The announcement by First National Bank (FNB) that it will be paying out R154-million to Saambou customers for incorrect interest calculations by Saambou on their home loans may have homeowners wondering if their bank has overcharged on interest payments.
According to Ed Grondel, CEO of FNB Home Loans, the way Saambou calculated the interest on its home loans was out of line with the rest of the banking industry and went against instructions made by the Deputy Registrar of Banks in 1990.
For this reason, Saambou customers had a claim against the bank, which calculated interest monthly, in advance, as opposed to the accepted industry standards of calculating interest daily, in arrears.
What this boiled down to was that Saambou would assume customers only made a single payment into their mortgage bond accounts at the end of each month. Saambou would then work out the interest for the month in advance and charge it to the client’s account.
With the advent of access bonds, this practice became outdated, as customers were not credited for payments made during the month and lost out on paying less interest on lower mortgage balances owing to payments being reflected immediately and interest adjusted accordingly.
During 1990, the Deputy Registrar of Banks sent a circular to all banking institutions, permanent mutual building societies and building societies advising them that interest may not be calculated in advance without adjusting the interest payable in respect of instalments received before the due date.
According to Grondel, most banks had always calculated interest on the daily balance in arrears, but the building societies, such as Saambou, had not. While other building societies, for example Perm and UBS, made the necessary changes to their systems, Saambou only did so in 1999.
Grondel says that, technically, what Saambou did was not necessarily illegal as it was an instruction by the registrar and not law. However, it was an undesirable practice and not in line with industry standards.
After FNB’s acquisition of the Saambou home loan book, it obtained warranties that protected FNB in the event of Saambou’s method of interest calculations being confirmed as illegal by an independent council. FNB has completed the recalculation of all the ex-Saambou customers accounts it acquired and has decided to pay out the interest owed to them.
FNB’s interest recalculation process has revealed that, of the total number of 80 000 accounts recalculated, 50 000 qualify for a refund as a result of Saambou’s incorrect interest calculations. The remaining 30 000 home loan customers are those whose interest rate was calculated correctly, resulting in no adjustment being required to their accounts.
FNB has already started the process of reimbursing customers and has set up three dedicated Saambou home loan claim channels for customers to check whether they are entitled to a refund.