 620. The Respondent then deregistered in June 2020.

39. Nevertheless, the Tribunal is satisfied that the Respondent engaged in reckless credit lending and it overcharged consumers interest which are some of the most important provisions of the Act and conduct which the NCA specifically seeks to eradicate. Despite the fact that the Respondent has deregistered, an appropriate fine will, it is hoped act as a deterrent for other credit providers.

The nature, duration, gravity and extent of the contraventions

40. In accordance with the provisions of section 151(3) of the NCA, in determining the appropriate administrative fine, we will consider the following:

40.1 Nature: Reckless credit granting and the charging of prohibited costs of credit are some of the most egregious forms of prohibited conduct under the NCA. The Respondent exploited consumers. By extending credit without conducting proper affordability assessments and charging excessive interest, the Respondent acted in a manner that undermined the purpose of the NCA and showed a callous disregard for consumers.

40.2 Duration: The evidence presented to the Tribunal shows that contraventions took place over a few months. However, the Tribunal takes note of the fact that the Respondent engaged in prohibited conduct shortly after being registered with the Applicant.

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

40.4 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

41. Although the actual loss has not been computed, the evidence presented by the Applicant shows that consumers have suffered losses and/or damages as a result of the Respondent’s conduct through the excessive costs of credit.

Behaviour of the Respondent

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

Market circumstances under which the contraventions occurred

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

Level of profit derived from contraventions

44. The Applicant was unable to state what the total amount of profit was because the Respondent failed to submit annual statement.

Degree of co-operation between the Respondent and Applicant

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

Prior contraventions committed by the Respondent

46. There are no prior investigations or enforcement action instituted by the Applicant against the Respondent. However, the Tribunal takes a very dim view of the fact that the Respondent has been found guilty of contravening a number of the provisions of NCA.

47. In the Competition Commission of South Africa v Federal-Mogul Aftermarket Southern Africa (Pty) Ltd & Others[8](Federal-Mogul case), the Competition Tribunal held that deterrence is the primary purpose of imposing administrative penalties.[9] The Competition Tribunal further said, “the deterrence element must have some relationship to the harm inflicted by the prohibited practice.”

CONCLUSION

48. Based on the evidence presented to it, the Tribunal finds that the Respondent repeatedly contravened the following provisions of the NCA:

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

ii. Section 81(3) read with section 80(1) (a) and (b);

iii. Section 100 (1) (c); 101 (1) (d) (iii) read with Regulation 42 (1); and

iv. Section 93 (2) read with Regulation 30(1) and Form 20.2.

49. The Respondent’s conduct as discussed above in paragraphs 12-18 constitutes prohibited conduct. Having found that, in all the sampled files, the Respondent failed to conduct proper affordability assessments as envisaged in section 80(1)(a) of the NCA, the Tribunal declares that all the credit agreements contained in the sampled files (annexures “E1” to “E10”) reckless. In terms of section 83(2)(a) read with the provisions of section 150(i) of the NCA the Tribunal finds that it is just and reasonable to set aside consumers’ obligations to pay the cost of credit in respect of the credit agreements contained in annexures “E1” and “E10” of the Applicant’s founding affidavit.

50. Having considered 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 warrants the imposition of an administrative fine in the amount of R50 000.00 (fifty thousand rands).

51. The appointment of an independent auditor, within 30 days, at the Respondent’s own cost who must determine and compile a list of all the consumers who were charged interest that exceeded the prescribed maximums, and by which amounts these consumers have been overcharged by the Respondent is imperative. Once the auditor has compiled the list, the Respondent must refund the amounts to each consumer within 30 days from the date of the auditor’s report. Once the refunds have been made, the Respondent must provide a written report to the Applicant, detailing the identity of consumers and the refunds made. This report must be provided to the Applicant within 120 days after the order is made.

52. Further the independent auditor, at the cost of the Respondent, must be appointed to determine and compile a list of all the consumers who were granted loans recklessly by the Respondent. Once the auditor has compiled the list, the Respondent must submit this list to the Applicant, so that the Applicant can take the appropriate action.

