THE South African Reserve Bank (SARB) has been requested to intervene and stop WesBank from continuing with the illegal interest transactions.
This was after financial investigator Emerald van Zyl wrote to the Reserve Bank and reported how WesBank has been continuing with illegal interest transactions.
Van Zyl said this was against the instruction of the Reserve Bank, which informed the banks in 1990 that the calculation of interest in advance on money-lending transactions was illegal and not in line with the provisions of the act.
He said it was clear that WesBank, which is affiliated with FirstRand, ignored the instruction of the Reserve Bank and was still calculating interest in advance on vehicle loan accounts.
Asked if the SARB had received the letter, spokesperson Thoraya Pandy said: “We have received the letter and, as part of our supervisory responsibilities as the prudential authority, are dealing with it as part of our supervisory responsibilities.”
WesBank denied this and said it stood by the integrity of its finance systems, including the methodology used to calculate interest rates on vehicle accounts.
The bank said it had noted the allegations related to the calculation of interest in advance which are referenced to the Usary Act, which was repealed on June 1, 2006.
“As such, the Usury Act is not applicable to any WesBank credit agreements entered after this date. The estimated interest charged over the repayment term of the vehicle finance agreement must be disclosed to the customer at the time of entering into the contract as required in the National Credit Act.
“In addition, Regulation 40 of the National Credit Act states that interest is calculated daily and added to the deferred amount monthly at the end of the month. If a consumer settles the vehicle finance earlier, they will pay less interest as the repayment term is shortened,” the bank said.
In the letter issued to all banking institutions on December 6, 1990, SARB said interest rates should not be calculated in advance without the necessary adjustment of interest payable in respect of instalments received before the due date.
The Reserve Bank said this implied that an instalment received before the due date should be taken into account when calculating the outstanding amount of interest due on an account.
“The South African Reserve Bank is not responsible for the administration of the Usury Act but every institution is requested to evaluate the method used in calculating interest payable on all loans repayable in regular instalments to determine whether it is compatible with the requirements of the said act.”
Van Zyl recently threatened a R50 million lawsuit against First National Bank (FNB) for allegedly discriminating against its black customers by charging them too high interest rates on Saambou home loans.
He said this was wrong because the majority of Saambou bondholders were civil servants and government bureaucrats in the low-income housing category, and were deliberately targeted for home loans during a massive drive by Saambou between 1989 and 1993.
He said this related to the period from 1990 to 1999 and it occurred because Saambou calculated interest monthly in arrears before it became a bank in 1990. Van Zyl said this was also in contravention of the directives of the Usury Act.
He has also been exposing various banks for allegedly discriminating against and charging black clients too high interest rates compared to their white counterparts.
He said after the announcement in 1990, all banks immediately converted to the correct interest methodology of interest in arrears.
“It was later in February 1998 discovered by myself that Saambou Bank did not adhere to the request of the Reserve Bank, and was still calculating interest in advance, and Saambou only reverted to the correct interest methodology on September 1, 1998. This prohibited interest methodology contributed to the collapse of the bank on February 9, 2002.
“In 2006, FNB, after obtaining the mortgage book of Saambou Bank, refunded R154 million to prejudiced Saambou clients due to this prohibited conduct.
“It now came under my attention that WesBank, which is affiliated with FirstRand, also ignored the letter of the Reserve Bank and is presently still calculating interest in advance on vehicle loan accounts,” said Van Zyl.