South African Bank Overcharges on Personal Loan

South African money
Absa, the largest consumer bank in South Africa, is accused of overcharging a client on a personal loan. Absa allegedly charged over $9,000 on a $925 personal loan after charging an interest rate of 49 percent, reports Money Web

Under South African law, it is illegal to charge a borrower interest and fees in excess of double an outstanding loan’s balance.

According to bank records, the borrower’s balance inflated to over double the original amount between Aug. 14, 2006 and Sept. 20, 2012.

The situation is being examined by Summit Garnishee Solutions, a company tasked with auditing debt agreements.

Summit informed Absa that the borrower of the personal loan in question made steady payments on the balance until financial difficulties resulted in default.

Kem Westdyk of Summit said that the matter raises concerns over Absa’s internal controls. Summit believes that this troubling situation should not have happened since it should be fairly simple for a bank as massive as Absa to prevent loans from exceeding legal limits.

“The bank has infringed on the in duplum rule which provides inter alia that, interest on a debt stops when unpaid interest equals the sum of the unpaid capital,” said Summit, in a letter to Absa, according to Money Web.

Summit believes that the situation is “deeply concerning and should be rectified immediately.”

For its part, Absa admitted it had made mistakes and intends to begin putting “measures in place to proactively identify and prevent similar incidents from occurring in the future.”

“Absa conducts its business in accordance with all the rules and regulations governing unsecured lending as set out in the National Credit Act. While our practice is not to discuss client matters in public, we can confirm that we have investigated the client’s personal loan enquiry and established that the accrued arrears interest on her account was the result of an internal error,” said Absa, according to Money Web.