Banks overcharging unwary bond holders

2011-06-22 00:00

A CAPE TOWN attorney’s fight with her bank has brought to light the possibility that thousands of homeowners who had the terms of their bonds altered might be paying tens of thousands of rands in too much interest on their bond repayments.

Caren Langenhoven, an attorney of Brackenfell, discovered late last year that she had been overcharged by more than R60 000 within 18 months after Standard Bank quietly upped the interest rate on her two home loans.

She is one of thousands of homeowners who entered into agreements with their banks to pay a reduced amount for a year after the successive increase rate hikes of 2007 and 2008 put them under pressure.

The National Credit Regulator (NCR) says about 30 000 homeowners are in debt counselling, and about 197 000 South Africans’ home loans are in arrears by more than 30 days.

But the NCR admits the number of people in trouble with their home loans could be much higher, because it does not know how many people – like Langenhoven – entered into voluntary debt rehabilitation agreements with their banks in order to prevent them from going into arrears in the first place.

These agreements are not overseen by the NCR. The onus is therefore on the client to ensure that interest is calculated correctly and that the bank does not unilaterally alter the terms and conditions of the loan.

“People enter into these agreements with their banks without understanding the consequences,” said Langenhoven. “Say your interest rate is below prime. Now you rehabilitate your debt for a year and then the bank increases your interest rate for the rest of the duration of your loan.”

Standard Bank said it enters on average 400 such agreements per month. FNB says it has done more than 1 000 of them and Nedbank 10 000. Absa couldn’t supply figures at the time of print.

The banking ombudsman, Clive Pillay, said altering the repayment terms of loans often results in an interest hike, but credit suppliers should clearly set out all terms and conditions of the agreements.

The Witness found that three customers of Standard Bank who made complaints on the website Hello Peter had their sub-prime interest rates increased to prime after they had applied for temporary debt relief.

In all three cases they were initially told they would have to pay the prime interest rate for only 12 months, but at the end of the period they heard they would have to re-apply to have their original interest rate reinstated.

“By the time I’d realised what had happened, I’d paid more than R60 000 too much,” said Langenhoven. “I had to spend hours fighting on the telephone to have it rectified, but what about people who don’t have the time or the money to do this? They’ll have to give up hope and take the pain.”

Banks don’t approach alterations to bond agreements the same way. FNB and Standard Bank judge each case on its merits and can alter the interest rate. Nedbank said it keeps rates unchanged, and Absa didn’t comment.

Langenhoven now wants the bank to reimburse her the money, because she has suffered damages due to the overcharge. Standard Bank rectified the problem by crediting her home loan.

Absa, FNB, Nedbank and Standard Bank said they usually credit the account on which the error was made and don’t make cash payments.

Langenhoven applied for debt rehabilitation on two home loans in February 2009. The reduced bonds took effect in March 2009. In November last year she found her repayments remained very high despite successive drops in the interest rate. When she contacted the bank to inquire, she heard that her interest rate had been pushed up to prime on 17 July 2009.

“The bank never informed me of this,” she told The Witness.

She then battled from December 6 to January 11 this year to obtain the tape recordings from Standard Bank. Then the bank told her she had been “advised incorrectly”.

Nonetheless, the bank agreed to honour the tape recordings and re-calculated the interest. Initially her interest rate was calculated incorrectly, and finally her two bonds were credited with a total of R61 616 last month.

Standard Bank spokesperson Michelle Marsh offered her apologies and said the bank would make a payment to Langenhoven “to offset some of the costs she incurred while trying to resolve this matter”.


What you have to know

•According to the National Credit Act, all alterations to a loan agreement must be put in writing and given to the client within 20 working days.

•You can lay complaints with the Banking Ombudsman (0860 800 900; or the National Credit Regulator (0860 627 627 ; if the bank unilaterally altered conditions of your loan without notifying you, but only after you’ve tried and failed to resolve the dispute by yourself.

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