Green light given for class action lawsuit against ‘loan’ websites that scammed South Africans

The first university law clinic in the country has received the green light to continue with a class action lawsuit after the Constitutional Court dismissed an application for leave to appeal in a high-profile fraud case involving thousands of consumers.

The Stellenbosch University Law Clinic says it can now proceed with the case about the Lifestyle Direct Group allegedly defrauding thousands of consumers from 2015 to 2019. The Law Clinic applied for the certification of a class action against the websites and their owners who it says duped consumers into believing they were applying for loans when in fact they were locked into a subscription for “legal services”.

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The High Court certified the class action, only the tenth class action in the country to be successfully certified, in 2021. After the successful certification, those responsible for the alleged fraudulent scheme lodged three unsuccessful attempts at appealing the certification order, the law clinic says.

They submitted a fourth attempt to the Constitutional Court at the end of 2022.

“We are delighted that the final attempt at frustrating the institution of the class action on behalf of thousands of deceived consumers has failed and that we may now launch the class action trial proceedings,” says Dr Stephan van der Merwe, senior supervising attorney at the Law Clinic and lecturer at Stellenbosch University.

Class action will target these websites

Van der Merwe’s founding affidavit for the certification of the class action states that the Law Clinic received hundreds of complaints from irate consumers concerning 12 websites that were cause for concern. They all prominently bore the word “loan” as part of their respective domain names.

These websites include Loan Tracker SA, Loan Spotter SA, Loan Match SA, Loan Choice SA, Loan Quest SA, Loan Connector SA, Loan Hub SA, Loan Zone SA, Loan Locator SA, Loan Scout SA and Loan Tracer SA (Pty) Ltd.

Each of these websites offered either loans or a loan finding service, intended to induce consumers to conclude agreements for unwanted services, according to the certification judgment. In most instances, money was debited from the bank accounts of consumers who subscribed for the services via the websites, shortly after they had visited the website.

“It is said that the websites generally employed the same modus operandi to mislead consumers: they were invited to submit an online application form for what appeared to be a loan (or a service that would assist them in procuring a loan).

“However, tucked away in the terms of service discretely advertised on the website was a recordal that the consumer had entered into an agreement for a service unrelated to a loan (or loan-finding service) e.g., ‘telephonic legal advice service’,” the judgment reads.

This agreement was invariably for a fixed term of 12 months and comprised an initial subscription fee ranging from R399 to R429 and a monthly subscription of R99 for the remaining duration of the agreement.

Consumers were required to provide their banking details when submitting their applications. Van der Merwe said that the common understanding among people whom the Law Clinic had spoken to was that these details were furnished on the understanding that they were applying for a loan.

However, once again, buried in the terms of the service was an authorisation by the consumer permitting the company behind the website in question to debit monies due under the agreement from their bank accounts.

Consumers told the Law Clinic that after submitting these applications they began to notice deductions from their bank accounts while they received no loan payments. When they followed up with the companies in question they were routinely informed that they concluded agreements with one of the companies and authorised debit orders to be set up against their bank accounts.

When they attempted to cancel the agreements, consumers were stonewalled and threatened with legal action, including blacklisting.

The websites were also in no way permitted or authorised to deliver the legal service to the consumers.