The Banking Association of South Africa (BASA), together with the Minister of Finance released a statement regarding “responsible market conduct for bank lending” at the back end of 2012. The full statement is available on the BASA website.
The BASA is represented by South Africa’s major retail banks, and the review was necessitated by the tragic events at Lonmin Mines in Marikana. Essentially, a limited review of South Africa’s banking environment found the following issues:
- Excessive lending to households even when such loans are not affordable.
- Illegal collection practices such as keeping ID documents, bank cards and PINs.
- Selling inappropriate credit products to maximise margins (example: using expensive unsecured lending for house renovations instead of cheaper mortgage loans).
- Extending unaffordable loans to pensioners and other social grant recipients.
- Abuse of consumer credit and asset insurance, including excessive fees and charges.
- Abuse of debt and garnishee orders, and of direct payroll deductions.
The South African reserve bank’s statistics show that the ratio of household debt to disposable income remains excessively high at around 76%. To add to this dire picture, a South African corporate law firm was mandated to investigate fraud on garnishee orders and other forms of attachment order. The level of unlawful judgments, with excessive interest rates and incorrect legal allegations was astounding. As a result, the BASA and Minister of Finance have agreed to, amongst other things, refrain from collecting on emolument attachment orders. The other commitments made, include:
- Prevent future indebtedness and address current over-indebtedness where practical, BASA and its member banks will review their approach to the assessment of affordability, and ensure the selling of appropriate credit products to their customers.
- BASA, the National Credit Regulator and the National Treasury will formulate a standard to measure affordability, which could then be incorporated into regulations as minimum standards.
- Each relevant BASA member bank will develop approaches to provide appropriate relief to qualifying distressed borrowers by reducing their instalment burden, without additional cost to the borrower.
- BASA members agree to minimum norms and standards for consumer credit insurance practices linked to lending, and will work with the National Treasury and the Registrar of Insurance to develop a framework that take into account the interests of customers, appropriateness and the full impact of all charges on affordability.
- BASA members commit not to use garnishee orders against credit defaulters, as they believe the use of such orders for credit is inappropriate. (my emphasis)
I have personally reviewed many default judgments and emolument attachment orders and the rate of deception and downright fraudulent practice is startling. If you or any of your employees are having deductions made as a result of a judgment in the Magistrates Court I would recommend you and your company urgently review these orders and attachments urgently.
Please remember, this does not mean all banks and garnishee orders are fraudulent. Many BASA members and credit institutions have been following the letter and spirit of the legislation. Having said that, many have not, so the prudent exercise is to review existing HR and deduction policies as a matter of urgency.
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