The Finsac Commission

The JRF’s review showed those accounts which attracted high interest rates were set up with drawing limits such as J$400,000 or sometimes as high as J$10 million, but would have outstanding balances exceeding J$20 million or more, and “when you add the interest, compounding can cause the accounts to more than double again.”

Rudd said the review also showed that banks, in an effort to address the increasing overdraft interest, often converted those accounts to demand loans or commercial paper where the interest rates were in the region of 25 per cent to 40 per cent.

However, borrowers only benefitted if the monthly interest accrual on the converted demand loans or commercial paper was paid. However, conversion was not applied in the majority of cases “so once again the interest accrual would soon overtake the ability for the security to properly cover the debt,” he said.

In conducting the review, JRF also found accounts where debtors obtained loans at initial interest rates of 45 per cent and higher – usually related to the construction industry – and because of their lack of experience they underestimated their costs or over-estimated their revenue.

“In most of the cases, though they agreed to make monthly interest payments, the borrowers often make no payments to the accounts at all until they begin to sell the properties, and by that time the interest accrual was such that it was unlikely the sales would be able to retire the debt. So again the banks were left with loans that were not properly secured,” said Rudd.

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