South Africa

South Africa

Sitting Bucks: Damning survey explains how Net1 benefits from close proximity to social grant recipients

One of the spin-offs of the relationship between Sassa, Net1 and its subsidiary, Cash Paymaster Services, has been the easy and lucrative access the US-listed company has had to some 17-million South Africans who receive social grants. Net1 subsidiary, Moneyline, offers grant recipients loans, often without requesting proof of income and on condition that they open an EasyPay Everywhere Account and use this card instead of the Sassa card. A shocking survey among grant recipients last year highlighted several problematic practices. By MARIANNE THAMM.

In a submission to Parliament’s Trade and Industry committee in 2016, lobby group the Black Sash appealed to MPs to provide debt relief to social grant beneficiaries who had been offered reckless – and at times fraudulent – loans by Net1, holding company of CPS, Moneyline and EasyPay.

For several years, the Sash had been at the forefront of lobbying former Social Development Minister Bathabile Dlamini and Sassa to account for unauthorised, undocumented and illegal deductions from the accounts of social grant recipients. It was the Sash, represented by the Centre for Applied Legal Studies, which in 2017 applied to the ConCourt to ensure that the continued relationship between Sassa and CPS would not be harmful or exploitative of social grant beneficiaries.

The relationship between CPS and Sassa, the government agency tasked with distributing social grants worth a massive R10-billion a month to some 17-million beneficiaries, has been contentious and problematic ever since 2012 when CPS was originally awarded the tender, later ruled irregular by the Constitutional Court.

Regardless of the ongoing controversy, former Minister of Social Development, Bathabile Dlamini, as well as her allies in Sassa, appeared determined, at all costs – including ignoring a directive to report on progress to the Constitutional Court – to keep Net1/CPS tightly in the fold.

So much so that in March 2017, the ConCourt, with a gun to its head, was forced to further extend the invalid CPS contract to avert the risk of 17-million South Africans being left vulnerable and destitute. In 2017 CPS revealed that its recorded pre-tax profit in the five years it had paid social grants on behalf of government had amounted to R1.1-billion.

When allegations had initially surfaced that Net1 and its subsidiaries were implicated in possible reckless lending or making illegal deductions from grant recipient accounts, the company contracted auditing giant KPMG to conduct an “independent” investigation.

The auditing firm eventually produced a report (in 2014) clearing Net1. The KPMG report also directly resulted in the setting aside, in a National Consumer Tribunal, a compliance notice that had been issued to Net1 by the National Credit Regulator (NCR). The NCR notice had accused Net1 of accessing the Grindrod Bank accounts of social grant beneficiaries.

Somewhat unsurprisingly, KMPG also just happened to be Net1’s internal auditors, tainting the firms’s apparent “independent” nature of its external investigation.

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In 2017, in an attempt to find clarity with regard to how Net1, Moneyline and EasyPay Everywhere (EPE) operated, financial well-being firm, Summit Financial Partners, conducted an investigation.

The firm did this through direct interviews with beneficiaries, conducting “mystery shopping” excursions – sending grant recipients to apply for Moneyline loans – as well as analysing bank statements and other documents.

The probe had three focus areas: Moneyline’s lending and collecting practices, the service provided to beneficiaries who were also CPS and EPE card holders, and the link between CPS, Moneyline and EPE with Net1.

While Moneyline is an NCR-registered credit provider, the nature of the loans it offered grant recipients did raise questions and concerns, the survey found.

Here is how it works, according to the Summit Financial probe:

An immediate finding was that EasyPay Everywhere cards – or green cards – are sold to beneficiaries as a requirement for a Moneyline loan application. Summit’s researchers found that nine of the 21 beneficiaries surveyed had EPE cards that they had been required to obtain while applying for a Moneyline loan. In addition all the beneficiaries with an existing Moneyline loan had an EPE card.

