Here’s what you can learn from Credit Ombud’s case file

Consumers can learn from the Credit Ombud’s case file included in the organisation’s annual report released last week. Accurate credit listings, prescription of debt, interest that can be charged, the impact of fraud and reckless lending were just some of the complaints the ombud had to deal with in 2022.

In 2022, 30 448 consumers contacted the ombud offices and its call centre agents recorded 17 212 general enquiries and complaints. The office opened 3 645 new disputes and 3 643 were resolved before the end of the year, with 64% of the disputes settled in favour of consumers and total savings for consumers amounted to R3.85 million.

A total of 35.62% of consumer complaints were not upheld and most complaints were about insufficient or incomplete credit information. Consumers also complained about reckless lending, surrender of goods, credit reports, double listings by credit provider or bureau, garnishee orders, non-compliance with regulations, prescription of debt, credit insurance, outdated credit information, fraud, contractual disputes and statements of account.

There were some interesting complaints that consumers can learn from to avoid a similar situation.

Accurate listing of consumer credit information

The National Credit Act requires that credit information must be reflected accurately and state the current outstanding balances due. The ombud is required to ensure that this information is correct or amended, if necessary, as the accuracy of this information is vital to enable a credit provider to conduct a proper affordability assessment.

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A consumer complained that he settled an account directly with a debt collector who was mandated to collect on the account that was handed over after being in arrears for six months. For some reason, this settlement was not communicated to the credit provider in time, who updated the account to paid-up and closed six months after the actual settlement date. With the ombud’s intervention, the payment profile was corrected to reflect the actual date of settlement and closure.

When debt prescribes

The ombud says while many cases involving the law of prescription are similar, a particular case presented a slightly trickier set of circumstances. The consumer’s account went into arrears due to a change in financial circumstances and she decided to surrender the vehicle to have the account settled.

The consumer signed a voluntary surrender application in December 2019 and contacted the credit provider in February 2020 to make an offer for the remaining balance, but it was rejected as it was too low.

The credit provider eventually issued a summons in December 2022, within the three-year period from date of the acknowledgement in February 2020. The consumer claimed that the last acknowledgement made was in December 2019 and not February 2020, claiming that prescription would apply.

After retrieving a copy of the call recording, the ombud says it was clear that the consumer acknowledged the debt owing and made an offer to settle the outstanding balance due. The claim of prescription was rejected and the consumer was held liable for the outstanding balance on the account.

Too much interest on arrears

Section 103(5) of the National Credit Act limits the costs and charges that can accrue on an account for the period that it remains in arrears. The ombud says while this section may seem simple to understand, it becomes quite tricky when applied to a revolving credit facility.

The ombud’s investigation revealed that despite the date of first default, the interest charges, service fees and value-added services on the account were allowed to accrue for years, eventually resulting in the outstanding balance exceeding the threshold in terms of Section 103(5) of the act.

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The consumer claimed that he did not use the services from the date of default and was under the impression that these services were stopped due to non-payment. The credit provider then conceded that some charges were levied erroneously and credited the account accordingly. As a gesture of goodwill, the remaining balance was written off and the account closed.

Fraud rears its ugly head

Fraud is rampant in all sectors and industries. While many consumers are left without recourse and no funds or legal assistance to see the dispute through, the ombud says its office is vital in the dispute process as it allows the consumer to have a voice, especially in a time of frustration and fear.

A consumer picked up that purchases were made on her account between November and December 2021 which she did not remember. There were no receipts or evidence available to show that it was the consumer who made these purchases and what supported the consumer’s submissions was that these purchases were made at locations where the consumer would not normally shop.

After a lengthily investigation, the credit provider conceded that it would be unfair to hold the consumer liable for these purchases. The credit provider reversed these transactions and credited the account accordingly.

“In the absence of a clear and direct cause of action, we are to use all surrounding circumstances to arrive at the most probable conclusion, a skill that we have harnessed over these past years,” the ombudsman says.

Late debit orders

According to the ombudsman, the office often receives complaints about debit order dates and the impact that late payments can have on an account. Consumers seldom understand the consequences of a late debit order until it affects their credit record, or they find that the agreement term has exceeded the original term agreed to.

The act provides that interest is to accrue daily and compounded monthly, which means that for every day that an instalment remains unpaid, further interest charges will accrue on the outstanding balance.

The credit agreement becomes the basis upon which these disputes are resolved as it clearly sets out the intentions of the parties at the time of contracting. In this case, the debit order processed on the first of every month returned unpaid for a few months until the consumer contacted the credit provider to request a change to the debit order date.

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The ombud found that the consumer was reversing the debit order deduction for those months and then paid the instalment in cash a week later. The consumer disputed the date claiming that the agreed date was the seventh of each month, while the agreement revealed that the agreed date was the first.

The consumer argued that the account could not be in default as he settled the outstanding instalment within the month it was due. However, what the consumer failed to take into account was that once the payment is missed, this would be reflected as a non-payment on his credit profile and that arrear interest would accrue, which will eventually increase the total cost of credit.

The credit provider agreed to change the debit order date, but the payment profile history of the account remained to reflect the actual sequence of payment.

Reckless credit

The National Credit Act places an obligation on the credit provider as well as the consumer to be fair and honest when concluding an agreement. It remains the responsibility of the credit provider to assess key aspects of a consumer’s ability to successfully service the repayment of loan agreement.

It is the consumer’s responsibility to be truthful when providing information to the credit provider to successfully conclude the affordability assessment. In this case, the consumer claimed that the credit provider failed to discharge its obligation to take into account all expenses at the time of application and as a result the loan was granted recklessly.

The ombud’s investigation revealed that the credit provider in its assessment included all information that it could reasonably obtain at the time and based on this information, the credit provider did in fact discharge its obligation in terms of the act.

The agreement was successfully serviced by the consumer for 18 months, there was no sign of negative or adverse data on the credit report used at the time of assessment and there was sufficient disposable income to service the monthly instalments.

The consumer could not show that any further expenses were disclosed, nor were any further expenses apparent from the bank statement provided at the time of application. The ombud decided that the loan agreement was not granted recklessly and the consumer remains liable for the outstanding balances.