The Department of Social Development (DSD) wants to stop exploitation of its social grants database, which was used to issue loans, sell airtime and funeral policies to beneficiaries.
The department alleges many beneficiaries did not give full consent and are now trapped in a cycle of debt. The DSD also aims to safeguard its payment systems by making them off-limits to creditors.
According to social development minister Bathabile Dlamini, a task team, which was appointed in February, found the rate of debit deductions from grant beneficiaries appeared to increase significantly after the payment contract was granted to Net1 subsidiary Cash Paymaster Services (CPS) in 2012. "These deductions were made from SASSA-branded Grindrod bank accounts into which the social grants are paid.
"The [task] team found evidence of other financial institutions that may be linked to Net1," Dlamini noted. Net1's entities offer products such as micro-loans. "The deductions associated with these products are then deducted via [the] EFT payment system within the national payment system," she said.
Dlamini called the deductions "immoral and illegal", while Umoya Manje - a CPS solution that sells airtime - also came under fire for its involvement with grant beneficiaries.
No foul play
However, Net1 maintains all transactions are above board, saying in a recent statement that it has demonstrated the reliability of its financial products, collection systems and processes, and the security technology, and no unlawful deductions were made.
"The banking industry is experiencing a general problem with unauthorised debit orders. This has been well documented by the media in recent times. Grant beneficiaries, who all have bank accounts, are also at times affected by unscrupulous entities who execute unlawful debit orders. CPS is working tirelessly to eradicate the risk to grant beneficiaries through biometric technology," the company said.
According to Net1, of the R9.9 billion in social grants distributed monthly, around R526 million - or 5.32% - is being collected through debit order instructions that have been authorised by card-holders. "We have logged 7 778 complaints regarding debit orders since June 2013 (0.02% of total debit orders run during this period) at our call centre.
"All complaints are addressed with the utmost responsibility and transparency, and all requests for the reversal of debit orders are processed immediately in accordance with banking regulations. The vast majority of complaints relate to debit orders run by third parties unrelated to the Net1 group. We have not received a single request for the reversal of any debit order related to a Net1 loan repayment."
Red flags
The deductions controversy came to light following a string of complaints sent to the social development department and SASSA, said Dlamini. Beneficiaries complained loans were recouped before their grants were paid out.
"Also, access to grant beneficiaries' confidential data - including identity numbers, bank account and contact details, biometric data - appears to fuel the marketing and sale of financial products including loans, the Umoya Manje products of advance airtime and electricity coupons," she added.
Zane Dangor, special advisor to Dlamini, says government wants to determine how third parties gained access to beneficiary information to pursue ambush marketing tactics. "The information is the property of government and should be protected," he says.
Although Net1 insists users authorise all transactions on their accounts, Dlamini says the company has so far refused to sign reviewed service level agreements with SASSA, as the two parties cannot agree on "the issue of changing the rules around deductions".
Net1's R10 billion contract to handle social grant payments was ruled "unlawful" in the Constitutional Court late last year and SASSA has started a new tender process.
Social development targets:
* Designing and implementing a SASSA-owned and controlled recourse system to guard against "unlawful and immoral debit deductions".
* Refunding affected beneficiaries with interest and bank charges; where necessary, back-dated to 2012.
* Ensuring CPS complies with all relevant legislation and regulations, including restricting third-party creditor access to the social grant bank accounts.
* The DSD and SASSA will block and reverse any debit deductions for Umoya Manje services, loans and any other financial service providers other than legal deductions.
* Engaging the South African Reserve Bank to issue a directive in terms of Section 12 of the National Payment System Act to "protect the SASSA bank accounts and confidential information of grant recipients".
* Strengthening the Social Assistance Act regulations and related legislation to stop the use of social grants as collateral for loans and hold reckless lenders to account.
* Establishing the Inspectorate for Social Assistance as envisaged in the Social Assistance Act of 2004.
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