While beneficiaries without EPE cards could apply for a Moneyline loan, they were “induced” to apply for an EPE card. All that is required is the beneficiary’s ID and Sassa card.

The Summit survey determined that beneficiaries who applied for a Moneyline loan were not required to provide proof of income during the application and that the transaction history of the applicant was obtained by a Moneyline consultant through biometric verification and a point of sale (POS) device.

The Moneyline consultant enters the beneficiary’s living expenses without requesting this information from the beneficiary. The affordability assessment is all done on the POS device,” the survey found.

It noted that the National Credit Act 34 of 2005 (NCA) provided strict regulations that must be adhered to when conducting affordability assessments. Regulation 23A also required a credit provider to obtain three months’ proof of income and assess a consumer’s financial obligations before granting credit.

Regulation 23A sets out a “Minimum Expense Norms” table to determine a consumer’s monthly financial obligations. Individuals who earn less than R800 a month may not, according to the NCA, be given credit. In this instance an exception can only made if the consumer completes a declaration as to why their expenses fell below the minimum threshold set by the NCA.

The Summit survey found that Moneyline granted loans to beneficiaries who received as little as R380 per month and that consultants completed the affordability assessment on behalf of the beneficiary, “thereby bypassing the purpose of the NCA’s reckless credit provisions”.

Three Net1 branches visited in the course of the Summit survey only had English copies of Moneyline terms and conditions available despite Afrikaans being the predominant language in the region. This situation was replicated in another predominantly Xhosa-speaking region as well.

We sent an email to Moneyline, requesting copies of their terms and conditions in English, Afrikaans, Tswana, siSwati, Sotho, Xhosa and Zulu. We did not receive any reply,” the survey reported.

During the investigation eight EPE statements were obtained from Sassa grant beneficiaries, all of which contained debit orders, seven for Moneyline and one from another lender. Of the two CPS statements received, only one had a Moneyline deduction.

On the EPE card statement, Moneyline deductions are often cleared before the beneficiary’s account is credited, allowing the account to go into overdraft,” the study found.

The EPE statements examined suggested that debit orders were cleared before accounts were credited, a situation in conflict with provisions of the SARB’s “Directive 2” relating to the National Payments System Act and which forbids banks giving certain debit orders preference.

The study found that beneficiaries were not made aware of the terms and conditions prior to opening an EPE account which they were informed was a requirement to apply for a Moneyline loan.

While the beneficiary’s EPE card is being activated, a consultant explains that they must only use the new ‘green’ card (EPE) in future and that all their grant money will be transferred to the EPE card. As one consultant explained it, “It’s almost like your new Sassa card.’”

Beneficiaries provide consent for Sassa grants to be transferred to EPE cards “simply by placing their finger on the finger scanner for biometric verification. The beneficiary is never informed that by opening the account, she has consented to receive marketing from Net1 and its affiliates”.

One of the beneficiaries assisted by Summit researchers had unauthorised deductions for airtime and electricity on an EPE account. According to the beneficiary, her Sassa grant payment had become irregular after she had applied for her first Moneyline loan using the mobile loan application services.

After that she often only received R200 of her then R720 child support grant, the study found. Scrutiny of this beneficiary’s EPE statement showed deductions for airtime and electricity made from her account, using a number not known to the beneficiary.

Additionally, the transactions on the beneficiary’s account were authorised despite insufficient funds being available in the account. We helped the beneficiary lodge a complaint with EPE and stopped the mobile service on her account. The EPE call centre agent informed us that if the beneficiary wants a refund for the unauthorised deductions, she must submit a written affidavit at a Net1 branch. According to the EPE call centre agent, no time frame can be given on the investigation.”

A further discrepancy was also noted by researchers in that two child grants totalling R760 received by the beneficiary (and confirmed by Sassa) and transferred from the beneficiary’s Sassa-branded Grindrod account, ended up around R50 short on her EPE statement.

