National Credit Regulator v Murphy and Sons Cash Loans CC (NCT/82548/2017/57(1)) [2018] ZANCT 14 (23 February 2018)

IN

THE NATIONAL CONSUMER TRIBUNAL

HELD

AT CENTURION

Case No: NCT/82548/2017/57(1)

In the matter between:

NATIONAL

CREDIT

REGULATOR APPLICANT

And

MURPHY

AND SONS CASH LOANS

CC RESPONDENT

CORAM:

Adv. FK Manamela (Presiding Tribunal member)

Adv. J Simpson (Tribunal Member)

Ms. M Nkomo (Tribunal Member)

Date of Hearing: 1 February 2018

JUDGMENT

AND REASONS

1.

INTRODUCTION

1.1 This is an application to cancel the registration of a registrant, Murphy and Sons Cash Loans CC, the Respondent. The application is brought by the NCR, the Applicant, in terms of section 57 of the National Credit Act. This matter was first heard on 30 August 2017[1] but was later postponed sine die to allow the Respondent to file the condonation application for the late filing of the answering affidavit. The matter was then set down for hearing again on 2 November 2017, in which instance the Respondent failed to appear, and again on 1 February 2018, the current proceedings.

2.

THE PARTIES

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

2.2 The Founding Affidavit of the Applicant is deposed to by Ms. Jacqueline Peters, Manager of Investigation and Enforcement Unit of the Applicant.

2.3 At the hearing, the Applicant was represented by Ms. Katharine Germishuys, the Legal Advisor in the employ of the Applicant.

2.4 The Respondent is MURPHY & SONS CASH LOANS CC, a registered credit provider whose registration number is NCRCP5018, and presumably incorporated

as such in terms of the Company Laws of the Republic, with its principal address being, 44 Bardien street, Bloemendal, Port Elizabeth, Eastern Cape, (“hereinafter, the Respondent”)

2.5 The Respondent did not attend the hearing, nor did it send any representative.

3.

JURISDICTION

3.1 The National Consumer Tribunal (Tribunal) has jurisdiction to hear this matter in terms of section 57(1) of the NCA.

3.2 Section 57(1) of the NCA provides that:

“…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) fails to comply with any condition of its registration;

(b) fails to meet a commitment contemplated in section 48(1); or

(c) contravenes this Act.”

4.

ISSUES TO BE DECIDED

4.1 The issues to be decided are the following:

4.1.1 whether or not the Tribunal should cancel the registration of the Respondent in line with section 57(1) of the NCA, as prayed for by the Applicant;

And in deciding this question, the Tribunal had to first consider the individual underpinning claims by the Applicant on:

4.1.2 whether or not the Respondent contravened section 81(2) (a)

4.1.3 whether or not the Respondent contravened section 81(3) read with section 80(1)(a) of the NCA;

4.1.4 whether or not the Respondent contravened section 170 read with Regulation 55(1)(b)(vi) of the NCA;

4.1.5 whether or not the Respondent contravened section 92(1) read with Regulation 28(1)(b) of the NCA;

4.1.6 whether the Respondent contravened section 100(1)(c) read with Regulation 42 of the Act; and

4.1.7 whether or not the Respondent contravened section 101(1) (d) read with section 105(1) (a) of the NCA.

4.2 In the event that the Tribunal finds that the Respondent did indeed contravene the above sections of the Act, the Applicant further prayed that the Tribunal should thence:

4.2.1 declare that the conduct of the Respondent in contravening the sections of the NCA as outlined above, is in terms of section 150(a) of the NCA, prohibited conduct;

4.2.2 order the cancellation of the registration of the Respondent ;

4.2.3 order the Respondent to refund all past and present consumers any excess amounts it received in the form of fees, which it was not entitled to receive, or which exceeded the prescribed maximum amounts allowed by the NCA;

4.2.4 impose an administrative fine of R1 000 000.00 against the Respondent as contemplated in section 151 of the NCA; and

4.2.5 in terms of section 150 (i) of the NCA, issue any other appropriate order required to give effect to a right as contemplated in the said Act.

