My Debt Review

Cession for loan costs domestic worker her dream home
May 6 2012 at 12:20pm
By Angelique Arde
Florence Tongo (not her real name) had a good chance of retiring with a roof over her head. For the past two decades, the 62-year-old domestic worker has been saving for a brick house. In October last year, with almost R94 000 in Old Mutual unit trusts, her dream was within reach.
But in December she received a statement from Old Mutual reflecting a closing balance of R16 697. A shocked Tongo, who is semi-literate, asked her employer, Ginny Swart, to help her make sense of the statement.
The statement from Old Mutual was a notification of transactions, showing the sale of R77 300 worth of units.
Swart, who advised Tongo years ago to move her money from a bank account into a unit trust investment, immediately telephoned Old Mutual. Swart was told that Tongo had “sold” her units to a company called National Savings & Investments to settle a debt for a Nobulawu Sebenzi.
According to Old Mutual, the disinvestment from Tongo’s unit trust investment was against a cession signed by her in 2006.
Tongo eventually recalled and then tearfully recounted to Swart how she had signed “something” to help her daughter’s friend obtain a loan. It was many years ago, she said, and the friend was known to her only as Miriam.
Stories such as this typically have one thing in common: an uninformed consumer. But this story also involves a reckless borrower, an opportunistic credit provider and a financial institution with no obligation to protect its client once a cession has been noted.
Remarkably, none of them – not the borrower, credit provider or the financial institution – did anything illegal, or so it seems. But, as Swart says, “What is legal isn’t always morally right.”
THE CONSUMER
Florence Tongo has a standard four education. She is, in the words of her employer of 24 years, an “unsophisticated woman”. The first time that Tongo met Nobulawu Sebenzi was the day she signed surety for her in June 2006.
Of that day, Tongo says she remembers her daughter telling the consultant at National Savings & Investments that her mother’s investment was for her house and that it was not to be touched. She claims the consultant assured them numerous times that the money would not be touched; it was “for protection only”.
“I don’t feel right,” Tongo says. “That people not telling me that if that lady [Sebenzi] doesn’t pay they [will] take my money.”
THE BORROWER
Nobulawu Sebenzi found out about Florence Tongo’s savings from Tongo’s daughter, Thobeka (not her real name). Sebenzi and Thobeka worked as chars in the same street in the Cape Town suburb of Claremont.
Sebenzi needed a loan. She says she received a flyer from National Savings & Investments (NSI) advertising loans, but when she went to apply for one, she was told she needed someone to provide security. That’s when Thobeka told Sebenzi about her mother’s investment.
Knowing that Thobeka was also in need of extra cash, Sebenzi persuaded Thobeka to get her mother to provide security for her. In return, Sebenzi would split the loan with Thobeka. Thobeka would repay her portion to Sebenzi, who would pay back the loan. Thobeka trusted her friend, who had a stable job.
But Thobeka did not know that her friend was heavily indebted with her accounts at Ackermans, Edgars, Foschini and Russells. And she could never have imagined that Sebenzi would make only five instalments on the loan; take up NSI’s unsolicited offer for an additional loan; steal from Thobeka by pocketing Thobeka’s share of the repayments; and steal from her employer, resulting in her losing her job.
Although Sebenzi claims she understands what “security” means, she says: “I didn’t think they will make her [Tongo] suffer.”
THE CREDIT PROVIDER
National Savings & Investments (NSI) is a private company with offices in Rosebank in Johannesburg and in Cape Town. It was registered in 1990, and, according to director Russell Hollander, NSI ceased lending just before the National Credit Act became fully operational on June 1, 2007.
NSI exists merely to service pre-existing loans, he says. For that reason, the company is not, and does not need to be, registered with the National Credit Regulator (NCR), Hollander says. NSI is also not registered with the Financial Services Board as an authorised financial services provider.
In terms of the General Cession of Security and Power of Attorney contract drawn up by NSI and signed by Florence Tongo on June 24, 2006, Tongo pledges, cedes, assigns, transfers and makes over in securitatem debiti and in favour of NSI all her rights, title and interest in her Old Mutual investment.
Hollander emphatically contends that Tongo understood “the full extent of the contract and the consequences of non-payment by [Nobulawu] Sebenzi”.
The cession entitles NSI to extend further loans to Sebenzi without notifying Tongo, and to surrender or realise Tongo’s investment at any time without notifying her. And that is precisely what NSI did. After lending Sebenzi R20 000 in June 2006 – and collecting only five repayments in respect of that loan (according to the statement of account from NSI) – it granted her an additional R21 978 in March 2007.
