First National Bank (FNB) has had a bit of a nightmare since the banking ombudsman, Clive Pillay, exposed that the bank was revisiting mortgage bonds granted in principle for properties in developments that have yet to be completed. This creates enormous risks for buyers, who stand to lose their deposits, and also for developers, who could find themselves without new buyers in the current economic slump.
FNB now faces a credibility crisis with borrowers uncertain of whether the bank can be trusted.
The underlying problem, I suspect, is that when money was flush and property prices were soaring FNB was prepared to lend to people to whom it should not have lent - in fact our own mini-subprime debacle.
Allowing irresponsible lending 18 months ago was bad enough, it is sheer madness for financial institutions to continue to do it.
At the height of the lending spree a few years ago I warned repeatedly of the pain that was to come. I warned specifically about borrowing to finance consumption spending (spending on things like clothing, music centres and furniture). Consumables are things for which you should save and pay cash.
I was horrified last week when a reader sent me some emailed marketing material from a SA Home Loans consultant, encouraging people to switch their home loans to her company and borrow more.
One of her arguments was that it would enable you to consolidate all your debt at a lower interest rate and extend the repayment period.
She gave as an example the consolidation of short-term debt of R120 000 - for things such as a motor vehicle and a credit card - into a home loan of R500 000, making a total home loan of R620 000.
The monthly repayment would go from R16 000 to R7 954. "A savings," she stupidly claimed, "of a massive R8 046." She neglected to point out what the R120 000 in debt would cost over 20 years. The interest on R120 000, at the 14.5 percent she quoted, over 20 years would amount to almost R250 000.
She also compounded the folly by suggesting that you could borrow even more for a holiday abroad.
When I raised the issue with Kevin Penwarden, the chief executive of SA Home Loans, he claimed the email had not been authorised. He then defended it and suggested I was against consolidating high-interest debt into low interest.
He followed up with another email stating again that the original marketing email was not authorised, but this time changed his tune to say that the guide to debt on SA Home Loans' website now warns strongly against converting short-term debt to long-term debt.
I have not named the marketer because I believe the blame for this bit of dangerous nonsense lies with the chief executive of SA Home Loans for not training staff properly.
It is similar to a complaint I received this week about Old Mutual's call centre. A reader wanting to transfer a matured retirement annuity (RA) to Investec was given the total runaround.
I sent a copy of the complaint to the Financial Services Board (FSB) as I too had a similar experience of inept service from Old Mutual's call centre a few months ago.
After a swift, sharp reprimand from the FSB, Old Mutual told the complainant that the call centre had got it wrong. It thought he wanted to transfer an RA that had yet to mature to Investec.
The call centre told the complainant that the transfer would take six months, and then cut it down to two months. And senior people would not take his call. Even if this did involve an unmatured RA, this is absolutely unacceptable.
To blame the call centre is also unacceptable. The responsibility lies with the senior management of Old Mutual. Financial services companies are the custodians of our savings, not the owners, and their staff should be trained accordingly.
Trustees, take note
On the subject of training, the annual convention of the Institute of Retirement Funds is on August 25, 26 and 27 in Durban. In the interests of members, it would be a good idea for the many under-trained trustees of retirement funds to attend.