A man stands outside a Capitec branch. Picture: GETTY IMAGES
A man stands outside a Capitec branch. Picture: GETTY IMAGES

Summit Financial Partners has abandoned all legal cases against Capitec Bank, patching up a relationship that turned sour nearly three years ago when the consumer lobby group took the bank on over its payday loans, which have since been discontinued.

Summit said at the time the loans were reckless because they failed to verify the financial standing of borrowers.

The news will come as a blow to short-selling outfit Viceroy Research. In a February report that torpedoed Capitec’s share price, Viceroy said Summit’s cases could trigger a class-action lawsuit that would require Capitec to refund a minimum R12.7bn in initiation fees associated with the lending product, known as a multi-loan.

But that is unlikely after Summit and Capitec said on Friday they had reached an out-of-court settlement.

Capitec and Summit had agreed to work together on consumer financial literacy programmes and debt relief solutions, Capitec chief financial officer André du Plessis said.

"The only party who is benefiting is the consumer," Summit CEO Clark Gardner said.

Graphic: DOROTHY KGOSI
Graphic: DOROTHY KGOSI

Consumers remain heavily indebted following an unsecured lending boom that began in 2010 and peaked in March 2014, when outstanding unsecured loans in SA hit a record high of R172.97bn.

The number of consumers with impaired credit records, indicating three outstanding payments, adverse listings or judgments, reached a high of 10.53-million in June 2015. At the end of March 2018, this figure had fallen to 9.7-million, according to figures from the National Credit Regulator.

Meanwhile, after falling for a number of years, outstanding unsecured loans have crept up to R172.56bn. Despite high unemployment, the country has about 25.46-million consumers with credit.

Gardner admitted the decision to settle had been difficult, but Summit could not compete with Capitec’s legal team.

The consumers whose cases Summit was fighting were in a "significantly better position" and Summit was not "handcuffed to the deal", said Gardner. "If we disagree with them we’ll be back in court."

Capitec’s multi-loan product allowed a consumer who had qualified in-branch for a loan to take out multiple loans thereafter by answering three questions at an ATM. Summit said these loans caused consumers to be overindebted and were therefore reckless.

Summit also argued that charging an initiation fee on each new loan was unfair but the regulator upheld that.

Capitec discontinued the multi-loan product in February 2016, after amendments to the National Credit Act put stricter affordability assessment rules.

ziadyh@businesslive.co.za