Standard Bank denies reckless lending scheme in court

Posted 20 August 2014 Written by Franny Rabkin
Category Banking

Standard Bank has denied allegations of reckless lending to companies involved in so-called "reverse mortgage schemes" which have already been found fraudulent by the High Court in Bloemfontein. Borrowers using this system found they had to pay back up to six times the loan amount, and had title of their houses transferred to the credit provider, according to Business Day.

Standard Bank has defended itself in court papers against allegations of reckless lending to companies involved in fraudulent schemes known as “reverse mortgage schemes”.

The case is one of at least 20 similar cases of reverse mortgage schemes before the courts, and it raises questions about how far the big banks should go in investigating the creditworthiness of customers.

Standard Bank said that if the court found against the bank, it would affect the availability of mortgage bonds and in turn the ability to broaden the base of homeowners.

Reverse mortgage schemes have already been found to be fraudulent by the High Court in Bloemfontein.

Companies offer loans to people who have been blacklisted, the only requirement being that they own a property. But instead of using the person’s house to secure the loan, the scheme involves actually transferring the title of the house — unbeknown to the original owner.

The company then takes out a bond with an established credit provider, like Standard Bank, but for a much higher amount than the “loan”, which the original owner has to pay off before the property can be transferred back.

Pay-back six times loan amount

In this case, Eastern Cape teacher Xoliswa Tshatshu thought she had taken out a loan for R100,000 using her house as security. But she would have had to pay six times that amount before ownership of her property would have been transferred back to her.

When she could not repay the money, Standard Bank foreclosed on the house and auctioned it off.

In her court papers, she said the companies that gave her the loan and to which she unknowingly transferred her house — Asset Management Specialists and Dreamworld Investments 457 — were “said to have induced more than 150 people into such schemes and 35 involved Standard Bank”.

If the bank had done what it was supposed to, it would have realised that the transfer was part of a fraudulent scheme, she said.

But Standard Bank’s head of its asset management division, Anthony Kennedy, said when the bank approved the mortgage, it had no reason to question the motives of Dreamworld. Nor “was there anything to suggest that the application for finance was extraordinary, or that the sale of the property to which it related was impeachable, or in any way irregular ”.

He said the National Credit Act was not in force when the mortgage was approved and registered. Moreover, the reckless lending provisions of the act applied to lending to human beings, not to companies.

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