Johannesburg - Capitec Bank, South Africa’s biggest provider of unsecured loans, is being sued for allegedly breaking the country’s credit laws by Summit Financial Partners, a company that helps consumers work their way out of debt. Capitec denied the allegations.
Summit said Capitec has breached the National Credit Act in court papers that were filed in both Cape Town’s High Court and the Magistrate’s Court in Stellenbosch over the past 10 days and served on the lender, Summit Chief Executive Officer Clark Gardner said by phone on Wednesday.
Read: Capitec banks on the economy
“Capitec Bank remains committed to operate and keep operating within the laws of South Africa,” spokesman Charl Nel said in an emailed response to questions. The company is aware of the court challenge and will respond accordingly, he said. “Our unique business model has given millions of South Africans access to financial services.”
Summit has focused on Capitec’s so-called multi loans and its alleged refusal to supply contracts and other paperwork when requested to do so by clients, it said. With a multi loan, a customer signs one contract and can access the facility every month for 12 months. After the first month, affordability assessments are no longer done, while a 12 percent initiation fee is charged every month, according to Gardner.
“Capitec is a payday lender in disguise and payday lenders are killing our society,” he said. “Capitec’s multi loans are reckless, and a court could make them void and write them off. If we got rid of payday lenders, consumers in South Africa would be much better off.”
Shares in Capitec fell as much as 3.9 percent to R557 and were trading 2.3 percent down at R566.05 by 2.55pm in Johannesburg, the biggest decline on the seven-member FTSE/JSE Africa Banks Index, and the lowest level on a closing basis since March 16. It has outperformed the index over the past five years as the bank reported faster earnings growth than other South African lenders.
Capitec’s closest rival, African Bank Investments, collapsed in August 2014 as bad debt soared and the lender failed to increase provisions. While African Bank relied on funding from capital markets for funding, Capitec has been able to build a large deposit base. Even though African Bank wasn’t considered as a systemically important institution, the central bank stepped in to rescue the company’s viable assets. Still, shareholders lost everything and bondholders took haircuts.
“African Bank was reckless and couldn’t collect on it’s loans, while Capitec can collect because of its smart play with bank accounts,” Gardner said. People with multi loans are banked with Capitec so the lender is able to take its repayments at source, he said, adding that the bank encourages clients to dispute any debit orders that get in the way of Capitec recouping its loans.
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