Johannesburg - In times of distress, institutions have curators to look after them, people don’t.
This is perhaps the biggest lesson for consumers from the African Bank debacle. It’s a tough lesson, but learn it well, according to Aki Kalliatakis, managing partner of The Leadership LaunchPad, a business focused on customer loyalty, radical marketing and improving the consumer experience.
African Bank Investments Limited [JSE:ABL], or Abil, built a client-base of 3.2 million people, but is now under curatorship and faces huge losses.
"The management team, quite simply, lent too much money to too many customers who didn’t pay back their loans," explains Kalliatakis.
"The authorities will presumably come up with new guidelines, recommendations, reserving requirements and the like. They always do … and therein lies the problem."
In SA there is already a National Credit Act, a National Credit Regulator, the Regulation of Interception of Communications and Provision of Communication-Related Information Act (Rica), the Financial Intelligence Centre Act (Fica) and the Consumer Protection Act.
Banks have "know your customer" requirements and another set of regulations called "treating customers fairly, according to Kalliatakis.
"This rigmarole costs companies billions. Compliance costs have to be paid by someone. Who? You guessed: You and me. Because banks and businesses include these costs in the price of the goods and services we pay for," he said.
"Imagine an Abil client taking out a loan. The bank worker gives him a form. There are one or two processes to go through. The borrower might even be fed some alphabet soup while he waits: FICA, KYC, NCA and NCR."
He gets his loan. He’s reassured. If the bank thinks he can afford it, he must be able to afford it.
"The rigmarole says everything’s all right. But as Abil found out, everything isn’t all right," said Kalliatakis.
In his view SA is completely over-governed.
"But don’t expect regulations to save you. If you don’t look out for yourself, no statute will," he said.
"I grew up in a value system that said: Buy only what you can afford, pay in cash, never get into debt, but if you do, pay it back as soon as you can."
A new generation has, however, been fed the notion that waiting and saving wastes time.
"Grab the goods and the good times now, sort out the details later," he explained.
"Unfortunately, the details tend to sort you out and you wind up in trouble with the bank or the credit retailer."
It makes a change for the bank to wind up in trouble this time, but that’s scant consolation in his view.
"The bail-out will cost money - and we’ll end up paying," he said.
"The best consumer protection is not the Consumer Protection Act. The best protection is to stay alert, know your rights and affordability limits, ask questions and don’t be too trusting. Be the sceptical, informed consumer and you just might be all right."
NOW READ: Absa explains African Bank deductions
- Fin24
* Do you agree with this expert's view? Let us know what you think.
Disclaimer: Fin24 cannot be held liable for any investment decisions made based on
the advice given by independent financial service providers.
Under
the ECT Act and to the fullest extent possible under the applicable
law, Fin24 disclaims all responsibility or liability for any damages
whatsoever resulting from the use of this site in any manner.