MASERU — Moneylenders yesterday told the Court of Appeal that their interest is high because part of the money goes to government coffers.
The moneylenders’ lawyers revealed that the government gets 2.5 percent from each deduction made on the civil servants’ salaries as payment.
Three prominent money lending companies approached the Court of Appeal after the High Court last year ruled that the loan agreements between the civil servants and the moneylenders were unlawful.
This was after a group of civil servants sued Afrisure (EEZY Management Services), B-Blue Financial Services and Select Management Services for charging exorbitant interest.
Regulations say moneylenders are supposed to charge 25 percent interest on loans but the civil servants said the companies were charging as much as 65 percent.
Justice Tšeliso Monaphathi’s ruling in favour of the civil servants forced the three companies to shut down operations while they waited the Court of Appeal to hear the case.
Together with other companies in the sector they stopped giving out loans and receiving what they were owed.
In the Court of Appeal hearing yesterday the companies argued that Justice Monapathi had misdirected himself when he ruled that the loan agreement the companies had with clients was null and void.
But it was their attempt to defend their high interest rates that was more revealing.
B-Blue’s lawyer Advocate Johan Daffue yesterday told the court that 2.5 percent of the money deducted from the civil servants is paid to the government to facilitate deduction process from the civil servants’ salaries to pay the lenders.
Other fees include insurance, initiation and collection charges, Daffue argued.
“The 2.5 percent of the charges is payable to the employer (government) as a collection fee. There must be a distinction between interest and other costs.”
Afrisure’s lawyer Advocate Motiea Teele also confirmed that the government benefits from the loan agreements between money lenders and the civil servants.
The government benefits by charging a percentage for facilitating deductions from the civil servants’ salaries through stop-order form of payment.
“The 2.5 percent is a levy payable to the treasury for deductions made on behalf of the lenders.
“Other charges are administrative charges such as documentation charges,” Teele said.
Teele’s submission triggered a question from Justice Lionel Melunsky who said he was puzzled by how the huge balances on some of the civil servants came about.
He made an example of one civil servant whose principal loan was M15 500 but had to pay over M34 000.
“What happens in this loan is that a borrower pays over M34 000 extra for a loan of M15 500.
“Where does the M34 000 come from?
“I see this as a bit puzzling,” he said.
In response Teele said the amount to be paid is determined by the period one takes to settle the debt.
Teele also said the civil servants’ argument that the contracts should be considered unlawful because the lenders did not issue them with receipts as proof of payment of instalments is not sustainable because pay slips serve the same purpose as the receipts.
He said the law does not define how a receipt should be.
“Money Lenders Act does not define what a receipt is,” he said.
The civil servants lawyer Advocate Kananelo Mosito said the 2.5 percent payable to the government is also unlawful because it is deducted from his clients’ salaries.
“We are saying anything beyond 25 percent charged on my clients is unlawful.
“The 2.5 percent should be deducted from the moneylenders because it is part of their administration charges,” Mosito said.
Mosito did not finish his argument in response to the moneylenders’ argument because the court had to adjourn to today.
The case proceeds today.
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