NSI then consolidated the loans and extended the term of the loan to 60 months. On January 31, 2008, Sebenzi made her last payment, and on November 24, 2011, NSI called in the security. By the time that NSI acted on the cession, the debt had escalated to R77 300, owing to charges and interest.
In terms of the Prescription Act, a debt prescribes – or falls away – after three years if the debtor has not made any payments towards the debt and has not acknowledged owing the debt in any way and has not been summonsed in respect of it.
In terms of the cession, Tongo waives and renounces “any and all benefits which I otherwise may be entitled to in law, including but not limited to the benefits of excussion, division, cession of action and de duobus vel pluribus reis debendi”. Among other things, this means that NSI did not have to pursue the borrower before proceeding against Tongo.
THE FINANCIAL INSTITUTION
In 2006, Old Mutual received notice from NSI of a cession against Florence Tongo’s investment. Piet Spreeuwenberg, manager of client services at Old Mutual, says that although Old Mutual routinely informs clients when a cession is noted against their investment, in Tongo’s case Old Mutual “could not find any proof” that it had done so. For this reason, Old Mutual has offered Tongo an ex gratia settlement of R5 000.
Spreeuwenberg says while Old Mutual has sympathy for Tongo, it could not have prevented her loss and the company did nothing wrong or unlawful. “The cession was between Mrs Tongo and National Savings & Investments – this is therefore a contractual agreement to which Old Mutual was not a party.”
NOT ONE CONSUMER BODY CAN HELP
Florence Tongo has taken her case to the Credit Ombud, the National Credit Regulator (NCR), the National Debt and Mediation Association (NDMA), Legal Aid and the Western Cape office of the Consumer Protector – all to no avail; no one is able to help her.
* The Credit Ombud says it has “limited jurisdiction” because National Savings & Investments (NSI) is not a member of the Credit Ombud scheme. Russell Hollander, the director of NSI, told the ombud that NSI ceased lending in 2007. The consumer has no recourse, because the loans were taken out prior to the full implementation of the National Credit Act (NCA).
* The NCR has jurisdiction over registered credit providers, credit providers who are compelled to register with the regulator and those bound by the Act. The NCR says that NSI is not registered with the regulator.
In terms of section 40 of the NCA, a person must apply to be a credit provider if the principal debt owed to him or her exceeds R500 000 or if the debtor’s book or loan register has 100 credit agreements or more. Those that fall under the threshold or have less than 100 credit agreements are not compelled to register but they are bound to comply with the NCA. An unregistered credit provider can be investigated by the NCR on the basis of complaints from the public.
* The NDMA says that in order to mediate disputes between consumers and credit providers, the credit provider must be affiliated to the association. But since NSI is not an affiliate, the NDMA cannot help to mediate.
* Legal Aid in Athlone advised Tongo that she has no grounds for a case against NSI because her signature on the cession is an acknowledgement that she read and understood what she signed. A court would have no reason to believe otherwise, she was told.
* The Consumer Protector’s office in the Western Cape told Tongo’s employer, Ginny Swart, that it was unable to help Tongo: the consumer signed the cession and therefore it was a given that she understood what she signed.
WHO SHOULD BE LOOKING OUT FOR YOU?
What checks and balances are in place to protect you when a cession in security is noted against your assets or investments? In other words, how is the financial institution to know that the cession is legitimate? How would it know whether or not the signatures are fraudulent or whether the cessionary was really entitled to the security? What if the debtor was not in default or if the debt had prescribed? How would the financial institution know?
Piet Spreeuwenberg, manager of client services at Old Mutual, concedes the financial institution noting the cession “would have no way of knowing”. These are the risks that a financial institution takes.
Old Mutual notes about 1 000 cessions a month, he says, mostly from banks. “Banks can electronically note a cession in their favour in Old Mutual’s records; companies note them on Old Mutual’s books; or Old Mutual notes them on behalf of the bank or credit provider.”
If Old Mutual were to check the interest in each and every cession, it would place a huge administrative burden on the company, he says.
Spreeuwenberg says the most that a financial institution can do is notify its clients when it receives notice of a cession – not that the financial institution is obliged to, he says – but by doing so it gives clients the opportunity to verify. If the cession is illegitimate or the cessionary is acting unlawfully, the surety is then able to enforce his or her rights in a court of law to prevent the proceeds being paid over.
The cession signed by Florence Tongo was legitimate and binding, so Old Mutual had no option but to liquidate and pay over to National Savings & Investments, he says.