Tribunal gives Lewis club fees green light
• Customers not forced to be members when applying for credit • Regulator to launch appeal
The Consumer Tribunal has dismissed the National Credit Regulator’s (NCR’s) complaint against Lewis Stores relating to the retailer’s club fees and extended warranties.
The judgment has been met with dismay by a consumer group and the NCR is planning to launch an appeal.
The regulator had argued that the club fee was an additional “cost of credit” to consumers, which was prohibited under the National Credit Act, and extended warranties either did not exist or ran concurrently with manufacturers’ warranties.
In a majority judgment on Monday, Tanya Woker, with Penelope Beck concurring, the tribunal ruled that Lewis customers did not have to join the club when applying for credit. The application form relating to club membership was also separate.
“We are appealing against the judgment,” said NCR company secretary Lesiba Mashapa. “It is a split judgment. The Lewis club fee is reflected in statements of account to its credit customers.
“The NCR does not support the conduct of credit retailers of charging consumers a club fee under credit agreements or under any supplementary agreements or documents. The value of the club benefits to consumers is questionable as noted by the majority judgment.”
Lewis welcomed the judgment. CEO Johan Enslin said it had launched a specialist compliance call centre in 2016 to increase oversight of its in-store sales and credit application processes, helping to limit potential misunderstandings. He said 60 consultants were employed at the call centre and spoke to customers in eight languages.
“The call centre agent is not incentivised to sell any products or services. They are there to ensure that the customer fully understands all critical elements of the credit deal and the optional services we supply.”
In the tribunal’s majority judgment, Woker said: “Consumers receive a statement, which indicates a separate account for their club fees, which has its own account number. No fees or interest are
charged on this account, hence this agreement cannot be regarded as a credit agreement and as this is a fee which is charged for a separate service … it cannot be regarded as a cost of credit.”
Woker said the act did not seek to regulate goods and services a credit provider offered, only fees and charges that could be levied when a consumer chose to pay for goods in terms of a credit agreement including a credit facility.
Joseph Maseko, another tribunal member, disagreed with the judgment.
The tribunal ruled against Edcon in a case relating to its club fees in May. There, the tribunal found the fee and club membership were “part and parcel” of the process of applying for a store card.
The tribunal is still to determine how much Edcon should repay customers.
The NCR had also complained about Lewis’ extended warranties that the retailer admitted to in some instances, blaming these on “mistakes” or omissions from contracts. Lewis said it had later explained the “correct position” to customers.
Woker said Lewis had now added a statement to accounts indicating when their warranties expired. “This is clearly a positive move and appears to have come about as a result of the [NCR’s] investigation,” She said that while the act allowed the inclusion of extended warranties as part of a credit provider’s fees and charges, it did not specify the terms and conditions of these warranties.
“We are appealing against this point also,” said Mashapa. “The way the duration dates are recorded in the extended warranty agreements exposes consumers to the rejection of their claims when the credit agreements expire since the dates in the warranty agreements are the same as the expiry dates of the credit agreements.”
Clark Gardner, CEO of financial wellbeing group Summit Financial Partners, which sparked the investigation, said the NCR’s case missed Summit’s key grievances.
“Our case would have been based on the two transgressions identified, being the compulsory nature of the extended warranty policies being sold by Lewis and the inappropriate selling of such extended warranty policies as the product warranty seemed to duplicate much of this cover.”