Nanny state rescues banks, but you’re on your own

(This article originally appeared in the Business Report in August 2014 as commentary on the problems faced by African Bank.)

If memory serves me correctly, the last time the government bailed out a consumer in money trouble was way back in… er… never. That’s right. If you have more money going out than coming in and don’t have a cash stash to fall back on, you can always look to the government and be sure of zilch, nada, nothing.

If you’re a bank, things are different. When a cash crisis sets in, institutions have curators to look after them, people don’t. This lesson hit home when African Bank Investments Limited (ABIL) threatened to go belly up until the government ponied up enough money to tide it over, then provided a kindly curator for good measure.

This is a sizeable bank. To all intents and purposes, it was all grown up, an “adult” with 3.2 million clients. But in time of need it still has a nanny to look after it, in the shape of a supportive government.

Consumers struggling to pay for a tank of petrol and a basket of groceries should take note. Yet you may be forgiven for thinking there is a nanny out there, just waiting to look after you.

After all, we have a “nanny state” that passes all sorts of laws that are supposed to ensure we come to no harm. We have the National Credit Act (NCA), the National Credit Regulator (NCR), the Financial Intelligence Centre Act (FICA), the Financial Advisory and Intermediary Services Act (FAIS) and the Consumer Protection Act. Banks have Know Your Customer (KYC) requirements and another set of regulations called Treating Customers Fairly (TCF).

Nanny-driven legislation keeps mounting up and South African business keeps moaning that it’s weighing them down.

Check out an annual report or two and you’ll hear listed business bleating about the cost of compliance. Ignore the bleats. You – the consumer – are the one who should be complaining.

Compliance with nanny rules and regulations costs billions. But guess what? Banks and businesses don’t pay, you do. Costs are passed on to consumers because business bundles these administration expenses into the price of the goods and services we buy.

What do we get for our money? Judging by the ABIL precedent, very little. We do, however, get to cling to the illusion that all the new laws and protections keep us safe. Put this into the context of the ABIL debacle. Simply put, the managers lent too much money to too many customers who didn’t repay their loans.

Imagine you’re an ABIL client. You’re desperate for a loan. Your mortgage has gone up, petrol and food prices keep rising, your pay lags inflation by a mile and some unexpected expenses have just hit you for a loop.

The people at the bank seem quite sympathetic, though. You think they’re being nice. They think they’re building their unsecured loan book and believe they have a green light to keep doling out money to guys like you.

You fill in a form or two. There are one or two processes to go through and you might even be dimly aware of the safeguards that are supposed to protect you as these procedures play out… FICA, KYC, NCA, NCR, whatever.

So you sit there, and a little voice at the back of your mind whispers: “How are you going to pay these people back?”

But, hey, why worry? All the safeguards are in place. You’ve just gone through the process. If the bank thinks you can afford it, you can afford it, right?

You get your loan… and a few months down the line you’re deeper in money trouble than before, regulations and the regulator notwithstanding. We may be over-governed in this country, but we’re certainly not over-protected. If you don’t look out for yourself, no statute will.

You can’t trust in regulation, but you can trust some of the old, personal and private rules you grew up with. (If you were lucky enough to have old-fashioned parents who passed on consumer wisdom from the days when money was short and legislation even shorter.)

Just to remind you, the old rules were: Only buy what you can afford. Pay in cash. Never get into debt, but if you do, pay it back as soon as you can.

Unfortunately, a new generation has been fed the notion that you can have everything now. You supposedly don’t need to save a cash reserve. (Banks appear to have forgotten this lesson as well.) Just go out and buy. Nanny will look after you.

Oh, no, she won’t. If you get into financial trouble you’re on your own.

As an embattled consumer you might find consolation in the fact that this time the bank took the hit. Don’t kid yourself. The ABIL bailout will cost money, lots of it. Who’s going to pay? We will. Government money is really the taxpayer’s money.

It’s no consolation that you not only have to prop up your own shaky finances, you have to prop up a bank’s as well.

Strangely, there’s a positive message in all this. FICA, FAIS, NCR, NCA, KYC, TCF and all the rest don’t give you as much protection as you think. But there is a resourceful, resilient and trustworthy source of assistance close at hand. That would be you – not the government, you. You have rights, and the first line of defence in protecting those rights is you.

Be alert, be informed, be sceptical, ask questions and make comparisons. Be an adult and don’t believe in fairy stories, especially the fairy story about the nanny government looking after you.

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