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.