Debt: Whose default is it, anyway?
Daniel Swart* lives on a state pension in a small run-down house on the outskirts of Pretoria North with his wife and two children. Swart says he was severely injured while serving in the military in 1979 and has been drawing a state pension ever since, which is now R5 900 a month.
Furniture is crammed into the home.
There is a huge flat-screen TV and a hi-fi system on a large entertainment unit.
Three couches fill up the rest of the room. A washing machine roars away in the kitchen.
But Swart is drowning in debt and is unable to service loans furnished by African Bank.
His 27-year-old son is in the same boat. In a matter of months, the two have accumulated debt of more than R150 000 – excluding interest. Now, struggling to pay up, they claim the loans were granted recklessly.
In March this year African Bank, South Africa's largest unsecured lender, reported that it had written off R445-million in nonperforming loans. Last week, the National Credit Regulator (NCR) reached a settlement with the bank relating to allegations of reckless lending at its Dundee branch. African Bank has agreed to pay a R20-million penalty, write off the loans, refund consumers and rescind judgments.
Swart said he received a phone call from African Bank in July last year: "I don't know how they got my number, but they called to say I qualified for a R40000 loan," he said.
The interest on the loan, as is permitted under the national credit regulations, was charged at an annual rate of 31% and, with fees included, amounted to an additional R23870 for the repayment period.
Six months later, Swart spent R20 000 on credit at the Beares furniture chain, which was also loaned to him by African Bank. He was also granted another personal loan of about R8000 when, he says, he went into the branch to try to roll over the credit because he was struggling to make the payments.
African Bank also approved a loan of R45 000 for Swart's son Diederik in July last year and supplied him with a credit card with a limit of R10 000. In December, he bought furniture on credit at Beares for R22 000 and took a further R8 000 loan in April.
Diederik told the Mail & Guardian that he earns a monthly salary of R10000, although his payslip at the time of accessing the loan reflected more than R14000. He has a poor credit record as a result of nonpayment of two loans from Capitec and subsequent garnishee orders, which had only just been settled when he accessed his first African Bank loan.
The loan documents show that both father and son estimated their monthly expenses to range from R775 to R1 500.
Their bank statements, the Swarts say, were also not a clear reflection of their individual income and expenditure because Daniel, his wife Esmeralda and his son all used the bank account.
Daniel and Diederik want their debt consolidated, but say the bank has done nothing about the request.
The NCR said the National Credit Act states that a credit provider must not enter into a credit agreement without first taking reasonable steps to assess the proposed consumer's general understanding and appreciation of the risks and costs of the proposed credit; the rights and obligations of a consumer under a credit agreement; the consumer's debt repayment history; and their existing financial means, prospects and obligations.
A department of justice and constitutional development document shows that Swart and his wife, who were married in community of property, had been placed under sequestration in 2009.
African Bank said there was no record with the credit bureau at the time that Swart had been sequestrated. Had he disclosed his sequestration, this credit would not have been granted, said Marilyn Budow, African Bank's consumer and sustainability advocate.
"In addition, in both of the loan applications he signed confirmation that he had not been sequestrated."
The bank said total instalments for Swart's loans amounted to R3215, which was 54% of his gross income.
"He had more than sufficient free residue after any existing debt at the time and his declared personal expenses [of up to R1500] were taken into account," Budow said.
The bank also applied an expense buffer – where the consumer discloses a total expense amount that is lower than determined norms – "in one of the above instances".
Swart was able to meet his monthly obligations until March 2013, after which the payments were intermittent. The same is true for his son.
Diederik's total instalments for the loans amounted to R4218, which accounted for 29% of his gross salary. "According to the bureau at point of application, [Diederik] has no additional debt and African Bank's deemed basic expense model was used as he appeared to have under-disclosed his expenses."
The garnishees were considered in terms of affordability and, on the subsequent three loan applications, they no longer reflected on the payslip.
The bank said it has recorded requests, from Esmeralda, that the loans be consolidated, but informed her neither customer qualified and was advised that there were other options to consider, such as reducing the instalments and rescheduling the accounts.
Esmeralda was requested to ask her husband and son to provide certain documents and contact the bank. She contacted the bank late in September 2013, insisting on having the accounts consolidated, and was again advised that they did not qualify but that there were other options.
"It was at this stage that she first raised the issue of alleged reckless lending," Budow said. "We wish to point out that at no stage did the Swarts submit any documents as requested so that the bank could assist with a reduced instalment."
Budow said that bureau records show Daniel Swart took out a further loan from another credit provider at the same time that he first defaulted and that his wife first requested a consolidation. "Both Mr Swarts have also made a number of subsequent applications for credit to African Bank. The bank has declined all additional credit requests."
*Names have been changed to protect the family's identity