NCR within its rights to probe instant loans company, court rules

The National Credit Regulator (NCR) was within its rights to launch an investigation into instant loans company Dacqup Finances on the reasonable suspicion that it was violating the National Credit Act (NCA), according to a Supreme Court of Appeal (SCA) decision handed down last week.

Dacqup, trading as ABC Financial Services, a registered credit provider, was caught out offering “instant” micro loans of up to R8 000 at illegal interest rates.

The company had engaged in repeated prohibited conduct before and on this occasion, had aroused the suspicion of an NCR inspector, who noticed a sign offering instant loans. If the loans were instant, the inspector reasoned, the company would find it difficult to comply with the onerous affordability assessments required by the NCA.

The inspector entered the premises, posing as a customer, asked about taking out a loan and was told the interest rate was 30% a month on short-term loans – which is far in excess of that allowed by law.

The NCR initiated a complaint against Dacqup at the National Consumer Tribunal, which found that the company had violated several provisions of the NCA. The tribunal ordered the firm to pay a fine and have all its credit agreements for a certain period assessed by an independent auditor.

Dacqup subsequently successfully opposed those orders in the High Court in Pretoria. That success was based on a technical point, without the merits of the case being argued.

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After that, the case ended up at the SCA, which confirmed the NCR’s argument that, once a complaint had been initiated by an NCR inspector, or anyone else, in terms of the act, the NCR was within its rights to launch an investigation.

The SCA ruling said the approach taken by the high court made the mistake of conflating the notion of a reasonable suspicion with prima facie evidence. The high court previously found there was no reasonable suspicion to initiate a complaint, which has now been overturned by the SCA.

“As our courts have repeatedly stated, a reasonable suspicion contemplates a lesser burden than that of prima facie evidence,” says the ruling. In other words, an NCR inspector would not have to actually obtain a loan to obtain prima facie evidence of a contravention of the law.

“In all the circumstances, [the court is] satisfied that the NCR has shown that it had a reasonable suspicion to initiate an investigation into the activities of Dacqup,” reads the judgment.

This article was republished from Moneyweb with permission