The National Credit Regulator tried to ‘protect fraudsters’ from Sars and the big banks – but the appeals court isn't keen

Business Insider SA
  • South African banks, big companies that offer credit, and Sars share details of fraud through a non-profit credit bureau.
  • The National Credit Regulator argued that the Southern African Fraud Prevention Service should be forced to delete such fraud details after one year.
  • But the Supreme Court of Appeal says affording this benevolence to fraud and fraudsters would be strange.
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South African banks and companies that extend credit won't have to delete details of people who try to defraud them after one year, the Supreme Court of Appeal (SCA) has confirmed – even though the National Credit Regulator (NCR) believed the law required that.

In a decision delivered on Monday, the SCA rejected an appeal by the NCR that had the potential of undermining an 18-year-old arrangement through which the big banks, the SA Revenue Service, and other participants keep track of people who try to defraud them.

The NCR had argued that the non-profit Southern African Fraud Prevention Service (SAFPS) through which companies share those details to protect one another should be forced to delete reports of fraud after one year, as is the requirement for details about individual credit behaviour.

The SAFPS is funded by credit providers ranging from furniture stores to motor dealers and keeps track of those who attempt identity fraud, use forged documents, or are just turned down for credit by members when they suspect fraud. All members get access to that database, named Shamwari, and the details are only cleared out after ten years.

The SAFPS says its work has prevented more than R8 billion in attempted fraud.

But details such as an attempt at insurance fraud falls under rules that cover a range of details including "business history", the NCR held – and credit bureaus are not allowed to hold on to such information for more than one year. 

The National Consumer Tribunal agreed with the NCR, but the high court overturned that on appeal by the SAFPS, and on Monday the SCA dismissed the NCR's attempt to appeal that in turn.

Applying to fraud rules that had been intended to prevent consumers from being blacklisted indefinitely "would undermine the ability of the financial industry to protect itself against fraud and in doing so, protect fraudsters and not the victims of fraud; it would not promote a responsible credit market and industry; and it would not protect consumers," the SCA said.

It would also lead to the strange situation where records could be kept about those who are declared insolvent – even after they pay their debts – and people who default on maintenance payments, while affording the "benevolence" of wiped-clean slates to fraudsters.  

"The NCR’s contention that the [National Credit Act] must be ready to protect fraudsters is untenable" in terms of that law, "and leads to a patently insensible and unbusinesslike result," the SCA ruled.

A year ago the high court slammed the NCR for sticking with a pursuit of furniture group Lewis for "club fees" and extended warranties the regulator insisted were linked to the extension of credit. The NCR, the high court said, should be discouraged from such crusades in future.

See also: The crusading credit regulator should never have gone after Lewis, says the high court

Despite disagreeing strongly with the NCR's approach, the SCA was a lot more sympathetic than the high court had been in the SAFPS matter, reversing an early cost decision against the regulator. The NCR, the appeals court said, had acted reasonably in seeking "clarity and certainty" around the law it is supposed to enforce.

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