Certain small, seemingly insignificant financial rehabilitation companies are bringing the micro-lending industry to its knees.
Millions are being lost in monthly loan repayments as these companies make unfulfilled promises to those ensnared in debt, leaving a trail of consumer despair in their wake.
An investigation into a Newcastle-based company, Flexipay, confirms the trend of lenders jumping on the “financial restructuring” bandwagon with promises to rescue debt-ridden micro-lending clients.
Flexipay, with a network of 600 agencies and sub-agents countrywide, offers to negotiate with clients’ creditors to accept reduced loan repayments for an administrative fee.
What many of its 7 500 clients have not been told is that the larger micro-lenders, such as Unibank and African Bank, have not been willing to enter such negotiations with Flexipay.
Despite the stalemate, Flexipay continues to target clients from the larger micro-lenders with “restructuring” promises.
Larger micro-lenders believe that it was Flexipay’s direct access to the government that resulted in a change in Persal (government salary department) policy regarding loan deductions from government salaries.
Larger micro-lenders say they entered a business agreement whereby Persal would reinstate existing loan deductions on state employees’ salaries, but that Flexipay’s interference saw Persal renage on this agreement, costing the micro-lending industry dearly.
This may arguably have contributed to the collapse of micro-lenders such as Saambou, South Africa’s ninth-largest bank.
The micro-lending industry became so alarmed that it employed a team of forensic investigators last July to scrutinise Flexipay, and brought an urgent application in the Pretoria High Court to stop the company operating. The matter has been postponed until next month.
The forensic team is investigating numerous complaints against Flexipay. It is alleged the firm has taken R24-million in creditors’ money and rakes in between R1,5-million and R2-million a month.
The investigations prompted the South African Revenue Service, the Micro-lending Finance Regulatory Council (which has since rejected Flexipay’s application for registration), the Banking Council and the Department of Trade and Industry to launch their own investigations into the company.
A large number of Flexipay clients have opened cases of fraud or theft against it, claiming their salary deductions were never paid to creditors.
More than R1,8-million is believed to be outstanding in client refunds.
Maggie Bennet has for the past two months been phoning Flexipay for her R7 500 refund after creditors and Flexipay made deductions from her salary. As the larger micro-lenders had not secured payment from Flexipay, they were not prepared to refund her and she was told to contact Flexipay for the double deduction.
“Money I should be spending on my daughter’s school fees is now being used to pay my arrears with my creditors because Flexipay failed to pay over my money to them,” Bennet said.
At least 80% of Flexipay’s estimated 600 agents also did not receive their commissions, according to an informant in the company. Between R500 000 and R1-million in commission is thought to be owed to the agents concerned. Some agents have resorted to refunding them out of their own pockets.
Other victims include Flexipay’s business associates and employees. Some employees have not received salaries and many creditors have not been paid.
One of these, Graham Oliver, part-owner of Langlink, was hired by Flexipay to set up an Internet connection between Flexipay agents and its head office. He forked out aboutR150 000 for computers and software, but a year later had received no payment.
His business went insolvent and he was struggling to hold on to his house and vehicle. After court action by Oliver, Flexipay was ordered to pay him R150 000. He committed suicide two days before judgement, and his family suggest his financial woes may have contributed to his suicide.
Jan Hendrick van Zyl, Flexipay’s CEO, has been connected through employment, directorship or family to at least four companies declared insolvent or presently under civil or criminal investigation. They include United Consumer Services (under investigation for fraud), Africare Insurance (under investigation for fraud), Gauteng Finance or Loan City (numerous civil claims lodged against the company) and Comprehensive Financial Services (liquidated).
Van Zyl is currently out on R15 000 bail after appearing in the Durban Magistrate’s Court on fraud charges in January this year.
More than 15 cases are consolidated in the charge, in which pensioners are claiming he agreed to invest their pensions on the promise of high monthly returns. After receiving interest for one or two months, it is alleged, the payments stopped.
When they demanded their capital back, Van Zyl is alleged to have pleaded insolvency and said he could not repay them.
Margret Mavimbela, Molly Nhlapho and Timothy Dludla say they have lost their entire pensions, amounting to some R300 000, after investing them in United Consumer Services, directed by Van Zyl’s sister, Lynette, and Garth Robson, Van Zyl’s then brother-in-law.
Also included in the Durban case are complainants who claim Van Zyl made off with deposits on vehicles he agreed to deliver once down-payments were made.
Van Zyl has a criminal record that includes assault, contravention of the Usury Act and gambling. Flexipay’s legal adviser, Chris Hitchinson, was struck off the roll of the Law Society of the Northern Province in September last year after being linked to a trust fundscandal.
Flexipay attracted the attention of the Newcastle police fraud unit, headed by Captain Siphiwe Msibi, which raided the company last year. Investigations have been slow-moving, but local police have handed the case to Durban’s commercial crime unit.
Van Zyl said Flexipay’s activities were above board and that he had the best interests of clients at heart. “People have the right to be financially rehabilitated,” he said.
He complained that micro-lenders have been unwilling to negotiate with him, and have launched a smear campaign against him and his company in a bid to put him out of business.
He also claims the money he has paid to creditors is sitting in a “slush” account and that micro-lenders are withholding payments from clients to discredit Flexipay.
He believes he will be acquitted on all charges in Durban and blames an attorney and his former brother-in-law, Robson, for the pension and vehicle debacle. He expressed surprise when confronted with his criminal record and dismissed it as trivial.
Van Zyl expressed his deep shock and regret over the death of Oliver.
To date, he claims to have refunded clients money deducted from their salaries and never paid to their creditors, to the tune of about R4-million.
Attempts to contact Van Zyl for his views on outstanding agents’ commissions, non-payment of Flexipay salaries and money owing to Flexipay creditors, were unsuccessful.