Business Wise with Yaneek Page
I went to a financial institution to acquire a loan of J$200,000 with an interest rate of 48 per cent and a repayment figure of J$312,000. I was having some problems with my repayment and spoke with a representative. I was delinquent for five months. I received a letter saying I owed J$288,465.65 but it didn't give a breakdown of the debt. I have asked them for a breakdown but I am not getting anywhere with them. I made arrangements to pay monthly but when I tried to keep track of the account, I was told that an additional figure was added. I am a poor individual who is trying to make ends meet. Help please!
- KW, Kingston.
BUSINESSWISE: I have omitted some parts of your email to make it succinct and to conceal your identity and that of the financial institution in question, which I will refer to as The Lender.
You have found yourself in a very precarious situation as you have chosen to borrow a high interest rate loan under terms that may be described as onerous.
Very few legitimate businesses would be able to repay a loan on such terms, particularly during the current downturn. In an effort to help you resolve this situation, I contacted The Lender, the Consumer Affairs Commission (CAC) and an attorney who specialises in commercial disputes.
In response to my query about whether you will be given a breakdown of your loan account, The Lender has promised to make this available to you immediately upon your request.
A senior representative outlined the company's policy on this issue in an email to me as follows: "The policy of the institution is that, if a customer wants a statement of his or her account such information would be provided. In fact, we encourage our customers to keep abreast of their accounts and one of the best ways to do this is to have a current statement."
I suggest you make a formal request via email for a detailed statement of your account.
Regarding your concern that additional amounts are being added to your account without your knowledge or understanding, The Lender's representative advised that your loan balance will cease to increase only when your loan is paid off in full. The attorney-at-law I asked to review your loan agreement noted that based on the terms to which you agreed and given that you have been delinquent in paying back the loan, you are now obligated to pay the additional interest charges and penalties.
The other question that arises from your email is whether the loan agreement is legal and enforceable. The Money Lending Act - http://www.moj.gov.jm/sites/default/files/laws/Money%20Lending%20Act.pdf - was established to govern money lending in Jamaica and to protect borrowers from unreasonable lenders.
While the act precludes lending institutions from charging interest rates deemed excessive or above the maximum prescribed rate, some institutions are exempt, including banks, building societies and friendly societies.
A senior representative of The Lender Continued from c6
confirmed that they received an exemption approved by the Ministry of Finance.
The attorney I spoke with noted that many microfinance and same day loans companies have received similar exemptions, thereby removing some protection for the borrower.
The question now is what protections or avenues of complaint are available to you? According to the CAC: "Same day loan companies are not regulated by any regulatory body in Jamaica, therefore consumers are urged to be cautious when entering into any borrowing arrangements with these companies, as after the terms have been agreed to and the contract signed, one is bound to those terms."
In light of the limited protection for borrowers, the CAC is urging persons to ask probing questions before accessing loan facilities, such as:
1. What is the annual interest rate to be applied? Is the interest rate fixed or variable?
2. What is the breakdown of costs and what are the terms (including the annual percentage rate, processing fees and late fees, etc?
3. What are the rights of the guarantor in relation to the repayment/non-payment of the loan? What is required as collateral for the loan?
I asked The Lender to address the CAC's concern that the interest rate of 48 per cent, applied on the flat rate rather than reducing balance method, was excessive.
This was their reply: "Our clients are diverse and intelligent people, but not all may have full understanding of the secondary financial market. Traditionally, the primary financial market will only issue a loan base on a tangible security, this is where the client has a vested interest and as such the risk associated with these loans are reduced significantly while in the secondary financial market most loans are unsecured and as such our risk of loss and delinquency are significantly higher period. As such, we have to charge an appropriate rate to allow us to stay in business. Period."
While the news has not been good for you thus far, there may still be hope. The CAC noted that it has previously negotiated other loan settlements on behalf of consumers and has been "largely successful" in getting redress on their behalf.
I am aware that the CAC is now in dialogue with The Lender regarding your complaint. All the best.
Yaneek Page is a trainer in entrepreneurship and workforce innovation. Send feedback to firstname.lastname@example.org and visit www.theinnovatorsbootcamp.com