Emerald van Zyl, the Cape Town businessman who has challenged the R154-million offer made by First National Bank (FNB) to former Saambou clients, says there are four problems with the way in which FNB recalculated the home loans:
1 The interest rate is incorrect.
Van Zyl claims that FNB recalculated the home loans using the incorrect interest rates. He says FNB based its calculations on the rates that Saambou applied to the loans, but - in many instances - the rates applied by Saambou were not the rates to which the borrowers and Saambou agreed when the loans were taken out.
Van Zyl says Section 5(1)(c) of the Usury Act (the legislation that applied to money-lending transactions by banks until June 1 this year) clearly states that the interest rate to which the borrower and the bank agree must apply to the loan.
Yet, he says, it was Saambou's policy to maximise its profits by manipulating borrowers' individual rates by not passing on the full extent of a decrease in the prime rate each time the prime rate decreased.
Van Zyl says he has numerous examples of Saambou loans going back as far as 1985 that show this to be the case.
In one example of a loan Van Zyl sent to Personal Finance, the interest rate Saambou charged was - at certain times - as much as 4.5 percentage points higher than the interest rate agreed to by the client.
A 2004 decision by the Supreme Court of Appeal regarding a money-lending transaction, in which the lender (Absa Bank) had discretion to vary the interest rate charged to the borrower, states that where a variable interest rate applies, and the bank increases the rate in a rising interest cycle, the lender has a corresponding duty to decrease the rate in a downward interest rate cycle.
Van Zyl claims FNB continues to charge incorrect interest rates on the loans it took over from Saambou.
2 Some loans were excluded.
Van Zyl says FNB is responsible for Saambou's entire home loan book because it bought all the bank's issued share capital from Saambou Banking Holdings Limited for R1. In court documents in August 2002, the curator of Saambou said the shares had "no commercial value".
FNB has only recalculated the home loans it took over from the curator, and these loans exclude 20 000 low-cost housing loans.
According to Peet van der Walt, the chief executive of FNB Personal Banking, John Louw, the Receiver of Saambou, retained a portion of the home loans, but FNB administered these loans on behalf of the receiver.
The scheme of arrangement in 2002 stated that Saambou would continue to operate as a bank and as a wholly owned subsidiary of FirstRand Bank Holdings Limited (the holding company of FNB).
But Van Zyl says the agreement between Louw and FirstRand Bank Holdings to exclude a portion of the loans was signed three months after the scheme of arrangement was sanctioned in the Johannesburg High Court.
3 FNB's recalculations do not go back far enough.
Van der Walt told Personal Finance that the Deputy Registrar of Banks instructed building societies in 1990 that they could not calculate interest on home loans in advance without taking account of any instalments a borrower may have made before the date on which his or her next repayment fell due.
But Saambou did not change the way it calculated interest until 1999.
The Usury Act, which was promulgated in 1968, prescribed how banks must calculate interest. Saambou was a building society until it became a bank in 1989.
But Van Zyl says FNB has a duty to recalculate the Saambou home loans dating back to 1968, because he claims that building societies were never exempted from its provisions and so should always have been calculating interest in arrears.
Van Zyl sent Personal Finance two letters to substantiate his assertion that building societies were never exempted from the Usury Act.
A letter, dated February 27, 1996, from the Registrar of the Usury Act to Interest Compu Brokers (a Pretoria-based business that recalculates loans) states that building societies were never exempted from the requirement to calculate interest in arrears and if any other method of calculation was used, building societies had to take care not to charge more than would be charged if the interest was calculated according to the method stipulated in the Usury Act.
A second letter, dated October 9, 1990, from Chris Stals, a former governor of the South African Reserve Bank, to Barend du Plessis, a former finance minister, refers to the contravention of the Usury Act by banks and building societies in the way they charged interest rates.
The letter states that the heads of banks and building societies were sent letters dated October 1, 1990 to correct the contraventions.
4 No reduced balance.
Van Zyl says FNB's calculation fails to take into account the compounding effect on the interest overcharged.
This is contrary to a Supreme Court of Appeal ruling in 1978 that states that interest must be calculated on the principal debt owing from time to time.
Van Zyl explains that where a borrower was overcharged by, for example, R300 in the first month of the loan, the borrower did not receive interest on the R300 in the following months. He says the R300 was essentially an overpayment and should have resulted in the borrower paying lower interest charges in the ensuing months of the loan.
Van Zyl says his recalculation of the balance in the home loan account of M Snyman, a former Saambou client, shows that, based on the interest rate on her loan agreement, she was overcharged R43 290.
The rate Snyman agreed to pay was the prime lending rate, and not the rate that Saambou adjusted from time to time, and that, last year, was three percentage points higher than the prime rate.
At the higher interest rate that Saambou applied to Snyman's loan account - and which rate FNB used to do the recalculation - Van Zyl's calculation shows that Saambou charged her R14 581 too much.
Van Zyl's recalculation takes into account the interest on interest reduction that Snyman should have enjoyed.
FNB has offered R2 870 to Snyman in "full and final" settlement". Van Zyl says this figure is based on an inflated interest rate and an incorrect method of calculation.
- FNB has declined to address any of Van Zyl's allegations.