Rudco Homeloans at 6%

[duncan drennan]

I think this is where the controversy comes from. Chances of finding investors locally for a fixed return of less than 6%, even if it is a 20 year bond, is pretty slim. But they can be found overseas.

I can understand the profit margin for a foreign investor (e.g. Japan's interest rate at 1.88%), but what about the people who are based here. I know the maths on what I'm about to explain is not quite right, but I think it is at least illustrative (please correct me if I'm wrong).

Say that a foreign investor is happy with 3% interest on their money (I won't even pretend to understand how exchange rates play with this), then there is 3% left over for the local people's profit. I suppose that if you've put no money in, then that 3% is a real profit, and actually quite good money. Money for nothing really. Even if after all your agents fees and so on only 1% is coming back to you, it works out quite well.

[duncan drennan]

Good point I never realized that at 6% it wouldn't showmuch profit. I need to apply for a home loan soon as I am purchasing a house so I hope I myself can get 6%. I'm sure they have profit coming in from some source.

Mike, give us some feedback as to the process. It would be great to hear about it from you.

[Eugene]

Interesting comments - I for one would also be interested in the whole mechanics of the deal. Who knows, might even consider switching to them if they are in the up-and-up. Anyone know if there are any penalties involved should you change from eg. Absa to them?

[Eugene]

Just Googled Rudco and must say that there are a lot of hype for such a small firm entering the market, still have my doubts though, but will give them the benefit of the doubt.

Zulu, if possible, please post the whole agreement (or PM me with it). Would be interesting to make a comparative study in relation to the normal bank agreements.

[Daman]

Has anyone been able to successfully register a bond and received the funds?

I would be very interested to know. At this stage there just seems to be a lot of talk.

[Eugene]

NCR acts against Rudco

The National Credit Regulator (NCR) has found Rudco Finance Company to be in contravention of a number of provisions of the National Credit Act.

The NCR said it investigated Rudco after it had received a number of complaints and inquiries from the public, notes a Moneyweb report. Rudco raised warning flags because it was offering to fix its clients home loans at 6% a year, for up to 20 years.

The NCR found that Rudco had contravened the Act in five primary areas: it requires consumers to make loan repayments and monthly services fees before loans have been advanced; it charges monthly service fees ranging between R500 and R1 500 per month, which is in excess of the R50 per month prescribed in the NCA; it does not provide consumers with quotations, pre-agreement statements or credit agreements that meet the requirements of the Act; advertisements which are placed by Rudco Finance or by its agents contain statements that are misleading and that contravene the National Credit Act; it does not meet the requirements of the Act in respect of its agents, does not provide its agents with identification cards or adequate training, and does not maintain a register of its agents in the prescribed manner or form.

Full report: http://www.moneyweb.co.za/mw/view/mw...6099&sn=Detail

[duncan drennan]

The NCR's Rudco file will now been forwarded to the national prosecutor.

Hundreds of investors applied for cheap loans with suspect finance company Rudco. National Credit Regulator (NCR) advocate Jan Augustyn says that for the month of June, Rudco had about 600 applications for debt consolidation and about 200 for home loans.

On Thursday the NCR announced that it had found Rudco had contravened a number of provisions of the National Credit Act (NCA), and its predecessor, the Usury Act. One of the major contraventions of the law was Rudco's policy to accept payments for loans before they had even been granted.

"We are concerned about the clients who haven't received their money," says Augustyn. He says that some of the documents the NCR had inspected indicated that Rudco provided for periods of up to 12 months where it would receive repayments before granting loans.

Augustyn said he was not aware of one loan that Rudco had paid out in full, but conceded that the NCR had not investigated every one. He said loans had either not been granted, or only partially granted.

Augustyn said he would forward the Rudco file on to the National Prosecuting Authority for possible prosecution.

Full story on MoneyWeb

[Harryf]

Hi everybody!

I've been a regular "guest" before - but not anymore: I shall from now be classified as a "member"! Great to be one.

Back to Rudco. It's been an interesting post this, from "letting the sun shine on all/letting it rain on the just and the unjust", stuff being too good to be trus, stuff actually being true (the contract), etc.

As for me, I am a wary critter by nature and was the last, as a 20 year old, to buy Adriaan Nieuwoudt's "Kubus" culture on the Thursday before Raport's headline on Sunday lost me my investment (actually, my dad's) . . .

A few things come to mind. I'll note them first and then attend to them as I go along:

1. In post #35 (page 4), leuce comments that it is, in fact, a 0% interest loan BUT with an admin fee attached;
2. In post #39, (still page 4) zulu supplies a section of the loan agreement. Refer to note 2: ". . and all other charges and fees due or payable . ."
3. In post #51 (page 6), eugene notes that admin charges of up to R1,500 were noticed by the NCR

OK

I understand that it is actually easy getting money into SA - but not (always) as easy getting the same out. And if the money entering SA is to be used as a LOAN to anything in SA, the interest earned on said money may not be more than a maximum of the prime lending rate of the country of origin (as per mr X, SA Reserve Bank). In some cases, exceptions may be made and the interest earned on such loans may be increased to the prime lending rate of the county of origin plus 2% points.

So, if the money comes in from Japan, and their prime lending rate is 1.8%, and it is to be used lo finance loans (and earn interest), the maximum interest allowed should not ne more than 3.8%, possibly limited to 1.8%.

