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‘Instant loans’ sign was sufficient grounds for investigation by the National Credit Regulator

A sign outside a microlender’s premises advertising “instant loans” and an employee’s verbal information that interest of 30% a month was charged on short-term loans were reasonable suspicion for the National Credit Regulator (NCR) to initiate an investigation into contraventions of the National Credit Act (NCA).

This was the finding of the Supreme Court of Appeal (SCA) when it upheld an appeal from the NCR and set aside an order of the Pretoria High Court in favour of Dacqup Finances CC trading as ABC Financial Services.

The appeal centred on what constitutes a sufficient trigger for NCR to initiate a complaint into alleged contraventions of the NCA.

Inspector’s suspicions aroused

In 2018, an NCR inspector noticed a signboard outside Dacqup’s premises advertising “instant loans”, which aroused her suspicions.

“If the loans were ‘instant’, it would be difficult to comply with the onerous affordability assessments required by the NCA. Conversely, if they were not ‘instant’, the advertisement breached the NCA’s prohibition on misleading and deceptive advertising of credit,” according to the SCA’s judgment.

Posing as a potential customer, the inspector asked about the interest rate.

“She was informed that an interest rate of 30% a month was levied on short-term loans, which amount far exceeded the statutory maximum permissible.”

The inspector’s “scouting exercise” resulted in the NCR initiating an investigation into possible contraventions of the NCA by Dacqup.

It conducted an on-site investigation, during which 10 credit agreements were assessed, where loans of between R510 and R3 000 were granted. The NCR found that Dacqup had failed properly to assess the consumers’ financial means and their debt repayment history.

The NCR concluded that credit has been granted recklessly as defined in section 80 of the NCA.

In addition, the NCR found that Dacqup had overcharged on interest and initiation fees in some instances and had not provided customers with pre-agreement statements.

Tribunal fines Dacqup R300 000

The NCR applied to the National Consumer Tribunal (NCT) for Dacqup to be deregistered as a credit provider.

The tribunal found that Dacqup had contravened various sections of the NCA and had engaged in repeated prohibited conduct.

The NCT did not cancel Dacqup’s registration, but it ordered Dacqup to pay a fine of R300 000.

In addition, the tribunal ordered Dacqup to appoint an auditor, at its own cost, to assess all credit agreements for the three years prior to the investigation, and to reimburse overpaid fees and charges.

Promptly yet lawfully

Dacqup successfully appealed against the tribunal’s orders in the Pretoria High Court, which ordered the NCR to pay the credit provider’s costs.

Dacqup did not appeal the merits, but raised four technical legal points, two of which were abandoned.

Accordingly, the only issues that the High Court had to determine were whether the NCR had a reasonable suspicion to initiate an investigation and whether the order to appoint an auditor was ultra vires. Because the High Court found in Dacqup’s favour in respect of the first issue, it did not consider the question of the appointment of an auditor.

Dacqup’s argument, which found favour with the High Court, was that the words “instant loans” could not objectively trigger a reasonable suspicion, as the phrase could reasonably be understood to mean that Dacqup acts “promptly, swiftly or speedily”, yet lawfully.

The High Court also took the view that the complaint was not initiated on the basis of prohibited advertising or the 30% interest rate, but merely on the advertising board.

In this regard, the High Court stated: “To allow the NCR to initiate an investigation, such as the one in this matter, on a mere signage, sets the bar so low that it offends the sensibility of what should be good practice. It also offends the notion of what should constitute a reasonable suspicion.”

The inspector’s interpretation was reasonable

But the SCA disagreed, saying it was satisfied that the NCR had a reasonable suspicion to initiate the investigation into Dacqup.

It said the courts have set the bar relatively low for the initiation of a complaint in a regulatory environment such as the area of competition law. It could be argued that because the NCA is designed to protect the poor and vulnerable against predatory lending practices, the bar in such matters should be set even lower, said Judge Caroline Heaton-Nicholls, who wrote the court’s decision.

Although “instant loans” may merely mean “swiftly”, it could reasonably suggest a curtailed or less onerous loan application process. The dictionary definition of “instant” is “happening immediately, without any delay”.

Even if one accepted the meaning attributed to the phrase by the High Court, it was sufficient that the meaning could have other reasonable connotations. If the meaning ascribed to “instant loans” by the NCR’s inspector was a reasonable one, it cannot be said that she did not have a reasonable suspicion, Judge Heaton-Nicholls said.

The SCA’s view was that not only was the inspector’s interpretation a reasonable one, “but a more probable one in the context of the micro-lending industry”.

It said the High Court conflated the notion of a reasonable suspicion with prima facie evidence.

“As our courts have repeatedly stated, a reasonable suspicion contemplates a lesser burden than that of prima facie evidence. To require an inspector to actually obtain a loan in order to establish a reasonable suspicion would be tantamount to requiring prima facie proof.”

Dacqup must pay for the auditor

During the hearing, Dacqup accepted that an auditor should be appointed to assess the extent of overcharging and the amount to be reimbursed to consumers, but it objected to having to pay for the auditor.

The SCA said there were several cases where an order has been made that an entity appoint an independent auditor to ascertain the extent of unlawfully obtained profit. Implicit in these orders is that the relevant entity must pay the costs of the auditor.

It said there was no reason cases involving the NCR should be any different, particularly when considering the wide-ranging powers afforded to the tribunal in making an appropriate order in relation to prohibited conduct.

Costs shouldn’t have awarded against the NCR

The SCA took issue with the High Court’s cost order against the NCR.

It was a long-established principle that where a statutory body is fulfilling its statutory duties, costs should not be awarded against it, even if it acted incorrectly, as long as its conduct was not mala fide.

“The High Court failed to observe this salutary principle, as there was no suggestion that the NCR’s conduct had been actuated by malice. Even on the view it took to dismiss the appeal, it should not have ordered the NCR to pay costs,” Judge Heaton-Nicholls said.

The SCA set aside Dacqup’s successful appeal in the High Court and ordered the company to pay the costs of the case.

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