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How immoral is debt collecting really?

Aug 31 2012 10:16 Zelna Oberholster

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MyFin24 is a user-generated section of Fin24.com. The stories here come from users.

Fin24 user
Zelna Oberholster writes:

THE suicide of Happiness Mbedzi, a 22-year-old woman from Diepsloot, has raised awareness about the helplessness of people in debt. (Finweek Aug 30, by Bruce Whitfield.)

It also results in seeking someone to blame and fingers are pointed at "immoral" debt collectors and loan providers.

The theme of immoral appears to be the flavour of the year when it comes to financial reporting on the unsecured loans market.

For some reason, obtaining and granting loans in a market where there are no assets to back up loans bears the burden and brunt of being immoral.

Curious as to why this should be considered "immoral", I investigated the other side and found that the broad public believes that lenders are irresponsible and immoral - they do not believe that the person benefiting from the loan should carry any responsibility to repay the loan.

In a 2009 study conducted by Dr Zinn of Unisa’s School of Criminal Law, on criminals and their motivation and modus operandi, it was found that  a mere 35% of burglars did crime because they needed money for food and basic needs.

However, 65% of burglars did it to buy clothes, usually branded, and live the high life of entertainment, fast cars and fun.

How does this correlate with people taking out unsecured loans?

We recently saw the immature handling of debt on the TV series inDebt, where people take out loan upon loan - not to satisfy emergency needs, but to live a lifestyle they don’t own.

There’s a psychological need for people to be accepted, to be part of, to entertain, to wear the right brands, to have possessions they cannot afford.

It is as if people on Maslow’s hierarchy of needs earn enough to be at the bottom of the hierarchy and are still in need of basic physiological needs such as shelter and clothing, but skipping two steps between and going straight for the self-esteem level.

Their confidence, respect of others becomes more important than their safety and security.

They use the branded clothing, cars, right address and hip and happening possessions to buy the love and sense of belonging of others - at the expense of their creditors.

But the general view of especially journalists seems to be that creditors are at fault for wanting to change the lives of people.

Yet, fingers are always eagerly pointed at unsecured lenders. They receive labels such as "loan sharks".

For the record, loan sharks can possibly exist in an unregulated environment.

But to brand every company under this label, just because they do charge the legal maximum amount of interest to people in need, wanting to prevent these applicants from living a life of crime by supplying legal money to them, at a cost which factors in the risk of absence of assets to cover the debt, is irresponsible.

Association of Debt Recovery Agents (Adra) considers a recently published article in which Clark Gardner of Summit Financial Wellbeing's accused unsecured lenders of stealing R3bn of employees as “a gross generalisation of the debt collection industry and is not nearly a true reflection of the way in which debt collectors conduct themselves" and considers it to be generalising, malicious and counter-productive. (Fin24, August 21.)

Why counterproductive? If citizens are brought under the false impression that debtors can default, ignore demands for payments, etc their debt risk to be increased as interest and other fees are added.

In addition their credit profile is tarnished and their debt could spiral out of control.

Still, the issue of immorality exists from the lenders' side.

In a recent interview on Bruce Whitfield’s afternoon drive show with Magda van der Merwe of One Law, Warren Ingram stated that he had no objection based on validity and legality of the Cambist platform, but indeed had a moral issue on profiting from someone’s misfortune.

If this moral issue is based only on the idea that someone is profiting on someone else’s hardship, then why have we no problem with undertakers cashing in on bereaved families, doctors profiting from sick patients, lawyers getting wealthy from divorces, debt councillors making a living of over-indebted people?

By and large it appears like a manufactured double standard by which certain entities stand to benefit and others are made to look like immoral loan sharks.

It reminds of the story of the wolf in sheep’s clothes, and not judging a (debtor’s) book by its cover or the boy who cried Wolf!

Instead of focusing on pointing fingers, looking for culprits in a highly regulated environment, let’s rather work together on truly changing lives by looking at how we can create jobs and bring financial independence to the greater South Africa.

Until there are higher employment levels and while people do have emergencies, with no assets to back them when applying for lower interest rates, let us welcome the risk-taking institutions, prepared to lend a helping hand.

Let us focus on education our nation to be debt wise, responsible citizens instead of giving them more ammunition to commit financial suicide.

Let us learn a lesson from the death of Happiness Mbedzi and help indebted consumers to face and deal with their indebtedness instead of allowing debt to drive them to early graves.

Zelna Oberholster
Owner of Funzelela Consulting and Co-opted member of the Centurion Business Forum

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