As South Africa commemorates 31 years of democracy this April, the National Financial Ombud (NFO) reaffirms its dedication to protecting the rights and dignity of credit consumers. Financial freedom is essential for upholding the democratic ideals of equality, fairness, and transparency however, many consumers continue to face unjust practices at the hands of non-bank credit providers.
In the following case studies, the NFO highlights the most frequently received complaints and the corrective action taken to protect consumers. These examples offer valuable lessons for credit providers on how to uphold both legal standards and ethical obligations.
Case study 1 – reckless lending
A consumer approached the NFO after struggling to repay a new loan. The credit provider claimed an affordability assessment had been completed indicating that the consumer qualified for the loan.
The investigation conducted by the NFO revealed that although the formal aspects of an affordability assessment were met, large unexplained cash withdrawals were overlooked. As a result, the process failed to comply with the National Credit Act (NCA). Such financial activities should have triggered deeper scrutiny during the assessment phase. The NFO recommended writing off all interest and fees associated with the loan. The credit provider accepted the ruling.
Important lessons for credit providers:
- Affordability assessments must go beyond formality. A “tick-box” approach is insufficient.
- A comprehensive investigation is required for unusual financial activity, such as frequent cash withdrawals.
- Comprehensive affordability checks are both a legal and ethical imperative to prevent over-indebtedness.
Case study 2 – misuse of fraud listings
In another dispute, a consumer was listed under the Southern African Fraud Prevention Services (SAFPS) as having committed fraud following a default on a rental agreement. The consumer claimed the default was caused by genuine financial hardship.
Upon reviewing the case, the NFO found no evidence of intent to deceive. The consumer had a track record of compliance and was financially impacted by the COVID-19 pandemic. The fraud listing was deemed unjustified and a misrepresentation of a contractual breach. The NFO advised that the fraud listing be removed and the provider agreed to discontinue similar listings for future contractual defaults.
Important lessons for credit providers:
- Fraud listings must be based on intentional deceit, not mere breach of contract.
- Credit providers should differentiate between financial distress and fraud.
- Misuse of fraud reporting devices can lead to severe reputational and legal consequences.
While the NFO continues to hold credit providers accountable on practices that must become industry norms, consumers also have a crucial role to play in regularly reviewing their credit agreements and monthly loan statements for accuracy, checking their credit reports for discrepancies or suspicious activity, and maintaining records of all signed agreements, correspondence, and proof of payments.
As credit providers reflect on these case studies, the message is clear – to conduct business in a manner that enables ethical conduct, proactive compliance, and consumer-centric service beyond a tick-box approach.
Click here to read more about this on the NFO’s website.