Confused consumer

Confused consumer owes more now than four years ago

This weekend Bloomberg reported on the experience of one South African Consumer’s experience with African Bank. Ntseane is a mine worker in the north of the country. Over the past few years Ntseane has turned to African Bank for loans on several occasions including when his grandmother died (for the funeral) as well as, to buy a sofa and make extensions at his home. In total he borrowed around R 18 000. an amount which now due to interest and payment issues has climbed to over R30 000 four years later. He earns around R12 000 a month and is now making payments of R1700 monthly toward his debt with African Bank.

Like many South Africans he says that he does not understand how interest works and what a percentage of 14 percent means. He also says that he did not really understand what he was agreeing to back when first taking out his first loan. After being stabbed in a robbery in his home back  in 2010, Ntseane couldn’t work for almost a whole year (10 months). At that time he was relieved to hear that African Bank would agree to “put off loan repayments” and wouldn’t” charge him any interest”. He was in for a surprise however. As is often the case in a large organization it seems one hand did not know what the other was doing and when he returned to work he discovered he now had three garnishee orders against his pay slip.

This is unfortunately how the game is played. Whether through incompetence or malice it seems the offer made to Ntseane was either misunderstood by the consumer or was incorrectly made. It is, after all, highly unusual for any of the banks to offer a loan “interest free” for any period of time during the life of the debt. They may do so for a month or two upfront to sweeten the deal or draw consumers in but once the contract is signed this seldom happens. Banks might let you pay less or even skip payments knowing that to do so means that the interest portion will increase earning them more money over time.

Often this is because most of the large banks are unable to make their computers do things like change interest rates or adjust capitol amounts. This is something that frustrates Debt Counsellors and consumers particularly when a court has ordered a creditor to change figures for a debt review. It seems these multi-trillion Rand companies can’t afford to get computer programmers to change their systems to allow for changes of this nature. Once payments don’t match up to what the computer is waiting for automated systems often initiate collection and legal processes causing even further chaos. Some creditors have grown smart and begun to use outside companies with their own software such as Consumer Friend which then track the debt independently and help balance the books.

If you discuss something like the arrangement that Ntseane says he made with African Bank then it is best to get confirmation in writing rather than just an agreement with a call center person over the phone. Often banks say they are recording the conversation but struggle to find records of them later (especially if it will indicate something detrimental to them…). Beware of any such offers made over the phone.

Sadly a combination of under-informed consumer and greedy lender is not new… it is just how the game is played. When borrowing funds expect to pay back much more than you borrow. This is the cost of borrowing funds. If you want to avoid this then don’t borrow funds orrather only pay for things when you have saved up the funds. However in an age when there is a focus on instant gratification this is not a popular attitude.