The Loan Company — a business offering short-term loans at high interest rates — has lost its appeal against the National Credit Regulator and has been slapped with a hefty fine and ordered to refund at least 15 clients.
The Supreme Court of Appeal has upheld the National Consumer Tribunal’s finding that The Loan Company must pay an administrative fine of R250,000 and refund customers of credit agreements found to be non-compliant and therefore unlawful and void.
This comes after customer complaints against The Loan Company prompted the NCR to investigate the business. After uncovering wrongdoing, it referred the matter to the tribunal which made various orders against the business. This included a declaration that the business had been acting unlawfully.
In one such case The Loan Company advanced R35,000 to a Mr Tselapedi, who handed over his 2002 BMW 5, then valued at R100,000, as security. Tselapedi defaulted, failing to pay back R42,000 by August 3 2016. The Loan Company sold his car for R65,000 and retained the entire amount.
Upset by the NCR's findings, The Loan Company appealed to the Pretoria High Court. The court heard that The Loan Company operates as a typical ‘pawn’ broking business, offering short-term loans to people who offer their movable property as security. If the customer defaults and fails to repay the loan in the agreed time, The Loan Company sells the asset and retains all the proceeds.
The tribunal claimed that “the person investigated has engaged in ‘prohibited conduct’”, defined by the National Credit Act as an act or omission that is in contravention of the act.
These acts and omissions were said to include: signing off credit agreements and extending credit to consumers without being properly registered; advertising the availability of credit while not being registered as a credit provider; and over charging interest and levying other fees and charges that are not legally permitted.
This led the NCR to seek an order in respect of at least 15 transactions: that The Loan Company be compelled to refund the affected customers and be ordered to return all vehicles to consumers that it is currently holding as security.
In instances where assets had already been sold off, it asked that The Loan Company be directed to refund the affected consumer the difference between the gross proceeds from the sale and the loan amount advanced.
The Loan Company responded in an answering affidavit deposed by sole director Jacques Guillaume Fromet De Rosnay.
De Rosnay denied the allegations of impropriety and illegality, claiming that all the credit transactions were concluded after he had applied for registration as a credit provider and was unable to explain why he only received his registration certificate in the year after many deals were finalised.
The tribunal found that The Loan Company had repeatedly contravened several laws, and these contraventions were “prohibited conduct”.
The tribunal said all 15 sample transactions were unlawful and void and instructed The Loan Company to refund each over-charged customer or return the goods it was retaining as security.
In addition, the tribunal levied an administrative fine: 30 days to pay R250,000 into the National Revenue Fund.
The Loan Company took to the Pretoria High Court where two judges found that the tribunal's findings “cannot be faulted” and confirmed them.
De Rosnay then headed to the Supreme Court of Appeal arguing again that he had been registered when the agreements were concluded. Interest rates he charged were not unlawfully high, he said, and the tribunal was wrong to impose the fine.
He argued that the National Credit Act was “formulated in a clumsy matter” and did not apply to pawn transactions.
The tribunal found that while the Loan Company permissibly charged the rate applicable to short-term agreements as allowed for law, it had impermissibly charged the rate monthly. This means, for example, that it would charge 5% of the loan as interest for a 29-day loan, then another 5% for the next 30-days.
The tribunal held that The Loan Company was obliged to charge for the actual number of days, with each agreement calculated on the specified number of days. The law required that interest be charged at a set percentage, calculated at an annual rate.
“That does not mean that in months consisting of 28 days, it is permissible to charge a consumer interest for 30 days, and vice versa. Permitting that would be unreasonable as it would increase the already high cost of credit. As an example, in the case of one of the Loan Company’s debtors, Ms Katsande, she was charged interest for 30 days, whereas the agreement only had a 29-day duration. This resulted in her paying an extra R20 in interest,” said judge Phillip Coppin.
The Loan Company argued that the tribunal did not have the power to declare the sample credit agreements unlawful and void, and that only a court of law had this power.
The appeal court disagreed, finding that the tribunal was entitled to make a finding on prohibited conduct and impose a remedy, finding that the high court had not erred in finding that the tribunal had acted within its powers — both in fining The Loan Company and in ordering refunds.
The Loan Company further argued that the legal definition of a ‘pawn transaction’ entitled it to retain all the proceeds from the sale of any pawned asset as it had been retained as security in case of a repayment default.
The court disagreed with this contention.
“A consumer’s obligations ‘under the agreement’ consists only of repaying the amount of the loan advanced to him or her and the lawful charges, including interest, that had been added in terms of the agreement,” said Coppin.
This, he said, meant that The Loan Company was therefore not entitled to sell off assets and retain the full amount paid, regardless of the outstanding loan amount.
“Commissary agreements were prohibited in Roman times because they were harsh, unjust and unfair. That prohibition has endured for centuries and still applies in South African law,” Coppin said.
“The penalty was imposed purely to punish the Loan Company and not to encourage it ‘to refrain from future contravention’.”
“The entire appeal of the Loan Company must fail,” Coppin said in dismissing the appeal with costs, ordering that the business comply with the tribunal’s order immediately.
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