How to check if your bank is ripping you off

In this article Armand Rinier looks at how banks and other lenders are engaging in reckless lending. The practice is so common, it would require a book to cover all the creative ways banks are breaking the law. It's time to pull out your bank statements and see whether or not you are being gouged by the banks. 

The National Credit Act (NCA) was intended to protect us from reckless and unscrupulous lenders, but all it has done is force them to become more “creative” in circumventing the law. Did you know that the practice of “debt consolidation” to help you keep abreast of your payments is actually a fresh extension of credit that requires the bank to undertake a fresh assessment of the client’s credit-worthiness? Or that any costs not agreed to by the client in the quotation from the lender are unlawful?
 
I got a lot of response to my last article How to defend yourself against the banks, and my advice to always defend a summons struck a chord with many people.

Unfortunately, some people are trying to seek justice years after having their home or car repossessed; many people are paying prescribed debt (old debt that cannot by law be collected), and others are still buckling to the threats of debt collectors. It is clear that what they fear most is the law. This tells me people do not know their rights sufficiently to hold the banks to the same standard as the rest of us. In other words, it’s time to force the banks to obey the law!

I will repeat what I wrote in the last article: when you receive summons from the bank, always defend!

Most people do not want the hassle of going to court, so they are prepared to put up with financial rape. Many of the cases we see are fraught with errors of law and accounting, if not outright fraud, and are therefore defendable. But most victims allow the banks to simply roll up to court with an undefended summons and take their houses away.

In case you think I am being extreme, let me explain by way of an example. Earlier this year, David Jantjies (not his real name) of Cape Town was about to be evicted from his home and had no idea where he and his family would go. David lost his job three years ago and could not keep up with his mortgage payments. He tried to reschedule his debt, made intermittent payments, and did just about everything to keep a roof over his head. The bank wasn’t particularly interested in David’s plight and obtained summary judgment against him (David did not defend this). The bank then moved to evict him from the property.

It was at this point that David was about to become homeless. You might argue that David, like anyone who does not meet their contractual obligations, should suffer the consequences. After all, about 10,000 South Africans a year lose their homes to the banks, which then sell them at auction for a fraction of their worth and then pursue the defaulting client for the shortfall. Why should we cry for David?

Let’s turn to the Constitution, specifically Section 25 and 26 of the Bill of Rights. Section 25 prohibits the “arbitrary deprivation of property” and Section 26 says “Everyone has the right to have access to adequate housing.”

So in preparing a defence for David, we invoked these two clauses and joined the Cape Town City Council and Department of Housing as co-respondents with the bank. We argued that as he was unable to afford alternative accommodation, this now fell to the city council and government to step in. What do you think happened? The bank did not want to argue a case that painted it as soulless and mean-spirited and dropped the matter like a hot brick. David remains in his home.

The purpose of this article is to help you do a little side-checking on your bank and keep it honest. Why would that be necessary? After all, you have the NCA, the Banking Ombud, the National Credit Regulator and other bodies looking after your interests. But how will you get to use these bodies if you do not know when you are being cheated?

Ignorance is death in the financial world. Particularly ignorance of the law, since banks rely on agreements and contracts which they can enforce in courts of law. If you have borrowed money from any source, you need to know something about lending practices and the law.

So here we go. The NCA requires lenders to present you with a “pro forma” quotation detailing all costs (finance, admin etc) prior to you entering into an agreement. This quotation, once signed by you, becomes the agreement. Any charges not allowed in the agreement are unlawful. So pull out your original agreements and scrutinised them against your monthly statements. Where they do not match, challenge the bank to explain why this is so.

In reality, creditors rarely give clients a copy of documents signed at the time of entering into an agreement. This is where the trouble starts. Because you do not have the original agreement, creditors are able to take advantage of you by collecting money to which they are not entitled.

