During July 1997 the Business Practices Committee (BPC) received a complaint from a consumer who was approached by a firm of interest recalculators (2) (hereafter called recalculators). The firm proposed to calculate the "exact" interest that she should have paid on her mortgages. She agreed to the recalculation and was required to pay in advance for the service. Then despite many enquiries, the firm did not conclude the calculation. It said that she had not yet supplied the necessary information in terms of the contract agreed between herself and the firm.

During October 1997 the Chairman of the BPC issued a press release in which it was stated that the BPC had given notice in the Government Gazette that it intended undertaking an investigation in terms of the Harmful Business Practices Act, 71 of 1988 (3) into the business practice whereby recalculators, require payment in advance (an up-front consideration) for services to be rendered. Consumers were also advised to be "... very careful in concluding contracts with such entities" until such time that the BPC had published its report.

Notice of the investigation resulted in the BPC receiving written submissions from 47 clients of calculators. Many clients also called officials and told them of their experiences with calculators. The entities mentioned by consumers in their complaints were, in alphabetical order, Bankrente Ondersoekburo, Calculus Mora-dienste, Cawood Financial Services, Financial Research Foundation, CM Finance, E & J Finansiële Bemarking CC trading as SA Bureau for Interest Investigations, FCF, Interest Investigations (Pty) Ltd, Finsol Business Consultants, International Computational Experts, International Interest Corporation, Interest Settlement Corporation, Karel Geevers, Kontra Rente Sisteme, Martin Lemmer CC trading as Duxbury and Co, Senator and Stellenryk Financial Projects (later acquired by Infomak).

On 2 October 1997 officials of the BPC held discussions with the owner of a close corporation who conducted business as a recalculator. A "consultant" of this business claimed that the business enjoyed the support of the Department of Trade and Industry. During these discussions it was put to the owner that in many cases there was no question of the interest being calculated incorrectly by the banks, but that claims arose because of disputes in the interest rates charged. He agreed and added that, should the Minister of Trade and Industry (the Minister) prohibit the payment in advance for the recalculation of interest, he would simply advertise that he would, for the interpretation of contracts, accept payment in advance. This particular close corporation had been in operation for five months. It had, at the time of the meeting, not recovered any overpaid interest for any of its approximately 400 clients, although it was alleged that court cases which would result in repayments of interest were instituted.

The BPC took note of the various amounts the recalculators alleged that financial institutions, mostly banks, overcharged on interest. Estimates of between R60 million and R200 million had been made. For want of exhaustive assumptions on which these estimates were based, it was pure speculation. The fact that it ranged between R60 and R200 million was already an indication that very rough assessments were made. Various unsubstantiated figures were also quoted about the amounts recovered from financial institutions and paid over to clients. No estimates were available on the monies lost by consumers in the endeavours of recalculators to recover these unknown amounts.

Allegations were also made that financial institutions were the real culprits. A policy to deliberately overcharge clients on the interest payable, would in all probability have been regarded as a harmful business practice. The BPC obviously would have investigated such cases, should it have been presented with facts (4). General statements such as "...all banks overcharge on mortgages and overdraft accounts" were clearly too vague to investigate.

The BPC expressed the opinion that the market for buyers of the services of recalculators appear to have been dwindled while the number of suppliers (recalculators) appears, for various reasons, to be on the increase. Officials were told by a representative of a recalculator that many existing recalculators previously worked for other recalculators and that the number of recalculators has mushroomed. It appears that some recalculators have very bad reputations, even among their associates.

The fee structure on overdraft current accounts is now printed by most commercial banks on the monthly bank statements. The same applies to statements reflecting deposits held at the banks. The chances for disputes about the interest rate under the present dispensation are diminishing.

The sales pitches presented to prospective clients by some or all telemarketers of the recalculators were unsatisfactory. Potential consumers were cold canvassed and brought under the impression that especially banks, as a matter of policy, debit their clients with overcharged interest. This raised the expectations of the potential clients that they would be refunded. The expectations were based on perceptions, and not on facts. Prospective clients were approached indiscriminately and not because the recalculators were of the opinion that the prospective client was being overcharged.

