Johannesburg — INSURANCE giant Old Mutual yesterday downplayed any suggestion an investigation by the credit regulator into the lending practices of SA Taxi Finance (SATF) represented a risk to its investment in that company.

Old Mutual confirmed it held debentures issued by SATF's lending vehicle, SA Taxi Securitisation, but declined to quantify its investment.

The regulator is investigating SATF for possible violations of the National Credit Act after it received several complaints alleging its credit agreements constituted reckless lending and contained hidden costs that contravened the law.

The act came into effect only in June last year and remains largely untested in court.

But legal experts warned if SATF's credit transactions were declared unlawful or reckless they could be suspended or set aside, which would oblige the company to return deposits and instalments to its customers.

This might have severe implications for investors in SATF's R1,7bn loan book, including Old Mutual. But Old Mutual said the regulator's interest had not set off any alarm bells.

"The credit quality of the assets is extremely good and remains so in spite of the economic downturn," said Old Mutual's alternative investments portfolio manager Christine Glover. "The key reason for this is that these loans are treated as business loans and the business is the key focus of the credit assessment."

A Business Day analysis of more than 10 transactions revealed several irregularities, including a variance between rates charged and those reflected on a customer's credit agreement exceeding the act's limit.

Some taxi owners were charged more than they were quoted for an SATF-brokered insurance policy, which increased the company's commission with no benefit to its customers. Others earned less a month than the cost of repayments.

SATF has denied any wrongdoing. "We are comfortable with the regulator and the processes they are following," its CEO Martin Bezuidenhout said.

He was unsure why the insurance charge on a contract he was shown was more than the amount quoted on the policy, and offered to reimburse the customer the difference. Business Day has other contracts reflecting similar discrepancies.

Old Mutual said it welcomed the investigation because it gave SATF the opportunity to clear its name. The insurer did not plan to conduct its own assessment of the business as this was done regularly by independent auditors. "We are confident the business as a whole should pass scrutiny," the insurer said.