5. BACKGROUND AND APPLICANT’S SUBMISSIONS

5.1 In its founding affidavit, the Applicant bases its main case on an investigation conducted by both Godfrey Tladi and Kgadi Sepuru – investigators appointed by the Applicant in terms of section 25 of the Act, to carry out investigations in the activities of the Respondent. The investigation was conducted on 4 April 2016, after the Applicant received a complaint from a consumer in June 2015[2].

5.2 According to the affidavit and the report of the investigators, the Respondent repeatedly contravened the Act and the conditions of registration as a credit provider[3] and failed to conduct its business in a manner which is consistent with the purpose and requirements of the NCA.

5.3 The investigation centred on a sample of 10 credit agreements on the books of the Respondent, all of which contained contraventions of the NCA. The documentary evidence of the sampled agreements were made part of the record of the investigation report in the case file, and will not be covered in detail in this judgment.[4]

5.4 Briefly, the Applicant alleges that the Respondent is in contravention of certain provisions of the NCA in that the Respondent-

5.4.1 inadequately assessed the ability of consumers to receive and repay the credit extended to them, and by doing so, the Respondent contravened section 81(2) read with section 170 and Regulation 55(1)(b)(iv) of the NCA;

5.4.2 entered into reckless credit agreement with consumers thereby contravening section 81(3) read with section 80(1)(a) of the NCA;

5.4.3 failed to keep proper records of documentation in support of the steps taken when conducting affordability assessments, as required by section 81(2); this, in contravention of section 170 read with Regulation 55(1)(b)(vi) of the NCA;

5.4.4 failed to provide consumers with pre-agreement statement and quotation, in contravention of section 92(1) read with Regulation 28(1)(b) of the NCA; and

5.4.5 charged interest on the principal debt in excess of the amount prescribed by the NCA- this, in contravention of section 100(1)(c) read with Regulation 42; as well as section 101(1)(d) read together with section 105(1)(a) of the NCA. [5]

6.

DEFAULT APPLICATION

6. As indicated in the introductory part of this judgment, this matter has been set down on two occasions both for the Respondent to file opposition papers and a condonation application. This hearing was the third set-down on a default basis since 30 August 2017, and in all these instances the Respondent failed to appear, including 1 February 2018.

6.2 The current proceedings are, consequently conducted on a default basis on account of the Respondent’s failure to appear. This is in accordance with Rule 25(2) of the Rules of the Tribunal.

6.3 The Tribunal has, on the basis of the Applicant’s oral submissions in support of a default motion, satisfied itself that the Respondent had been properly served with all the relevant documents in pursuit of the application. The notices of set down issued by the Tribunal’s Registry office[6] and the proof of service found on file, bear testimony to proper service.

7 THE LAW ON THE MATTER- DEFAULT JUDGMENT

7.1 On hearing and considering the application on a default basis, Rule 25 of the “Tribunal rules”[7] finds application. This Tribunal is empowered by Rule 25(3) of the Tribunal rules to hear this matter on a default basis, and effectively the Rule provides that:

“the Tribunal may make a default order after it has considered or heard any necessary evidence; and it is satisfied that the application documents were adequately served.”

7.2 Rule 13 states:-

(1) “Any Respondent to an application or referral to the Tribunal may oppose the application or referral by serving an answering affidavit on :-

(a) the Applicant; and

(b) every other person on whom the application was served”.

(2)” An answering affidavit to an application or a referral other than an application for interim relief must be served on the parties and filed with the Registrar within 15 business days of receipt of such party to the application.”

7.3 Rule 13(5) provides:

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10

11.

12“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”

7.4 The allegations made by the Applicant regarding the Respondent’s conduct have not been disputed by the Respondent and therefore the Tribunal accepts same on the basis of Rule 13(5) which 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.”

