Deductions from grants not child's play

THE National Credit Regulator (NCR) and the Treasury should act together to stop debit orders being processed against child grants, say civil society organisations.

THE National Credit Regulator (NCR) and the Treasury should act together to stop debit orders being processed against child grants, say civil society organisations.

Sarah Sephton of the Legal Resources Centre in Grahamstown said the banking regulations operated in contravention of the Social Assistance Act, and this needed to be changed if child grants were to be protected from unscrupulous lenders.

Sephton said the most urgent need was to prevent child-support grants being used as security for loans.

"There is likely to be a public outcry against attempts to block deductions from all grants, but there is an argument to be made in the case of children who are too young to authorise debit orders against their grants," said Sephton.

The Treasury estimates that about R44-billion of the total R120-billion grants paid are for child support, and account for 11million of the 16million grant beneficiaries.

The deductions issue has gained urgency since Cash Paymaster Services (CPS) won the South African Social Security Agency (Sassa) tender and in early 2012 commenced managing distribution of R120-billion in social grants a year.

A critical aspect of the new arrangement is that all 16million grants are paid through a Grindrod bank account. Once they have been paid into a bank account, Sassa is unable to prevent microlenders, financial services companies and airtime vendors making deductions.

"The Social Assistance Act prohibits any deductions other than limited funeral insurance from being made from social grants, but the National Payment System (NPS) enables the automatic deduction of debit-order payments from bank accounts. So once a grant is paid into a bank account, it is immediately vulnerable to debit-order deductions," said Sephton.

Sephton contends that the NCR's action against Net1 subsidiary Moneyline Financial Services this week will do little to address the deductions problem because Moneyline is only one of scores of entities that rely on debit orders against social grants.

The NCR's investigation revealed that Moneyline had granted credit to consumers receiving grants "meant for the upkeep of children - which grants were used as income for assessing the consumers' ability to repay credit".

The investigation also found that Moneyline had granted credit to consumers receiving social grants without assessing their debt-repayment history or without taking into account their monthly living expenses.

"The use of child-support grants and foster-child grants as income for purposes of conducting affordability assessments on credit applications is totally unacceptable," said Nomsa Motshegare, NCR chief executive. "It deprives children of money meant to provide for their daily necessities."

Net1 said it was perplexed by the NCR's decision to issue a press release containing "inflammatory allegations" without first informing Net1 of the findings of an inquiry it believed had been concluded months ago.

The NCR would not disclose if it had made similar inquiries into other lenders, and would not confirm it had received complaints against Finbond.

On Thursday, Net1 hit back at the NCR's decision to apply to the National Consumer Tribunal to cancel Moneyline's registration because of its breach of the National Credit Act (NCA), and said it believed the NCR's application was "riddled with factual inaccuracies". Serge Belamant, Net1 chairman and chief executive, said: "We strongly deny any contravention of the NCA and will oppose the NCR's application."

The NCR's dramatic move came after Social Development Minister Bathabile Dlamini launched a scathing attack on Net1, saying that debit deductions from beneficiaries appeared to rise significantly after CPS was awarded the contract.

Lawyers say the confusion over what is or is not legal also reflects uncertainty about the definition of "reckless lending".

The Treasury regards deductions of less than 35% of monthly income as affordable and therefore not reckless. But this does not allow for additional loan-related costs such as administration and insurance fees or the possibility of grant recipients arranging multiple deductions via different moneylenders.