Massively overpriced life insurance, fraudulent Garnishee Orders, toothless Regulator – all in microlending crusader Dave Woollam’s crosshairs

Dave Woollam is a man on a mission. The former CFO of African Bank is determined to bring honesty and integrity into the microlending industry, a sector where massive malpractice exists. One of the examples he quotes in this interview is where a person who borrowed R20 000 from a microlender ended up paying premiums of R28 800 on a linked “life insurance” policy. Fraudulent Garnishee Orders are another festering sore in Woollam’s sights. As is a more efficient Regulator which, despite being provided with dozens of examples of abuses, has yet to generate a single charge of reckless lending. – AH 

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GUGULETHU MFUPHI:  South Africa’s unsecured lending industry is in shambles and much needs to be done to get it back on track.  This is the view of Dave Woollam, former Abil Chief Financial Officer who joins us now to explain the steps that need taking to restore credibility to this sector.  Dave, the last time you were here we didn’t have enough time to delve into the necessary steps that you suggest.  The first one that you mention, is the creation of an industry body in order to restore some kind of Code of Conduct.  Firstly, why isn’t there such a body in existence?

DAVE WOOLLAM:  Well, I think there are a number of bodies that are typically lobby groups, smaller groups of furniture retail bodies, and credit provider bodies, but most of these tend to be think tanks and groups of people who maybe are lobbying to look after their interests.  What I’m proposing here is a body who are going to come together seriously to commit to a set of rules, to a Code of Conduct, to a set of ethical practices, and to a set of responsible lending principles, to make those both very transparent and public, but also to commit themselves to being audited by this.

ALEC HOGG:   Who would be on this body, David?

DAVE WOOLLAM:  Well, I think it would have to be an appointed independent organisation.  If you think about the analogy, it would be like a rating agency – it would be an independent body setting these principles.  There’s an example called smartcampaign.org, which has set up an internal organisation for smart lending.  I think we could tailor something like that into our context and it could be brought together, approved, agreed upon, and then audited.  If you then comply with those principles, you can carry the flag/sign, some sort of a recognition that you are one of the good people.  If you can’t comply with the microlending rules, you won’t be able to carry the flag.  We think that will slowly start to separate the legitimate from the illegitimate, because there are really many good people in this microlending industry and they’re being tainted by the smaller unscrupulous people.  This is a vital industry to get back together again because access to credit is really very important for millions of South Africans.

GUGULETHU MFUPHI:  Doubtless, the kind of body you mentioned: they would be able to draw the line between misconduct and maybe take a forceful approach to misconduct.  Have we seen that taking place in South Africa?

DAVE WOOLLAM:  No, you see I think one of the issues is that the microlending regulator has not had enough teeth and hasn’t had enough tools and mechanisms to be able to deal with misconduct.  For example, we have had not one single case of prosecuted reckless lending in South Africa, and yet we’re sitting with 47 percent of the population in default on their loans.  That doesn’t really make sense.  The regulator is trying to impose a Code of Conduct.  I think this needs to be something the industry actually takes forward, rather than being imposed on by the regulator.

ALEC HOGG:  That’s extraordinary.  There’s not a single case of reckless lending.  Who would be the ones making the charges?

DAVE WOOLLAM:  The regulator.

ALEC HOGG:  The regulator itself has to charge them.  We can’t do it as consumers?

DAVE WOOLLAM:  Well, as a consumer, you can take a complaint to the regulator, and the regulator can bring a charge.  We ourselves have taken dozens – the organisation I represent.  Those charges have just not come to fruition.

ALEC HOGG:  Who is this regulator?

DAVE WOOLLAM:  The National Credit Regulator.

ALEC HOGG:  We gave him fancy buildings.  I’ve seen the offices on the way to Pretoria…..

DAVE WOOLLAM:   Look, I think the regulator has been significantly understaffed, does not have enough capacity, and I think there’s a lot of improvement that needs to happen in the regulatory function, too.  The analogy I’ve used is it’s a bit like a game of rugby.  You need to have fair play on the field, you will have a referee who identifies when there is no fair play, and there has to be punishment for when those rules are broken.  That’s what we need.

GUGULETHU MFUPHI:  The question is how do you get the referee to do their job appropriately?  Let’s look at Credit Life Insurance.  That’s something we saw rather recently in the newspapers.  One of our former colleagues from Moneyweb, Malcolm Rees wrote that story and it’s really come to the forefront now.  Credit Life Assurance: how does that work and what’s the main issue there?

DAVE WOOLLAM:  It started out as a “benefit” to customers that if they were to die, were retrenched, or they were disabled, the insurance policy would repay (to the lender) the outstanding balance of the loan.  I think the principle is sound, but what happened is that when the NCA came into being, the interest caps and the fee caps imposed, made it quite hard for certain credit providers to make the profits they would like to make. They therefore used Credit Life, which wasn’t capped or regulated but there was a clause saying the premiums have to be reasonable, but it was open season.  I have an example here, just as a matter of interest, which I brought in from a company called Letsatsi Loans – they’re not insignificant.  I did a calculation on their Credit Life Premiums.  They are charging…on a R20 000 loan, the premiums over a three-year period is R28 800.  That’s to cover you for death, being disabled, or retrenched.  The risk is about R2 000 and maybe even less.

ALEC HOGG:  There’s a loophole and people are driving a train through it.

DAVE WOOLLAM:  People are driving this loophole.

ALEC HOGG:   It’s like Garnishee Orders, too.

DAVE WOOLLAM:  Absolutely. The problem is that this is a multijurisdictional issue, insurance is covered by the FSB, the NCR is covered under the DTI and the National Credit Act, – there’s confusion about who reigns here.  We’re actually arguing for a very simple solution: do away with Credit Life, bring it into the loan a forgiveness clause, and allow for an additional interest rate to cover for the risk.  Capitec are already doing it this way.  In other words, you enter into a loan and if the loan says ‘if you die we won’t ask you to repay the loan’.

ALEC HOGG:   Dave, we’re running out of time again and we’re not getting you back for a third round.  Garnishee orders: what is your view on how this can be dealt with?

DAVE WOOLLAM:  Garnishee orders are a very important legal mechanism for creditors to be able to pursue their rights where debtors won’t pay.  What has happened unfortunately is that it’s become a free-for-all.  There’s a very simple process.  A single piece of paper has to be signed by the debtor acknowledging his debt, that goes to the court, the Clerk of the Court stamps it, serves it on the employer, and that’s the end of the story.  We think that there are way too many loopholes.  It needs to be a much more rigorous process of ensuring that the right information is collated.  What we would be proposing is that an administrator stands between the credit provider and the courts to ensure – like a payment distribution agent – to ensure that all loans that are garnishees are recorded, audited, and accurately maintained.

ALEC HOGG:   You have a problem there.  Bobby Godsell said recently – on a public platform – garnishee orders…  He told the mining industry ‘let’s stop paying them.  Let’s just take them off our books’. So to actually get them into a more reputable basis is going to be difficult.

DAVE WOOLLAM:  It is going to be difficult, but I think if we can prove that they can be done well, legitimately, and securely, then I think we can argue that they’re necessary, but they must be done responsibly and it must be done with accuracy and with no abuse.