7.5 In the middle of the hearing of this matter, certain correspondence from the Respondent’s Attorneys, Brendan Weldrick Attorneys, was handed up to the Tribunal. The documents purported to inform the Tribunal that the Respondent would not oppose the application, in that it had ceased to operate as from 30 November 2017, and for that reason, the Respondent is in the process of de-registering the entity from CIPC. Further that the Respondent gives notice to abide by the decision of the Tribunal in the current application.[8] Respondent ceased operating as from 30th November 2017, at which time it was supposed to file the condonation application and an answer to allegations levelled against it. In any event, the Tribunal is seized with the matter and has to hear it even though the Respondent has ceased its operation as a credit provider. The Respondent’s registration with the NCR as a credit provider, is for all intents and purposes, still in force.

8.

CONSIDERATION OF THE EVIDENCE

8.1 As the Respondent failed to provide any answering affidavit and did not appear at the hearing, the allegations made by the Applicant regarding the Respondent’s conduct are not in dispute. The Tribunal therefore accepts the evidence submitted by the Applicant as proven on a balance of probabilities, that the Respondent is in contravention of certain provisions of the NCA, in that the Respondent:

- inadequately assessed the abilities of consumers to receive and repay the credit extended to them, and by doing so, the Respondent contravened section 81(2) read with section 170 and Regulation 55(1)(b)(iv) of the NCA;

- entered into reckless credit agreement with consumers thereby contravening section 81(3) read with section 80(1)(a) of the NCA;

- failed to keep proper records of documentation in support of the steps taken when conducting affordability assessments, as required by section 81(2); this, in contravention of section 170 read with Regulation 55(1)(b)(vi) of the NCA;

- failed to provide consumers with pre-agreement statement and quotation, in contravention of section 92(1) read with Regulation 28(1)(b) of the NCA; and

- charged interest on the principal debt in excess of the amount prescribed by the NCA- this, in contravention of section 100(1)(c) read with Regulation 42 ; as well as section 101(1)(d) read together with section 105(1)(a) of the NCA. [9]

- The evidence of the Applicant points to these contraventions that were uncovered, where no affordability assessments were conducted at all with consumers and there were no proper records of such assessments ever taking place;

- Credit was therefore extended recklessly and interest was overcharged. The pre-agreement statement and quotation were not in the prescribed form and elsewhere there was none;

- The evidence also shows that a consumer who took out a loan with the Respondent was not provided with a credit agreement, and didn’t know exactly what she was repaying after Respondent retained the SASSA card, as a form of debt enforcement;

- The modus operandi of the Respondent was that, the consumer would come in and give the Respondent a copy of their SASSA ID card, the latest payslip and then cash would exchange hands. In all the sample of files investigated by the Applicant, consumers were charged 30% per month interest on the amount loaned, in excess of what the NCA prescribes for short term credit agreements;[10]

9.

IMPOSITION OF AN ADMINISTRATIVE FINE

9.1 Among its prayers for the cancellation of the Respondent’s registration as a credit provider (in terms of section 150(g)) the Applicant further asks the Tribunal to impose an administrative fine as contemplated in section 151(3) of the Act. The Applicant

prays for an administrative fine of R1 000 000.00 (one million rand) or 10% of the Respondent’s annual turnover during the preceding financial year. The Applicant canvassed oral submissions in support of its prayer for the imposition of the administrative fine. No written submissions were provided in the affidavit, founding the Applicant’s Notice of Motion;[11]

9.2 In order to determine the appropriateness of the imposition of an administrative fine, the Tribunal must consider provisions of Section 151 of the NCA. In NCR v Werlan Cash Loans t/a Lebathu Finance[12] the Tribunal made the following consideration regarding the imposition of an administrative fine: “When determining an amount, the Tribunal must consider the legislation from which its own mandate derives and when determining an

appropriate fine the Tribunal must consider the following factors:

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 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 the Act, or the Consumer Protection Act 2008, as the case may be.”

