Capitec in Court for Reckless Lending

Capitec Bank is facing legal action for alleged reckless lending with regard to their short-term credit facilities. Summit Financial Partners filed papers in the Stellenbosch magistrate’s court, claiming that the bank had made “unjustified profits” from practices that constituted reckless lending.

Summit acts as a financial advisor to low-income consumers, and has in the past gone up against furniture retailer Lewis Group for breaching the National Credit Act (NCA). Summit claims that the bank has been disguising its multiloan credit products as short-term payday loans.

Questionable Lending Practices

Though Summit offered its services to Capitec, their relationship soured last year, after Summit found the bank’s lending practices to be questionable. Summit said that the bank had been charging customers initiation fees each time they renewed loans. This was despite there being proof that customers were not actually reapplying when they made use of the facility. Moreover, the bank did not conduct any affordability assessments in this regard.

Capitec spokesman Charl Nel responded that “Capitec Bank remains committed to operate and keep operating within the laws of SA.”

Unjustified Profits

Capitec had earned unjustified profits of over R1 billion for its multiloan products during the previous financial year, enjoying whopping profit margins of between 150% – 500%. In comparison, the bank only earned a 40% profit margin for its standard personal loans. The bank’s short-term, higher-margin loan book for the financial year ended February showed a 75% increase in rescheduled loans amounting to R1.5 billion, according to the bank’s annual report. At the time, Capitec attributed this to the economic troubles that consumers are facing.

However, Summit contends that consumers are spending big portions of their income on repaying multiloans, forcing them to “top up” with additional loans simply to survive. For example, loans granted on the 18th of the month must be settled by the 25th, along with a 12% initiation fee, said Summit. This reflects a loan term of only 7 days, translating to a 1.7% daily fee or a 625% annual fee. On top of this, interest and service fees were charged.

Capitec Multiloans

“… fees are charged in return for costs associated with affordability assessments, pre-agreement quotes and credit agreements,” CEO of Summit, Clark Gardner said.

“However, none of these activities actually take place after the first advance on their multi-loan product.”

“The remaining 11 accessible advances are accessed via the ATM after a mere three questions are asked regarding the consumer’s changing circumstances,” said Gardner.

The purpose of the court bid was to have Capitec refund consumers who were overcharged, he said. Summit had proceeded with court action, after reporting Capitec to the National Credit Regulator (NCR) a number of times, to no avail.