The rules of pawn

Second-hand retail chain and pawnbroker Cash Converters has come out in defence of its lending practices, recently frowned upon by South Africa’s National Credit Regulator (NCR). The company wasdragged in front of the South African Consumer Tribunal last month after being accused of various breaches of that country’s National Credit Act (NCA) in local media. Claims against it included failing to undertake proper affordability assessments in granting loans, not ensuring that goods pawned with it were insured and failing to reimburse lost items at fair market value. With its regional headquarters located in South Africa, Cash Converters has a network of over 7 000 stores in 21 countries including Namibia. According to CEO Richard Mukheibir, the chain typically does in excess of 450 000 pawn transactions annually. “Unfortunately, we were not given an opportunity to respond to some of the issues raised,” Mukheibir said when asked about the charges against it, and the rules governing its Namibian franchise. “To our knowledge, only one such case has been before the tribunal and was successfully upheld in the store’s favour.” Store losses Mukheibir insists that the company has always complied with national credit legislation wherever it does business, including cases where items left in its care go missing. “If the goods cannot be returned through no fault of the pawnbroker, as in the case of a burglary, Cash Converters needs to pay the consumer an amount equal to the fair market value of the property, less the settlement value at the time of failure to deliver that property,” Mukheiber said. Should the store lose an item due to a fault of its own, items are compensated at twice the fair market value, less the settlement value. A Windhoek-based source, who asked to remain anonymous, insisted that a break-in at one of Cash Crusaders’ 66 South African stores resulted in the Namibian franchise requesting permission to have its in-store items insured with Santam, and that it now is able to offer compensation at four times the fair market value. Getting to fair value While banks typically are able to assess the “book value” of a car, for example, agreeing on a fair market value is not always a straightforward process, the company says, citing this as the most likely reason for its troubles with the South African regulator. “Herein lies the grey area,” says Mukheibir. “Neither the National Credit Act nor the regulations to the Act give any indication of what fair market value is, nor do they give any indication on how fair market value is determined,” he says. “This is a matter we have discussed with the National Credit Regulator and are dealing with in the current matter that is going before the tribunal.” “Clearly there is a deficiency in the (law) and regulations that do not adequately deal with this matter of determining fair market value. Any disputes with regard to market value can be taken to the tribunal by a consumer.” Sources at the Windhoek store claimed last week that Cash Converters’ 'Cash Advance' loans, an instant loan secured against their valuables, carried a 30-day return limit and 1% per day interest rate. That amount would be in breach of Namibian legislation, which limits interest to 15.6%, calculated at 1.6 times the average prime rate of 9.75%. However, official correspondence from Cash Converters insisted all pawn transactions at the store are subject to a 5% monthly interest rate. WINDHOEK DENVER ISAACS