The moral rot in unsecured lending

[The_Right_Honourable_Brit]

t goes far beyond Abil; Cambist also morally suspicious.

Over the last week and a half, African Bank (Abil) has been the target of some of the sharpest criticism that has perhaps ever been levelled against a public company in South Africa. Its decline has been met with fierce comment.

Perhaps any business that fails its shareholders the way that Abil has should expect some measure of outrage. But it seems that there has been an even deeper level of sentiment in the way that Abil has been attacked.

It may well be that this is because there is more to its story than just a business that has made some truly awful decisions. There is a very real moral and ethical problem here too that many people find distasteful.

Unsecured lending in South Africa has always had its detractors. Since 1992 when an exemption to the Usury Act was first granted to allow microlenders to operate legally, there have been people who are uncomfortable with the practice.

Quite simply, the whole thing is too easily corruptible. It doesn't take much to argue that, ultimately, the business models practiced by microlenders in South Africa are exploitative, degrading and profoundly negative in their impact on the economy.

This is a sentiment that is not limited only to lenders like Abil either. The unsecured lending industry also feeds another that is perhaps even more morally suspicious – one that is most prominently represented by Cambist.

Here is a company that promises South Africans incredible returns of 19.5% per year. How do they do that? By facilitating the sale of debt of unfortunate individuals who have failed to repay unsecured loans and have suffered the indignity of having garnishee orders granted against them.

Essentially, these are court orders that allow creditors to attach a portion of someone's salary for the repayment of a debt. The employer is obliged to pay the creditor directly to ensure that the funds are received.

Read more: http://www.moneyweb.co.za/moneyweb-master-your-money/the-moral-rot-in-unsecured-lending

 

[ttygt]

Absolute nonsense, written by an un-informed, bystander, with clearly, clearly no knowledge of actual facts.

Writing to fill his daily/weekly quota, picking an easy target, without any research done.

 

[supersunbird]

And the morals of unsecured loan requesters? So peoples requirement for unsecured loans should be totally denied/ignored?

 

[deweyzeph]

It's not like lenders are putting a gun to people's heads and forcing them to take out unsecured loans. The predicaments people find themselves in by borrowing too much are entirely of their own making.

 

[etwylite]

Poor financial literacy is a large element of the problem, allowing the "educated" to "exploit" the uneducated. It is correct to say that it is a borrowers choice, but where that person has insufficient knowledge, then the game becomes very one sided and loaded in favour of the lender.

Even on these forums with people who are fairly tech savvy, they don't know that you can shop around for credit rates on cars and homes and necessarily accept bank offer - , purchases for which they are "qualified" by way of income but not knowledge.

 

[supersunbird]

Poor financial literacy is a large element of the problem, allowing the "educated" to "exploit" the uneducated. It is correct to say that it is a borrowers choice, but where that person has insufficient knowledge, then the game becomes very one sided and loaded in favour of the lender.

Even on these forums with people who are fairly tech savvy, they don't know that you can shop around for credit rates on cars and homes and necessarily accept bank offer - , purchases for which they are "qualified" by way of income but not knowledge.

That is also true, but the problem is the NCR is not making sure affordability is done properly. They are hardly even reactionary, never mind proactive. Then there is the National Credit Act itself which is too vague in certain parts. Is it the lenders fault that parliament and whomever else is dragging their feet? If you allow people to drive at 200km/h, they will, so if you don't set rules on thing and especially if you don't enforce those rules, don't be surprised if people push that rule to the max.

 

[noxibox]

The whole thing is corrupt.

 

[dunkyd]

Loved the tale of the family that bought a couch for 6 G. 20 G interest !!!!!!

 

[vash87]

Probably a good thing that growth in unsecured credit has dropped since 2012 from 40% to less than 5%

 

[TheShadow]

Abil has been an easy target in this fiasco yet all the banks have been writing down bad debt due to unsecured lending in the past year. People need to take responsibility for their choices.

 

[HavocXphere]

Well I do think there is some merit to the moral argument...very very few people are equipped to make sound financial decisions so I do think there is some obligation on society to make sure banks don't run amok with that.

 

[undesign]

Cambist...will end in the newspaper headlines. Pity the FSB or NCR will as usual do fukcall until then.

 

[dunkyd]

Cambist...will end in the newspaper headlines. Pity the FSB or NCR will as usual do fukcall until then.

Read the news

 

[dunkyd]

Read the news

On Moneyweb Talk this morning there is an explanation of the web of companies connected to Cambist.

 

[Arthur]

More troubling than the morals of the unsecured lending business is the constant call for more state intervention and regulation. Using the State to protect people from themselves and the consequences of their actions is the surest way to perpetuating ignorance and irresponsibility.

 

[Rkootknir]

More troubling than the morals of the unsecured lending business is the constant call for more state intervention and regulation. Using the State to protect people from themselves and the consequences of their actions is the surest way to perpetuating ignorance and irresponsibility.

Mostly agreed - however, as you probably realise, there is a gigantic disconnect in the amount of information to the general public and to the (generally) financially sophisticated people involved in banking & finance.

e.g. here are a couple of trivial regulations that could, in my opinion, be required from unsecured lenders:

- Each quote will include a line by line breakdown of the total monthly payment due by the borrower split between repayment and all expenses (including e.g. legal, platform and insurance).
- The total amount (including all expenses) that will be paid over the full term of the loan at the current \ contract interest rate compared to the face value of the loan.
- A complete monthly amortisation schedule for the full term of the loan, split between capital repayment, interest and all expenses.

These fields are available to the lenders at zero cost and should be provided to all borrowers by default at zero cost before a contract is signed.

Why this is not done at the moment is a question that should be asked from every lender who thinks they are too heavily regulated - because, at the moment, it is practically impossible for the average financially unsophisticated person to make an informed decision without the having access to the information above.

 

[Arthur]

Good points all. Your suggestion is eminently reasonable, and will certainly go a long way to educating borrowers, which is a good thing.

What irks me, though, is the widespread automatic assumption that it is the lenders who are generally irresponsible and unscrupulous, and that they should therefore carry the bulk of regulation and also official and social suspicion and even opprobrium.

This only intensifies the ongoing polarization in society - we have the hapless victim consumer on the one side, and the unscrupulous gouging businessman on the other. This is a picture so one-sided and incomplete that it's false, yet it persists and seems to be garnering more support with each passing year. And it is used to justify new regulations and new controls, and always in the name of consumer (voter) protection.

What worries me is that no-one is paying attention to the effects this one-sided rhetoric has. It fosters a climate that is hostile to liberty generally and to business in particular. Not a good way to inspire one for the future. In fact, it plays into the hands of Leviathan and sets us on that path that always ends in tyranny, because the people cry "Save us from Them" when what they really need is to be saved from their own disordered desire to be irresponsible.