The answer to this discrepancy can be found in the beneficiary’s CPS account. According to the EPE receipt statement printed by another beneficiary, ‘CPSEMVFees’ are debited from the beneficiary’s account before the money is transferred to their EPE account. What these ‘CPSEMVFees’ entail remains to be determined,” the report found.

What is clear, however, is that beneficiaries with EPE cards did not always receive their full Sassa grant “without limitations or restrictions attached to such transfer”.

Approaching Net1 and attempting to close an EPE account, particularly when a beneficiary had an active Moneyline loan, proved impossible, researchers found, while a grant recipient without a loan was allowed to close the account.

However, the client was informed that she was required to submit a written affidavit and told that the account would only be transferred back to her Sassa card after the next grant pay period. There was also a R50 EPE account closure fee.

Summit researchers asked five beneficiaries to apply for new Moneyline loans of which four were granted. These loans were then settled within a week but Moneyline, however, still debited all four accounts in the next grant pay cycle. Moneyline informed researchers that the accounts would be credited within three months.

The survey noted that according to the EPE and Sassa card terms and conditions, if a debit order dispute was lodged within 40 days, this debit order would immediately be credited to the EPE card and the debit order returned to the user.

This assurance fell in line with the rules set by the Payment Association of South Africa (PASA) and was also confirmed in an affidavit deposed by Net1’s Herman Kotze? to the South Gauteng High Court.

We called the EPE call centre requesting that the Moneyline debit order be reversed. The call to EPE lasted just under 50 minutes, as we were transferred back and forth between EPE and Moneyline. The conclusion of the call was that EPE cannot reverse debit orders for Moneyline and that the dispute must be settled with Moneyline directly. A call to the CPS call centre had the same outcome. The conclusion is that Moneyline debit orders cannot be reversed on either EPE or CPS accounts.

Beneficiaries’ personal data, obtained in the payment process, should remain private and may not be used for any purpose other than for payment of the grants. Biometric data and personal information of grant beneficiaries, harvested during the Sassa card registration, may also not be used for any other purpose than to pay grants.

However, when a beneficiary applies for a Moneyline loan, their transaction history is obtained from their Grindrod bank account through the applicant placing their finger on a scanner which reads their biometric information.

The biometric verification process used by Moneyline works on the same system as the CPS grant payment system. A beneficiary is able to ‘consent’ to the release of information because the Moneyline biometric verification system links the beneficiary’s card to their biometric information. It is the same device used to pay beneficiaries at Sassa pay points, but in this case, it is used to process loan applications.”

Net1, the study found, uses the information gathered in terms of their mandate with Sassa to streamline the processes for their other products, such as EPE, Moneyline and Smart Life.

It is undoubtedly clear that Net1 would not be able to process the amount of EPE cards, Moneyline loan agreements and Smart Life policies that they do without the information they have collected over the course of their Sassa mandate.”

Other startling findings in the survey were that out of the 21 beneficiaries interviewed, 16 had indicated that Moneyline had travelled to their neighbourhood, offering Sassa grant beneficiaries loans.

Four beneficiaries indicated that they approached Moneyline after hearing about them from a friend while one beneficiary stated that they had been referred to EasyPay Everywhere by a Sassa employee at a Sassa pay point.

Of the 16 beneficiaries who indicated that they had been approached by Moneyline in their neighbourhood, eight had stated that the individuals granting the credit agreements indicated that they were from Sassa or in some way affiliated with Sassa. One beneficiary stated that the vehicle used was marked as a Sassa vehicle.”

And then the clincher:

If and when the Sassa contract with CPS comes to an end, Net1 will have access to Sassa grant beneficiaries’ through their EPE cards,” the Summit survey concluded. DM

Photo: A South African woman carrying her baby rests against a fence with thousands of South Africans waiting in line outside Guguletu Social Services office to register for a Social Relief of Distress Grant, Guguletu, Cape Town, South Africa 28 January 2009. EPA/NIC BOTHMA.

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