Now, back to leuce's comment about the 0% interest. On a bond of R1 million, payable over a 20 year term, the monthly installment (capital only, obviously) will be R4,166.67. If the actual interest rate was 1.8% (for the Japan scenario), the payment would be R4,964.66 per month (I calculated interest monthly, not daily). Add onto this an administration fee of, say, R1,500 (as per eugene post) and the monthly installment becomes R6,464.66. If this figure is simply seen as a payment consisting of interest and capital, and we assume said interest rate to be 6%, an amount of R902,342 could have been borrowed.

Let me put it another way: If I have to pay R0 admin fee, pay 6% interest calculated monthly on a 20 year bond and I can only afford to pay R6,464.66 per month, how much money can I borrow? Answer: R902,342.

At an admin fee of R1,500, an actual interest rate of 3.8% and a bond term of 20 years, an amount of R1,040,565 can be borrowed. At 6% interest, R0 admin fee and a 20 year bond: exactly the same amount.

So, maybe the illustrated (effective) 6% and the admin fee of R1,500 per month may have been used to illustrate a bond of said size, or what?

Now, getting to point 2 of zulu. These admin fees will then form part of the repayable amount, even if the interest was 0%.

Still, this was a nice exercise and something worth noting for anyone wishing to get foreign investors interested in investing in SA through supplying loans - and simply add an admin fee to effectively bypass some Act's restrictions!

"Slim vang sy baas", it seems.

Kindest possible regards

Harry

[duncan drennan]

Thanks for the analysis of this Harry!

Still, this was a nice exercise and something worth noting for anyone wishing to get foreign investors interested in investing in SA through supplying loans - and simply add an admin fee to effectively bypass some Act's restrictions!

The only problem is that the NCA only allows an admin fee of up to R50 (as per Eugene's post earlier). BUT, how about this: if the borrower is a juristic person, and either the loan is a so called "large" loan agreement (e.g. mortgage bond), or the juristic person has an asset value over R1mil, then the NCA does not apply to the agreement - could the large admin fees be charged in this case, effectively giving juristic persons access to cheap money?

[Harryf]

Duncan!

That's a good point. Admittedly, I say this warily, for lack of knowledge.

Eugene (sh)could probably add to it and sleep on his desk again the next day! Stuff like this usually simply intrigue me, and now I find myself getting excited about things I simply should not!

I've not had any reason to be concerned about the NCA up to now, but am glad you pointed the post out to me. Amazing what a little knowlwdge does, eh? Imagine a lot of it!

How does a particular four pronged saying end? "He who knows, and knows that he knows, is wise; follow him". Nice to see you take loose threads and tie them into a rope . . .

And so, on that topic, Duncan, where can you get us (the juristic part of us, that is) some cheap money for "large agreements" and to which you will add no more than a R1500 admin fee (just because you are kind and not because that is a limit) and not even transgress an Act?

[duncan drennan]

I've not had any reason to be concerned about the NCA up to now, but am glad you pointed the post out to me. Amazing what a little knowlwdge does, eh? Imagine a lot of it!

Well, that is what this forum is about. Spreading the little bit of knowledge that we each have around, so that we all end up with a lot of it, and putting our heads together to tackle the questions we don't have the answers to.

And so, on that topic, Duncan, where can you get us (the juristic part of us, that is) some cheap money for "large agreements" and to which you will add no more than a R1500 admin fee (just because you are kind and not because that is a limit) and not even transgress an Act?

Hmmmm...maybe a new line of business for me?

[Dave A]

Welcome, Harry. What a great new contribution to our shared pool of knowledge! I am pleased indeed you "took the plunge."

I think this little sequence goes a long way to explain how an effective rate of 6% could be achieved, and quite profitably too. And perhaps even finds a way round a hurdle. The significant remaining concern seems to be the payment of instalments ahead of the actual provision of the loan.

Just to clarify one element, though:

I understand that it is actually easy getting money into SA - but not (always) as easy getting the same out. And if the money entering SA is to be used as a LOAN to anything in SA, the interest earned on said money may not be more than a maximum of the prime lending rate of the country of origin (as per mr X, SA Reserve Bank). In some cases, exceptions may be made and the interest earned on such loans may be increased to the prime lending rate of the county of origin plus 2% points.

Now would those limits be applied against the funds valued in Rands or in the currency of source over the period?

[Eugene]

Due to a number of complaints and enquiries received from the public, the National Credit Regulator (NCR) conducted an investigation on Rudco Finance (Pty) Ltd (Rudco Finance). The investigation revealed that Rudco Finance contravened a number of provisions of the National Credit Act (the Act). On 13 August 2007, the NCR issued a Compliance Notice to Rudco Finance. The full Compliance Notice can be viewed on: http://www.ncr.org.za/press_release/Rudco.pdf

[Graeme]

Game, set and match to the NCR!

[Dave A]

This could be the NCA's first coup.

From the compliance order:

Up to the date of this media release, the NCR had not received any response from Rudco Finance. We wish to draw the attention of consumers and agents to the fact that section 89(2)(e) of the National Credit Act determines that if Rudco Finance continue entering into credit agreements which do not adhere to the requirements of the Compliance Notice, such agreements will be unlawful.

Now I have done some work on the consequences of unlawful credit agreements in our wiki, and if I've got it right - what Rudco might lose, the state shall gain.