9.3 In the same case, the Tribunal further stated that fairness towards both the Applicant and the Respondent is an important factor to consider, in determining a just administrative fine in the relevant circumstances. In order to achieve this, the Tribunal must carefully consider all the factors listed in Section 151(3), in relation to the Applicant’s submissions in the current proceedings;

9.4 In its argument for the imposition of an administrative fine, the Applicant referred the Tribunal to section 151(3) (a) with regard to the nature, duration, gravity and extent of the contraventions. It is the evidence of the Applicant that the Respondent had been registered since June 2011 and during all this time, the Respondent contravened the Act. It would have been expected of the Respondent, that being registered for so many years, it would have been compliant with the NCA by conducting affordability assessments prior to granting credit.

9.5 The loss and damage suffered as a result of the contraventions found in the samples of the credit agreements, all point to reckless lending and the overcharging of interest. However, the amounts the consumers were overcharged cannot be quantified because it is not known how many credit agreements were entered into with the Respondent.

9.6 The behaviour of the Respondent is defiant, having not cooperated with the Applicant since the application was filed. Instead, the Respondent served a notice to abide and failed to present itself to the hearing on three occasions. The Respondent also failed to submit the statutory returns, as required by the NCA;

9.7 The market circumstances under which the Respondent engaged in these prohibited practices is of such a nature that residents of a small town in Port Elizabeth were vulnerable and taken for granted to sign up for loans for which they were charged 30% interest per month. These consumers were exploited due to their ignorance. There is no doubt that the Respondent made huge profits out of its conduct, even though it is impossible to determine same, because the Respondent did not file its financial returns with the Applicant.

9.8 The Respondent, according to the Applicant, has not previously been found in contravention of the Act. Be that as it may, it is the Applicant’s case that these contraventions are serious enough to warrant the imposition of the maximum administrative penalty. The nature and duration of the contraventions suggest that the conduct of the Respondent has been ongoing for a substantial period of time before the investigation was conducted.

9.9 Section 151(3) of the Act states:-

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

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

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

(c) the behaviour of the Respondent;

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

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

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

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

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

9.11 In the same vein the Tribunal recognises the fact that the prohibited conduct perpetrated by the Respondent, is of a serious nature and warrants the imposition of a penalty. In NCR v Midwicket[13] the Tribunal found the following:

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

9.12 In the specific circumstances of this matter, the Tribunal, albeit late, learned by correspondence from the Respondent’s attorneys, that the Respondent had ceased to operate as a going concern, and was in the process of deregistering its business[14]. This information has not been tested and was not deposed to an affidavit;

9.13 One of the prayers of the Applicant is for an order in terms whereof the Respondent is to refund all past and present consumers, any amounts which the Respondent received in the form of fees which the Respondent was not entitled to. These fees were charged to consumers in excess of the prescribed maximum amounts permitted by the NCA. The Applicant asserts that this conduct by the Respondent caused consumers huge financial loss. There is no doubt that the Respondent derived financial benefit at the expense of consumers, by over-charging fees and excessive interest in contravention of the NCA[15].

10

CONCLUSION

10.1 The Tribunal, after considering the evidence before it, finds that the Respondent has repeatedly contravened the NCA, its Regulations and the conditions of its registration as a credit provider. Having regard to the small sample of files extracted from the batch of documents and the contraventions identified therein, the nature and extent of the contraventions point towards serious contraventions by the Respondent. It appears that the Respondent had many clients, though it is unknown as to what extent the Respondent’s other clients were subjected to the same conduct and contraventions;

10.2 These contraventions amount to prohibited conduct and are serious in nature. In any case the Respondent does not dispute any of the allegations levelled against it, and has placed itself in the hands of the Tribunal. The Respondent has closed business and has placed the aggrieved consumers in a more vulnerable position in that the consumers’ prospects of getting their refund is slim. No reasons have been provided as to why the Respondent has ceased its operations. All these factors, the Tribunal views in serious light as they have the character of undermining the NCA and its purpose.