There was and is always a risk for consumers when they pay for services yet to be rendered. The BPC investigated two other areas where payments were required for services "... to be rendered". In the first area the BPC investigated the practice by which entities or individuals allegedly would ‘arrange for loans" for their clients. Invariably the "loans" did not materialise and the unsuspecting clients were financially worse off than before. The Minister declared unlawful the business practice by which an intermediary, directly or indirectly, in respect of a money lending transaction or an application by any person to borrow an amount of money, demands, receives or recovers any valuable consideration from the borrower or from any person so applying, whether on his own account or on the behalf of any person other than the moneylender (5).

In the second area services for "... removing your judgement, adverse, slow payer from bureaus legally" were advertised and many consumers turned to these "credit repair entities" for help. Some of the entities required an up-front fee for their services before the name was "removed" from the so-called black list. The BPC was, however, aware of complaints that although a fee had been paid (in advance) the "name disappearing" did not materialise. This worked a financial hardship upon particularly consumers who have limited economic means and are inexperienced in credit matters. The Minister gave notice that he intended to declare harmful the business practice by which credit repair entities accept up front payment (6).

The harmful nature of the business practice of recalculators occurs when the recalculator accepts money in advance to recover "overcharged" interest, not knowing what the chance of such occurrences are. This could be equated with the practice of debt intermediaries and credit repair entities who accepts money in advance for services that they can not deliver or do not know whether they can deliver. Many debt intermediaries, credit repair entities and recalculators have worked and were working a financial hardship upon consumers and are responsible for extra financial hardship for consumers already struggling.

The BPC received evidence that, although a fee had been paid, in advance, the recovering of the alleged interest overpaid did not materialise. The mere fact that a recalculator accepted money from a client did not necessarily mean that an investigation into the client’s account would have been conducted by the recalculator. The offer to facilitate the repayment of interest was often no more than a pretext to relieve consumers of their money. The scale of abuse in South Africa among calculators was such that in the view of the BPC it was clear that the practice of taking money in advance could not be justified in the public interest.

There were cases and there will probably be other cases where creditors (banks) have indeed overcharged debtors with interest. The BPC is of the opinion that debtors should be allowed to use the services of recalculators should the debtors suspect that they have been overcharged by the creditor. On the other hand, consumers should be protected from unscrupulous recalculators. These operators should not be allowed to require payment in advance, or up-front fees, for their services to recalculate clients’ financial accounts. This should also apply to operators who try to bypass the order of the Minister by calling themselves "interpreters of contracts" or any other name where this interpretation or service revolves round a dispute on the interest payable by a creditor to a debtor. Where they do undertake to recalculate interest for a client, they may retain a negotiated percentage of whatever amounts they successfully recover and if the claim is successful may also recover a fee that is negotiated beforehand.

The Minister has already placed restrictions on the acceptance of advance payments by debt intermediaries and credit repair entities. The BPC thus resolved to recommend to the Minister that, in terms of section 12(6) of the Harmful Business Practices Act, 71 of 1988, he declare unlawful (7) the business practice by which any person or business entity or recalculator offers or provides a service of investigating fees, charges or interest payable by a debtor to a creditor in terms of an agreement between such a debtor and creditor and in terms of which such interest calculator, any of its employees, agents, or other person on its behalf receives payment or money or any financial consideration before the rendering of such service in full. "Service fully performed" meant that the recalculator has fulfilled all the services offered to the debtor, and the creditor has agreed to or rejected any claim for disbursement in writing. The creditor must agree to or reject the claim within 90 days after receiving the claim, failing which service is presumed to have been fully performed.

The BPC was of the opinion that the order of the Minister would effectively put an end to the wrongs in the recalculation industry. This later turned out to be an optimistic assumption.