• South Africa has 16.9 million welfare grant beneficiaries
  • State welfare agency filed complaint against Net 1, Grindrod

Grindrod Bank Ltd., which operates bank accounts into which South African welfare grants are paid, accused the South African Social Security Agency, or Sassa, of acting unlawfully when it ordered the lender to halt deductions for services and goods from the accounts.

In the last financial year, the South African government paid about 129 billion rand ($8.75 billion) to 16.9 million welfare beneficiaries. Grindrod, based in Durban, was contracted by Net 1 UEPS Technologies Inc., which holds the contract to transfer the grants into accounts, in 2012 to provide the banking services for the recipients of payments from Sassa. The government amended regulations in May, banning deductions after a dispute about whether insurance companies were making deductions from grants for funeral insurance for children.

“Grindrod is concerned by that merely to ‘turn off the tap’ of these debit orders repayments -- as Sassa requires -- will wreak havoc in the credit market,” Christopher Newland, head of retail for Grindrod Bank, said in court papers filed on Monday with the High Court in Pretoria.

The case pits South African financial services companies against the government, which says it’s trying to protect some of nation’s poorest- and least-educated people from being taken advantage of as they often allow deductions without fully understanding what they are agreeing to. Grindrod argues that once the money is in the account it can’t stop people from doing as they please with it.

Criminal Complaint

Grindrod’s application is in support of a case filed by Net 1 to ask the court to rule on whether a ban on direct deductions applies to all services or just life insurance. Information Technology Consultants Ltd., a collection and payments company, and Finbond Group Ltd., which offers short-term loans and is part-owned by Net 1, have also filed documents with the court supporting Net 1.

Two million of the beneficiaries use their grant money to pay for credit, insurance, goods and services every month, Grindrod’s Newland said in the court papers. If these payments weren’t allowed to take place, deductions of about 550 million rand wouldn’t be processed, he said.

“Once a grant is deposited into a beneficiary’s Grindrod savings account, the account owner becomes the lawful owner,” Information Technology said in its documents. “The beneficial-account holder becomes entitled to deal with those funds as and how he/she deems fit.”

Sassa has filed a criminal charges against Net 1 and Grindrod Bank, saying they have not complied with the amended regulations.

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