By Pinky Khoabane
The complainants in the interest rates discrimination case against First National Bank (FNB) intend subpoenaing Paul Harris to testify in the Western Cape Equality Court when the financial giant answers to accusations that it cheated its low cost housing clients of interest rate cuts. The multimillionaire banker is the founder of FNB and was at the helm at the time it took over the Saambou mortgage loan book.
In an article by Forbes Africa last year, he’s described as the $200 million pioneer who changed the way Africans bank. The article lauds his achievements as a man who built his fortune on “banking and bright ideas.” Nowhere in this glowing piece of the man does it mention one of his “bright ideas” which was the acquisition of Saambou Bank when it collapsed in 2002. As we mentioned here yesterday, FNB obtained the mortgage book of Saambou for R1 after the bank collapsed on 9 February 2002. However, it had already bought the Low Cost Housing mortgage book by securitisation in 1998/1999.
Saambou illegally calculated interest in advance. The bank converted to the correct method in September 1999. With this conversion, Saambou lost one month of interest income, estimated at R 110 million. To recover this money, the bank penalised clients of low cost housing by increasing the interest rate on their mortgage loans. FNB had already acquired this book at the time when this discrimination was taking place. Saambou’s curator confirmed in an affidavit that by the time he was appointed in 2002, the ailing bank had already sold-off its mortgage book. Mr T.J. Louw, in his founding affidavit says: “On my date of appointment (9 Feb 2002) Saambou had directly or indirectly sold to other banks mortgage loans to a value of approximately R 2.6 billion, all of which are now held by FirstRand Bank Limited”.
It is not difficult to understand why Harris would want to conveniently forget this bright idea. His baby, FNB, which he founded, had to concede Saambou had cheated clients and had to reimburse them. His baby is now facing a class-action lawsuit in the Equality Court with accusations it had discriminated against low cost housing clients. In information discovered in the course of preparing for the trial, it was established that there were internal documents which clearly stated that the low-cost housing clients were not to be informed of interest rate fluctuations. This is against the Usury Act and is therefore unlawful.
Internal documentation reveal that in the 1998/1999 financial years the interest rate on low cost housing was to be increasesed with prime +1.25% and that of high cost housing to be increased by prime -.75%.
In July 2001 the rate of high cost housing was to be decreased by -.75% . Low cost housing was excluded from this decrease. The same happened in November 2001.
If Harris takes the stand, he will not only have to answer questions on a subject he’s tried everything to avoid but he will also have difficulty explaining the contradictory statements made by FNB’s expert witnesses in the trial against Emerald Van Zyl – the financial investigating consultant who blew the whistle on Saambou’s unlawful conduct of charging interest in advance. The experts had under oath, testified that because of the increase in the prime rate to 25% in 1998/1999 the bank had to pay their depositors a higher interest rate. This caused a financial squeeze on the bank financially, they said, which led to the increases of interest rates on mortgage loans. However, the 1999 and 2000 financial statements reveal a 34% and 42.2% increase in earnings. If the bank had to increase the interest rate on mortgage loans due to financial problems, why was the interest rate only applicable increased on mortgage loans of low cost housing?
Harris will have to give the reasons why his bank overcharged Magdalena Pietersen by denying her interest rate cuts which were due to her. Her house which she bought in 1995, was only R61000. He will have to tell us why his bank couldn’t charge his fellow millionaires the higher interest rates to deal with whatever financial problems it was facing. Why target the poor? He will have to explain why this amount which she has paid over-and-above what she ought to have paid is not being reimbursed to her. The multimillionaire with great banking ideas will have to explain why the bank had at one time refunded Pietersen’s account by R80 000 after she raised the interest rate issue but swiftly reneged saying they made a mistake when she refused to accept the R80 000. Her calculation was at R108 000.
Harris will have to explain to the world if his bright ideas of changing the way Africa banks and his fortune were not really built on cheating Africans, in particular, the poor Black masses living in the sprawling townships of South Africa.