ORDER

53. The Tribunal makes the following order: -

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

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

ii Section 81(3) read with section 80(1) (a) and (b);

iii Section 100 (1) (c); 101 (1) (d) (iii) read with Regulation 42 (1); and

iv Section 93 (2) read with Regulation 30(1) and Form 20.2

53.2 The credit agreements entered into between the Respondent and the following consumers:

· D Dube (E1);

· P Hlalele (E2);

· A Ngobeni (E3);

· Z Ngobeni (E4);

· MS Mashilo (E5);

· B Molefe (E6);

· ES Malesa (E7);

· SS Samuel (E8);

· SB Kambule (E9); and

· R Chitsa (E10);

are hereby declared reckless;

53.3 The obligations of the consumers mentioned in paragraph 35.2 above to repay their debts and to pay the costs of credit are set aside;

53.4 The Respondent must refund to the consumers mentioned in paragraph 35.2 of this order all the costs of credit including the interest amounts it charged these consumers within 30 (thirty) ordinary days from the date of the issuing of this order;

53.5 The Respondent must appoint an independent auditor, at its own costs, within 30 days of the issuing of this order who must determine and compile a list of all the consumers who were charged fees that exceeded the prescribed maximums, and by which amounts these consumers have been overcharged by the Respondent;

53.6 Once the auditor has compiled the list, the Respondent must refund the excessive amounts to each consumer within 30 days from the date of the auditor’s report;

53.7 Once the refunds have been made, the Respondent must provide a written report to the Applicant, detailing the identity of consumers and the refunds made. This report must be provided to the Applicant within 120 days after the order is made; the

53.8 Respondent must appoint an independent auditor, at its own cost, to determine and compile a list of all the consumers who were granted loans recklessly by the Respondent. Once the auditor has compiled the list, the Respondent must submit this list to the Applicant, within 120 days so that the Applicant can take the appropriate action.

53.9 The Respondent must pay an administrative fine in the amount of R50 000.00 (fifty thousand rands) 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 the issuing of this order;

53.10 The Respondent is prohibited from enforcing any credit agreement that was entered without proper affordability assessments having been done; and

53.11 There is no order made as to costs.

Thus, done and signed at Centurion on 15 April 2021

Prof T WOKER

PRESIDING TRIBUNAL

MEMBER

Dr MC Peenze (Tribunal member) and Prof B Dumisa (Tribunal member) concurring.

[1] Rule 24 (1) If a party to a matter fails to attend or be represented at any hearing or any proceedings, and that party- (a)… (b) is not the applicant, the presiding member may- (i) continue with the proceedings in the absence of that party.

[1] Rule 24 (1) If a party to a matter fails to attend or be represented at any hearing or any proceedings, and that party-

(a)…

(b) is not the applicant, the presiding member may-

(i) continue with the proceedings in the absence of that party.

[2] In terms of Section 57(1) of the Act, a registration in terms of this Act may be cancelled by the Tribunal on request by the National Credit Regulator, if the registrant repeatedly: (a)Failed to comply with any condition of its registration; (b)Contravenes this Act

[2] In terms of Section 57(1) of the Act, a registration in terms of this Act may be cancelled by the Tribunal on request by the National Credit Regulator, if the registrant repeatedly: (a)Failed to comply with any condition of its registration;

(b)Contravenes this Act

[3] See letter dated 27 July 2020 from the NCR to the Respondent confirming its cancellation of registration effective 8 June 2020 handed in by the Applicant at the hearing marked Exhibit A.

[4] Act no 34 of 2005.

[5] The Applicant originally also sought a finding of prohibited conducted in that the Respondent had charged service fees in excess of the prescribed amounts however in light Micro Finance South Africa v NCR 2021 (1) SA 487 (GP) this aspect of the application was not pursued.

[6] See FA6 of the Applicant’s founding papers.

[7] Annexures “E1”, “E3”,”E4”, “E7” and “E10”,

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

[9] At para 166.