Uncertainty over the legality of African Bank’s loan book persist

While it is appropriate that action is being taken by the Reserve Bank to investigate the management of African Bank, it is critical that the National Credit Regulator also take action to ensure that any loans that were granted to consumers who were already in default of their payment obligations, are declared reckless by a court and legally written off.

The Reserve Bank investigation will focus on whether the business of African Bank was conducted recklessly, negligently or with the intent to defraud depositors or creditors.

Just as importantly, a second investigation is required to determine whether or not the loans made by African Bank were legally reckless and therefore unenforceable.

To start with, the National Credit Regulator should be investigating whether or not loans were granted to borrowers who were already in default of their payment obligations.

Clearly the prospect that a significant part of African Bank’s key asset, their debtor’s book, could be scrapped and rendered uncollectable raises concerns for the wider consumer credit market.

It is of vital consequence for consumers who are battling to pay their debts, many of which were likely granted recklessly.

Until this sword of Damocles is removed by the National Credit Regulator there will be a significant regulatory overhang, a veritable cliff over which all credit providers will be looking.

Does the rot really stop at African Bank?

Does the rot really stop at African Bank?  Read the linked Mail and Guardian article for the background to this story.

Given that so many large credit providers were competing head to head with African Bank and given the huge provisions that have been made by the likes of the JD Group, it is highly likely that the rot does not stop with African Bank.

Uncovering the extent of the rot at African Bank and at all other Banks is the work of BOTH the South African Reserve Bank and the National Credit Regulator.

For now, it seems that the statutory responsibilities of the National Credit Regulator, which is responsible for the investigation and regulation of credit providers’ conduct, have taken a back seat to the Reserve Bank investigation.

Both are required by law to take action and ensure that all the rot at African Bank does indeed get exposed, excised and cauterized.

Moreover, it is the job of the National Credit Regulator to ensure that consumers are not left holding the reckless lending bag while shareholders escape the full consequences of this failed business model.