The Voice - Consumer's Voice

Dear Consumer’s Voice #1

In April of last year I took out a small loan of P1,000 with a certain cash loan company. The terms were such that I repay back the loan within two months at 30% interest rate.

Now due to unforeseen circumstances I found myself in a serious debt trap such that I couldn’t honour the repayment agreement. I however communicated to the lender the extent of my circumstances and my inability to pay. He then 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”

I was then later in the year hospitalised and had to go for an operation, one that my medical aid couldn’t cover. That definitely added to my difficulties as far as my finances go. After the operation I told the lender my added problems. He then gave me a document which showed my balance due to him including compounded interest at a staggering P10,500. He really insists that I repay the whole amount and is threatening to write a letter to my bosses and taking legal action against me.

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??

No, it’s not.

They key thing here is “compounded interest”. I suspect that most people think that when a moneylender says he’ll charge you 30% interest each month he means 30% of the amount you borrow? In fact it’s not. He really means, but he almost certainly won’t tell you this, that he’ll charge you 30% of the total amount you owed him last month. That will include any amount you failed to pay him last month and the months before. In the first month after you borrowed P1,000 he’ll charge you P300. If you don’t pay him P1,300 then the next month he’ll charge you 30% of P1,300 which is P390. The next month he’ll charge you an extra P507, then P659, then P857. After just 6 months he’ll charge you more in interest than the amount you originally borrowed.

Let’s assume, for a moment, that it IS OK for them to keep adding an extra 30% of the amount you owed them last month for ever and ever. If you took a loan for P1,000 in April last year, by April this year you would owe them a total of P23,000. By this time next year it would have risen to P542,000. In April 2013 your debt would be P12 million and by September 2014 you would owe them over P1 billion.

Clearly if this was possible we’d all be moneylenders. Unless we had a sense of morality of course.

This is why there are limits to how much interest can be charged. To stop low-down, miserable, cheating, scumbag sharks like this one exploiting the vulnerable. That’s why the courts in Botswana respect the so-called “in duplum” rule which says that, at the time you settle a debt, the interest the lender charges can not exceed the amount you borrowed. In your case if the money-lender ever actually took you to court they would only ever force you to pay him P2,000, the amount you borrowed plus the same amount in interest. Of course you then might be forced to pay his legal costs but nothing like the amount he’s demanding.

I’m certain that your moneylender knows this, he’s just assuming that you don’t. Rest assured we’ll tell him and perhaps then he can offer you a more sensible settlement amount?

The lesson however is not to trust unscrupulous moneylenders. You don’t have to be a Christian to have an instinctive repulsion for their species, like you would for any other slimy creature you find under a rock.

It’s ALWAYS better to approach your bank first to ask for a loan. If that doesn’t work then try your employer or one of the larger, publicly listed lenders. They at least will abide by the various laws that govern them. Cash loan moneylenders should be avoided like a communicable disease.

Dear Consumer’s Voice #2

I have been renting a house and I was unable to pay my rent for February but my landlord decided to lock the house and kept me out for all of March. So for the whole of March I have not been able to stay in the house and have nothing to wear as she decided to lock everything that’s mine in the house. She wants me to pay her rent for February and March. What I want to know is whether she is allowed to lock my property in her house and demand payment while I had nowhere to sleep?

You certainly owe your landlord the rent for the time you were allowed to stay in the property. However I don’t think you do if she wouldn’t let you stay there.

What’s more a landlord can’t lock you out of accommodation or seize your goods, that’s illegal. There are formal legal processes to deal with tenants who are in arrears with rent which all require the landlord to go through the courts. Only a Sherriff with a court order may seize goods. Anyone else is a thief.

I suggest you report this matter to the police.