11 THE TRIBUNAL’S FINDINGS

11.1 The Respondent operates in a regulated economic space and is compelled by law to conduct such an activity in a manner consistent with the NCA. The result of the Respondent’s misconduct therefore, is that the credit agreements concluded with consumers are deemed to be unlawful if they are concluded in contravention of the NCA.

11.2 The Respondent has shown little or no regard for the processes taken by the Applicant to deal with this matter. In fact, the Respondent was buying for time, by pretending to seek legal assistance, yet it was busy deregistering its business with CIPC. Notwithstanding the fact that the matter was set down three times, the Respondent was unresponsive, uncommitted despite the seriousness of the contraventions levelled against it. Instead, the Respondent chose to wind up its business.

11.3 . From the files placed before the Tribunal, most of the Respondent’s clients appear to be from low income streams. The Respondent’s conduct is aggravated by the market circumstances under which these contraventions occurred. The Tribunal has considered all the written and oral submissions made by the Applicant, and concludes that the Applicant has made out a case against the Respondent. The Applicant’s claims against the Respondent remain uncontroverted and unchallenged. The Respondent is found to have repeatedly contravened the provisions of the NCA, the Regulations and the conditions of its registration, by contravening the following sections and regulations:

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

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

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

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

12

ORDER

Accordingly the Tribunal makes the following ruling:

12.1 the conduct of the Respondent is in contravention of the sections of the NCA as outlined above, and is accordingly declared prohibited conduct;

12.2 the registration of the Respondent is cancelled with immediate effect;

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

12.4 In order to achieve 12.3 above, the Respondent is ordered to appoint an auditor at its own cost, to verify and confirm that the Respondent has accurately calculated the amounts owing to each consumer who has been affected by the Respondent’s overcharging in respect of these fees.

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

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

12.5.2 the recipients of all repayments; and

12.5.3 the steps taken by the Respondent to locate any consumers which the Respondent was not able to locate;

12.5.4 the Respondent is further ordered to take every reasonable step to locate every consumer not traced within 30 days of this order, and in the event where these consumers cannot be located, the Respondent is ordered to pay funds earmarked for the said consumers, to the Applicant

12.6. In terms of Section 151 of the NCA, and having considered all the circumstances of this case, the submissions presented by the Applicant in support of its prayers and the relief sought; the nature, gravity, extent of the contraventions; the conduct of the Respondent; the effect the Respondent’s conduct had on the economic lives of the consumers and the prejudice they suffered: the Tribunal imposes an administrative fine of R250000.00 ( two hundred and fifty thousand rand) payable by the Respondent to the

Applicant;

12.7. the Respondent is to pay the amount of R250 000.00 (two hundred and fifty thousand rand) by no later than 30 May 2018;

12.8. There is no order as to costs.

Thus done and handed down on this 23rd day of February 2018

[SIGNED]

_______

FK

MANAMELA

PRESIDING

MEMBER

Adv. J Simpson (Member) and Ms M Nkomo (Member), concur with this ruling

[1] See Postponement Order dated 30 August 2017 at page 88-89 of the record.

[2] Channaz Agherdien. See also annexure “FA3”

[3] See Investigation Report marked Annexure “FA7” of the bundle of documents handed in at the hearing.

[4] Annexures “ B to K “of the bundle

[5] Annexures “B to K”

[6] at page 79-97 of the case file.

[7] Rules for the Conduct of Matters Before the National Consumer Tribunal- Government Gazette 30225, 28 August 2007

[8] Respondent’s Notice to Abide, dated 1 February 2018 accompanied by an email from Dohne Goosen of Brendan Weldrick Attorneys addressed to Ms Germishuys of the NCR, dated 29 November 2017

[9] Annexures “B to K”

[10] Page 53 of the record. The loan granted was R1 000 and the consumer needed to pay back R300 interest on the R1 000

[11] Form TI.57(1), page 1 of the record

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

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

[14] Respondent’s Notice to Abide, dated 1 February 2018 accompanied by an email from Dohne Goosen of Brendan Weldrick Attorneys addressed to Ms Germishuys of the NCR, dated 29 November 2017

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