Sophia’s Choice: Farm worker has to decide which of her children to feed

When loan repayments left Sophia* destitute‚ she had to beg a little money from her cousin and make a terrible choice.

Either she could feed herself and her six-month-old baby‚ or she could feed her 8 and 13-year-old daughters. She chose the latter. When she stopped eating‚ she also stopped producing milk. Her baby’s weight dropped from 11.3 kg to 8.8 kg in three weeks. The clinic sister threatened to call the social worker.

Sophia is a 36-year-old farm worker with four children‚ three of whom are on child support grants. For three long months‚ her grants just disappeared‚ eaten up by insurance and repayments on two loans‚ one of them fraudulent.

Last year‚ Sophia was surviving by working on a farm for R735 per week and receiving social grants for her three older children. With the grants plus her salary‚ she felt she could provide what her children needed. But when she fell pregnant with her youngest‚ she could no longer work on the farm.

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Desperate‚ she took out a loan‚ and then another. And everything went downhill from there.

On the 14th of every month‚ an EasyPay consultant visits Sophia’s rural town in the Western Cape‚ offering Net1’s suite of financial products. Net1 is the parent company of EasyPay‚ of Cash Paymaster Services (CPS)‚ which pays out social grants on behalf of the SA Social Security Agency (SASSA)‚ and of insurance company Smart Life and loan company Moneyline.

In September 2016‚ she met the consultant and applied for an emergency loan of R1‚000 from Moneyline.

She and her children had been sleeping outside‚ or at a shelter‚ and she desperately needed the money to rent a backyard shack. This was not an entrepreneurial loan‚ where the money could potentially grow into a profitable business; this was strictly for consumption to cover her immediate costs.

She was told that in order to get the Moneyline loan she’d have to sign up for the EasyPay card (issued by Grindrod Bank) and for a R44-a-month SmartLife funeral insurance policy. Though she didn’t want either‚ she signed up.

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Her loan repayment essentially amounted to R264 per month: R166.67 in repayment of the loan‚ R53.33 in service fees‚ and the R44 funeral policy.

It all came to too much‚ and in October Sophia found she could not cover all her monthly expenses. She visited another loan company in a nearby town‚ called XY Loans‚ and borrowed R256.

On 29 September‚ XY Loans deducted R512 – in two separate transactions of R256 – to “confirm” her account.

On 30 September‚ XY Loans reimbursed those two transactions and loaded the R256 loan to her account. On the very same day‚ which was the day Sophia’s grant was paid‚ XY Loans made make a further five deductions of R256 (R1‚280).

Because of the XY loan‚ Moneyline loan and Smart Life policy‚ Sophia was left with only R43.63. When she tried to access more information‚ she was also hit for R23.43 in EasyPay fees for balance inquiries and insufficient funds.

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On 31 October‚ her grant was paid. Immediately XY made a further three deductions totaling R768‚ and then Moneyline‚ Smart Life‚ and EasyPay made their deductions‚ leaving her with R54.69.

On November 26‚ XY Loans loaded R381 into her account‚ and took out R1‚400 in five separate transactions. Sophia ended the month R1‚032.93 in the red. (Most South African debit accounts would never allow a client with Sophia’s income to go into R1‚000 overdraft.) When her December grant was paid‚ on November 28‚ she only had R39.82 for Christmas.

Altogether‚ XY Loans deposited R1‚149 into Sophia’s account and removed R3‚961.98‚ between September 29 and November 26.

This is exactly the nightmare creditor scenario that allows Net1 to claim that its companies provide a better‚ more reliable service than the unscrupulous moneylenders which prey on the poor. But it is the Grindrod bank account‚ affiliated to CPS and Net1‚ that enables Sophia’s crisis.

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Why Can This Happen? To answer this question‚ we have to go back to May 2016‚ when the Minister of Social Development‚ Bathabile Dlamini‚ published new regulations to the Social Assistance Act in order to protect grant beneficiaries like Sophia against unauthorised and unlawful deductions from their social grants. These regulations were intended to stop all deductions from the SASSA-branded Grindrod accounts with the exception of one funeral policy‚ which amounts to no more than 10% of the grant‚ on pensions and disability grants.

These regulations have been challenged in the Pretoria High Court‚ by several companies including Net1 and two of its subsidiaries.

In October 2016‚ Net1‚ FinBond Mutual Bank and SmartLife Insurance Company (both subsidiaries of Net1)‚ and Information Technology Consultants (not affiliated to Net1) argued in court that the Minister’s new regulations were invalid and she had overstepped her jurisdiction by attempting to intervene in the banking sector.

Net1 and its affiliates argued that the court should interpret the new regulations to restrict deductions before grants are paid into beneficiary accounts‚ but not after grants are paid.

This article first appeared on GroundUp.

-TMG Digital/GroundUp