---

 

THE FINANCIAL SERVICES TRIBUNAL

 

CASE NO.: FAB61/2020

 

 

In the matter between:

 

DORIS LEBERE                                                                     APPLICANT

 

and

 

SA HOME LOANS (Pty) Ltd                                                  FIRST RESPONDENT

 

OMBUD FOR FINANCIAL SERVICES PROVIDERS            SECOND RESPONDENT

 

 

Application for reconsideration of a decision by the FAIS Ombud

 

 

DECISION

 

 

The applicant, Mrs Doris Lebere, applies for or the reconsideration of the dismissal of her complaint laid with the FAIS Ombud. The application is under sec 230 of the Financial Sector Regulation Act 9 of 2017. Leave to apply was granted in terms of sec 28(5)(b) of the Financial Advisory and Intermediaries Services Act 37 of 2002, and the parties agreed that the matter may be decided on paper and they waived their right to a hearing. The applicant and her late husband purchased a property during 2005, and a mortgage bond was brokered for them by the first respondent (SAHL). SAHL was not the lender but, it appears, administered the loan on behalf of the lender. It was a term of the loan agreement that the borrowers had to obtain life insurance for the capital sum of R322 990.50 lent, and that the policy had to be ceded to the lender. The policy was not required to cover the finance costs being the interest and charges calculated over the period of the bond. See clause 9.2 (redacted):

 

“If the Borrower is a natural person, it shall, unless the Lender otherwise requires, take out life insurance, on terms and with an insurer acceptable to the Lender and cede to the Lender the benefit of such life insurance policy, the value of which life insurance policy shall at least be equal to the full amount of the reducing balance (as increased by any readvance) of the Capital.”

 

SALH, acting as an adviser or intermediary, advised the buyers to obtain the required life policy from Regent Life Assurance Co Ltd and they accepted the advice. The sum assured under the policy was R322 990.50 and the monthly premium R233.12 for 240 months (the term of the bond). At the death of her husband on 28 February 2018, the outstanding amount on the bond amounted to R303 924.28. The amortized value of the outstanding amount was less, namely R194 920.48, leaving a shortfall of R104 705. Regent paid the lender R194 920.48.

 

The applicant, unhappy with the amount paid and under the impression that the policy was a life policy for the full amount, laid a complaint against Regent with the “Banking Ombudsman” and the Ombudsman for Long-Term Insurance. The latter explained to her that the policy was a decreasing term insurance, which means that as the capital bond amount reduced due to premium payments being made so did the sum assured. In other words, the insurer would only cover the outstanding capital balance as at the date of the insured event which in this case was death.

 

The applicant then filed a complaint against Regent and SAHL with the FAIS Ombud. The complaint was dismissed, as was her application for the reconsideration of her complaint against Regent. But her application for reconsideration of the complaint against SALH is the subject of this decision.

 

The essence of her complaint is that they as borrowers obtained further advances from the lender via SAHL, namely R27 000 on 13 September 2005 and R55 000 on 3 November 2006. These loans were referred to as re-advances in the papers, but they were not re-advances as intended by the loan agreement (clause 7):

 

“The Borrower shall be entitled to re-borrow that portion of the total Capital amount which it has pre-paid (ie all amounts paid by the Borrower in excess of the required instalments paid by that time and not re- advanced before that time) in terms of this Agreement (a "readvance") and provided that at the time of such re-advance the Borrower satisfies all of the credit criteria applied at the time and from time to time by the Lender to loans similar to the loan advanced in terms of this Agreement.”

 

These advances were, accordingly, not in terms of the loan agreement re- borrowings but because of subsequent loan agreements, and did not require additional life assurance. They were however consolidated under the bond repayment.

 

The applicant’s case is that SAHL ought to make good the shortfall for two reasons:

 

“The case of the Applicant is the First Respondent had a duty to advise the Applicant and her deceased spouse that the credit life protection policy will not cover readvanced amounts and/or that the credit life protection policy needs to be revised to cover the readvanced amounts. The First Respondent has failed to provide proof of this advice.”

 

“In addition, the First Respondent gave the Applicant and her now deceased spouse the reasonable impression that the policy covered the readvanced amounts as the readvanced amounts were consolidated into one amount payable through one consolidated debit order which included payment of the readvanced amount.”

 

Having regard to the complaint as a whole, the failure to advise relates to the time when SAHL advised the borrowers on the Regent policy: SAHL should, at that stage, have advised them that should they in future ask for and obtain further advances from the lender, the policy would not cover those advances. The problem for the applicant is that the issue of future loans was not something the parties at that stage contemplated and it can hardly be expected of an adviser to give advice about matters falling beyond the scope of the issue at hand. The policy was a collateral for the repayment of the capital borrowed at the time on a decreasing scale, and not for any capital borrowed in future from the same lender. As for the loan, clauses 7 and 9.2 make it clear that the life cover was required for the capital amount advanced under the loan. It was not required for finance costs or future advances which did not amount to re-borrowings. Put differently, the adviser was called upon to advise the borrowers on a policy that complied with the terms of the loan and not about extrinsic matters.

 

There is another problem and that relates to calculation. The further advances do not explain the shortfall. The borrowers must have been in default in relation to interest payments as well.

 

To the extent that SAHL is taken to task because it did not advise the borrowers to insure themselves at the time of the later advances, the complaint likewise has no merit. SAHL at that stage acted as broker of a loan agreement. The later agreement did not require security by way of a life policy. SAHL was not acting as the borrowers’ financial adviser – it brokered a loan. Since the original loan agreement and the policy were clear, any unilateral interpretation of the statements over a period of nearly 15 years, which conflicts with the policy, cannot be blamed on SALH.

 

The decision of the Ombud cannot be faulted and the application is dismissed.

 

 

Signed on behalf of the Tribunal on 9 February 2021

 

 

LTC Harms (deputy chair)

---