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Customers who have borrowed money from FinBond could receive a refund after the National Credit Regulator announced that it had referred Finbond Mutual Bank (Finbond) to the National Consumer Tribunal for charging excessive credit life premiums.
This was after an investigation by City Press earlier this year into some of the excessive credit life premiums charged by microlenders such as FinBond.
City Press found that, for example, one FinBond client was paying R288 per month for credit life on a R5 000 loan, which was repayable over four months. This in effect represented a R1 115 premium for a loan of just R5 000 and made up 40% of the total cost of the loan.
In another case, a customer borrowed R6 000 to be repaid over four months – the credit life insurance of R346 per month, or R1 386 over the period of the loan, constituted more than 40% of the loan costs.
In its paper, A technical review of the consumer credit insurance market in South Africa, National Treasury and the Financial Services Board recommended that credit life be capped at a premium of around R4 per month for every R1 000 borrowed. The FinBond loans have premiums of R56/R1 000 – more than 10 times the recommended rate.
When questioned about the rates charged, Willie van Aardt, CEO of Finbond Mutual Bank, told City Press the National Treasury recommendation was based purely on death benefits.
“Our clients, who voluntarily elect to make use of our combined ‘credit life, retrenchment and disability cover insurance’, enjoy not only death benefits but also retrenchment and defined loss of work benefits, as well as temporary and permanent disability cover,” he said.
Leanne Jackson, head of market conduct strategy at the Financial Services Board, responded that any price caps to be proposed under the National Credit Act “are not intended to relate only to the price of death benefits, but will also address pricing of disability and retrenchment benefits. The various proposals in the report are not intended to be confined to death benefits, but are aimed at a fair value proposition for all aspects of consumer credit insurance, including additional benefits such as cover for disability and retrenchment, as well as short-term insurance asset cover.”
Although the recommendations of the National Treasury and the Financial Services Board have not yet been finalised, Lesiba Mashapa, company secretary at the National Credit Regulator, says the regulator is requesting the tribunal to, among other things, order Finbond to refund all affected consumers and pay an administrative fine.
Affected consumers can contact the National Credit Regulator on 0860 627 627, or via www.ncr.org.za
