Friday, 8 April 2011

Do things change?

Does anything ever really change?

In July 2005 the very first Consumer Watchdog article appeared in Mmegi and the first line was “The consumers of Botswana are being exploited”.

That article, all those years ago, was about store credit in furniture stores and the dreadful, appalling interest charged by micro-lenders. It was also about the habit that loan sharks had of taking their customers’ ATM cards for the duration of their loan. We found one loan shark who even told his victims that he had the written permission from Standard Chartered Bank and FNB to take ATM cards from their clients. Naturally that was just a lie.

At the time their micro-lending industry association forbade the micro-lenders from charging more than 30% interest per month. The interest charged by a bank credit card in those days was about the same percentage per year.

Have things changed?

Despite the various efforts the Government and other agencies have made I don’t think so.

Last week we had an email from a reader who explained his situation. In April last year he borrowed P1,000 from a cash loan company, agreeing to pay it back over just two months. He agreed to pay the usual 30% interest each month. So the total amount he’d repay would be P1,600.

Almost immediately and “due to unforeseen circumstances” he had problems making the repayments. A little later he was hospitalised for an operation and his finances collapsed. There was no way he could make the repayments. However, throughout all of this time he kept the lender informed and expected reasonable treatment. He said the lender “gave me what at the time I thought was a benefit of the doubt by seemingly acknowledging my situation and telling me that I’ll pay him when all is well.”

He would be disappointed.

When he finally recovered he went to the lender and was given a statement of his debt. It now appeared that having borrowed a mere P1,000 he now owed a massive P10,500. What’s more the lender has now threatened to write to the victim’s employer and to take legal action against him for this new, outrageous amount.

He asked us:
“I just wanted to find out if it’s within the law for cash loans to keep adding interest regardless of the customer’s inability to pay?”
Errr, let me think, what’s that word I’m looking for? Oh yes, it’s NO. No, No, No, this loathsome, filthy, slimy loan shark CANNOT do this. If he thinks he can he’s either stupid or wicked. Or both.

Mathematically of course he’s correct. If you borrow P1,000 at an interest rate of 30% per month the amount will very quickly mount up. However, we all need to understand something. It’s not 30% of the amount you borrowed. It’s 30% of the outstanding amount this snake will charge you in interest. [Correction. I actually quite like snakes and they’re not nearly as dangerous as people think. He’s a vulture.]

After a month of not paying the lender you’ll owe the original P1,000 plus last month’s P300 interest. The next month you’ll owe an extra 30% of P1,300 which is P390. If you make no payments the following month it will be an additional P590, the next month another P659. The total bill after 9 months will be P10,604.

If you let things go further than this the total bill will become staggeringly huge. After 2 years you’ll owe over half a million Pula, a million after 27 months, after 44 months you’ll have hit over P100 million and after 53 months you’ll owe him over P1 billion.

Clearly this is insane but can it be true that a shark can demand these amounts?

Well, yes, they CAN demand them. They can beg, they can get on their knees, they can even ask nicely if they want. You can even pay them if you want to. But get this. They can’t make you pay those amounts. The only legal way they can demand payment is by dragging you to court and guess what? The Court will tell them where they can stick their demands for outrageous sums of money and trust me, it will be somewhere painful and embarrassing.

Our courts, being fairly sensible, respect something called the "in duplum rule". This remarkably sensible rule says that, at the time that a debt is settled, the interested charged may not exceed the amount that was borrowed. The lender can demand P10,500 from the victim for a P1,000 loan but no court will issue a ruling saying they have to pay that amount. The court will only require the victim to pay P2,000.

Back to my original question. Has anything changed in the 6 years since we first wrote about these reptiles who prey on naïve victims? Right now I don’t think much has changed. We’ve tried to educate people here in Mmegi but I don’t see much from the bodies actually empowered by law to take action and enforce the rules.

Maybe the good news is that I haven’t heard of any cases of people being successfully sued for a billion or two. The courts are doing their jobs I suspect but why are things even reaching that stage? Why aren’t the authorities mystery shopping loan sharks and telling the rule-breakers the error of their ways?

Maybe just like six years ago they need Consumer Watchdog’s help doing so. That’s something we’ll be doing in the near future. We’ll be investigating a few loan sharks and seeing how badly they behave. We’ll then let you know who the really awful ones are.

And it WILL include their names.

1 comment:

Anonymous said...

Dear Richards,

Good day. Let me use this medium to thank you for your effort in an attempt caring for consumers in Botswana. Importantly, I read your write up about the person who took money from a cash loan in April, 2010 and have not paid back after a year. It seems you only looked at the issue from the consumer perspective. What about the providers of loans who gave out his or her cash for long period of time. You did not consider the lender’s office rent and the salary of workers! Did you ask the debtor, the time interval before the debtor went the hospital? Am also interested in consumers’ welfare, but let’s try to balance issues between consumers and suppliers. This is because both are from households in Botswana and they buy goods and services from the same market. It is also fact that they contribute to the growth of the economy through this exchange. I want you to give it a serious thought, will be fair to pay only 2000 fro a period more than a year?

Thank you.