Checklist for reckless lending

So here’s my six-point checklist for checking whether you are the victim of reckless or unlawful lending:

1. Check your statements against your original credit quotation for unlawful charges. In particular, scrutinise insurance, finance and administration charges. Do these match what is allowed in the original agreement? In many instances, we have found charges have been added that are not allowed in the original quotation.
2. If you suspect that a creditor is taking advantage of your lack of knowledge, rectify this by stopping payment of your account. That’s right, stop paying!
3. Wait for the creditor to issue summons against you and ignore all informal attempts by debt collectors to contact you. Do not speak to debt collectors on the phone, as they record messages in an effort to entrap and get you to waive prescription (most debt older than three years cannot be collected, but the debt collection agents will attempt to get you to acknowledge you still owe it. This is unlawful in terms of the amended NCA).
4. If the creditor doesn't sue you, you can regard the account as “bad debt” (as in unenforceable).
5. If you are sued, defend the claim (the summons usually contains a form for you to do so personally) and formally call for all documents relied on by the bank, including an account of debits and credits from inception of the claim. 
6. Check these documents for a bad claim or bad debits or get someone to advise you prior to any court proceedings (we provide a forensic audit service of bank statements; you would not believe how many times we busted the banks for fudging the figures).

Here’s another way bank and credit card companies engage in reckless lending: they will offer to capitalise the charges (effectively extending the loan), without doing a new credit assessment. This brings the whole agreement into jeopardy.

Bear in mind, you may have to go to court to get a true copy of the agreement between you and the lender to show what was agreed in the quotation. But the lender will be forced to present this to you and only then can you assess whether they have breached the agreement.

Debt collectors are really harassment agents. Don’t deal with these people on the phone. Youi may end up acknowledging a debt which is prescribed (generally, older than three years, and therefore unenforceable) and they will keep on hounding you. If debt collectors are trying to collect prescribed debt, advise them that they are breaking the law and you will report them (after getting the company and the person’s name).

Another reckless lending practice among credit card companies is to load additional charges onto your account when you are late or skip a payment or two. The recalculation of these charges is contrary to the original agreement, which makes it’s a reckless lending practice.

The same applies to a mortgage bond: let’s say you pay R7,500 on your bond each month, but fall a few months into arrears. If the bank capitalises your bond instalments, this amounts to a new credit agreement, and must be accompanied by a new credit assessment of the client. If not, it is reckless lending.

What banks should be doing when you fall into arrears is to advise you of the default in terms of Section 129 of the NCA and then claim the full amount due. They often avoid this, and carry on lending, at the same time loading you with additional charges which you never agreed to (you will probably find they are loading you with legal and collection costs, even though you have not yet entered the legal process, which is unlawful). But not conducting a new assessment of your affordability, they are engaging in reckless lending.

If I suspect the bank is taking me for a ride, I solve this by stopping payment. They will either try to collect or sue. If they try to collect, I ignore this. If they sue, I defend. Then I can ask them to supply the original documents, and assess for what additional charges they are dumping on me (and many of these can be challenged).

Here’s another case I recently came across. A client, let’s call her Janet Smith, had a prescribed claim (older than three years) which had been revived unlawfully. As I mentioned earlier, the lender or some firm of attorneys who bought the debt bullied her into believing she was still in debt and had to pay. This was not true. You have to enter into a new agreement in order to revive prescribed debt. Janet, not knowing her rights, continued to make payment. She then realised it was prescribed debt that she was paying and stopped all further payments. She called for an itemised account, and she discovered there was a period that she has not paid for three years – which means it had prescribed. The outstanding balance was R50,000, which is what she saved by suspending all further payments.

One of the tricks employed by lenders is to insist you take out insurance with your loan, but then capitalise the insurance premiums, so instead of paying say R10,000 a month, you end up paying R11,000. This is in violation of the agreement with the lender. As soon as the lender has to recalculate the instalment, it involves a deviation from the original agreement, and they are required by law to do a new assessment of your affordability.

It always amazes me how much the banks and lenders get away with because of timid or ignorant clients. One of the services we offer is a bad debt check – in other words, we scrutinise your lending agreements for transgressions such as those outlined above. This is the only way to keep the banks honest and straight. Otherwise, chances are, you’ve dedicated years of your life to paying off debt which was not owed. That should make you pretty angry.

Fight back 

The message in all this is – always defend! And never take the bank at its word.
 
After several requests, we have put together a team of crack attorneys (and advocates) specialising in taking on the banks, and at extremely affordable costs. Contact [email protected].