Borderline borrowers at risk

2009-01-18 00:00

Underground loan sharks own their victims — whether they are poor pensioners or debt-ridden white-collar workers — and hold them to ransom by retaining their ID books.

Dr Eddie Stoop, chief executive of the Elite Group, a major player in the micro lending industry, this week warned that the situation is much like that in American gangster movies and is getting worse because of tough economic conditions.

He said stringent new credit legislation makes it difficult for border- line borrowers to deal with legitimate lenders, putting them at the mercy of ruthless underground loan sharks. Although the poorest are hardest hit, even wealthier clients who cannot access further loans or have their credit extended are becoming victims.

He said loan sharks have since 1999 been ignoring legislation that makes it illegal to retain people’s identity documents and bank and pension cards as collateral.

Even though unscrupulous lenders face criminal prosecution, the practice continues. They get away with it, Stoop said, because customers fear for their lives and are in desperate need.

“The problem is that some of these loan sharks have been driven so deep underground that only their clients know where and how to get hold of them. Many function on a completely informal basis. They wait for pension day at rural pay points and then walk up and down the lines offering cheap loans. Once they have their claws into a pensioner or other helpless victim, they confiscate their pension cards and their ID books,” Stoop said.

Ebashnee Naidu, KwaZulu-Natal regional director of Black Sash, which has contributed to the new National Credit Act and is struggling to educate consumers, painted a similar picture.

The new Credit Act not only makes it illegal for lenders to keep documents, but also requires them to register, stick to basic rules and charge the same interest rates as mainline financial institutions.

However, some lenders are charging as much as 60%.

Naidu said that at present, loan sharks seem to be targeting pensioners — many of whom are illiterate and support large families — and those receiving child support grants. These are the most extreme and needy ends of the “market”.

She added that not only do victims hand over the smart cards needed to access their grants, but even relinquish bank cards and PIN codes together with their ID books.

At the end of the month, Naidu said, the loan shark withdraws the repayment and any additional funds to cover his “expenses” and then gives the borrower a “stipend” for the month.

Considering that an ID document is needed for every basic transaction, Stoop said, especially in the formal banking industry, the underground loan sharks have a substantial hold on their victims.

South African Social Security Agency head Fezile Makiwane warned that the “unscrupulous practice” of confiscating documents is not only illegal in terms of credit legislation, but also because ID documents and pension payment cards actually belong to the state. Victims are not only denied access to government services, but could even be prevented from voting in the upcoming general election.

Action has been taken to keep loan sharks at bay. The Social Assistance Act was amended so that they are not allowed within 100 metres of a pay point, but this does not mean they aren’t lurking nearby.

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