Those cheap deals come at a hefty price

Finweek English Edition - - INSIDE - BY GLENDA WIL­LIAMS

Con­sumers are lured by a good deal. A deal where money can be saved or made, of­ten at their cost. As is the case for thou­sands who signed up for the R699 car deal with the Satin­sky Group.

Af­ford­abil­ity is the cen­tral is­sue sur­round­ing this scheme. And many, if not most of the con­sumers who now f ind them­selves f inan­cially dis­tressed as a re­sult of the col­lapse of the scheme, chose this deal be­cause of the rev­enue that ad­ver­tis­ing the scheme on their car would pro­vide to pad their dis­pos­able in­comes and put them in a po­si­tion to af­ford a new, usu­ally en­try-level car.

Iron­i­cally, these in­stal­ments are prob­a­bly higher than if they had pur­chased the same ve­hi­cle through tra­di­tional deal­ers. And now, with the ter­mi­na­tion of the Blue Lakes ad­ver­tis­ing deal they signed through the Satin­sky Group, the in­come gen­er­ated from this ar­range­ment has ef­fec­tively been cut off, leav­ing con­sumers un­able to meet their re­pay­ment com­mit­ments.

If it looks too good to be true, it gen­er­ally is. But if you learn that three ma­jor banks, Absa, Ned­bank’s MFC and Stan­dard Bank are un­der­writ­ing the deal, then this would surely dis­pel fears. Yet, as early as 2009 the Satin­sky Group was al­ready on the Na­tional Credit Reg­u­la­tor’s radar af­ter fail­ing to com­ply with var­i­ous pro­vi­sions of the Na­tional Credit Act.

The un­cer­tainty now that the scheme has im­ploded is whether the Con­sumer Pro­tec­tion Act (CPA) will cover those af­fected and whether they are af­forded pro­tec­tion un­der the Na­tional Credit Act.

“Our con­sumer rights are among the best in the world. The CPA is a wellintended piece of leg­is­la­tion de­signed to pro­tect the con­sumer and, given our de­mo­graph­ics, es­pe­cially the lower in­come, per­haps more vul­ner­a­ble con­sumers who have been ex­ploited in the past,” ex­plains Jeff Os­borne, CEO of Gumtree Au­to­mo­tive. Os­borne was head of the Re­tail Mo­tor In­dus­try As­so­ci­a­tion for 13 years and was in­stru­men­tal in com­pil­ing CPA in­for­ma­tion for car deal­ers and con­sumers.

But the CPA was de­signed to af­ford pro­tec­tion to con­sumers, not busi­ness

re­la­tion­ships. This key fact could be the po­ten­tial deal-breaker for those af­fected by the Satin­sky scheme. In­di­ca­tions are that these con­sumers for­feited their right un­der the act when they en­tered into an ar­range­ment to pro­vide an ad­ver­tis­ing ser­vice, in ef­fect mak­ing it a busi­ness deal. No longer viewed as con­sumers, it ap­pears they may not ben­e­fit from the act’s pro­tec­tion.

Os­borne un­der­stands this to mean that these con­sumers, al­though they fall out­side the am­bit af­forded by the CPA, do have re­course through the law. But their re­course would mean pur­su­ing the same costly route as any busi­ness would be re­quired to do in a civil ac­tion. He be­lieves this war­rants le­gal opin­ion be­cause the in­tent of the act, he says, has al­ways been very clear. It was de­signed to pro­tect the in­di­vid­ual pri­vate con­sumer. And in his opin­ion, these con­sumers haven’t for­feited that sta­tus sim­ply be­cause they agreed to advertise the dealer’s busi­ness on their car.

Af­fected con­sumers may have found an ally in Cosatu, which says that it will en­ter into ne­go­ti­a­tions with the banks to ex­tend pe­ri­ods of re­pay­ment so that the amounts re­main at the af­ford­able lev­els of R699. “From what I un­der­stand, the term is al­ready over six years, and fur­ther ex­tend­ing this would mean that the in­ter­est im­pli­ca­tions would be hor­rific,” says a con­cerned Os­borne.

Hint­ing at reck­less lend­ing by the banks, Cosatu also called on Govern­ment to take ac­tion against banks vi­o­lat­ing the Na­tional Credit Act and said they will be sup­port­ing the class ac­tion suit against the fi­nance in­sti­tu­tions and car re­tail com­pa­nies to en­sure that these kinds of prac­tices are not re­peated in fu­ture.

Os­borne says that in the event of de­fault where reck­less lend­ing has been es­tab­lished, the Na­tional Credit Act pre­vents f inanciers from re­pos­sess­ing and they are obliged to re­struc­ture the deal with the con­sumer. “I do not be­lieve the banks would want to be in a po­si­tion where they have to re­pos­sess cars on an un­prece­dented scale. Banks don’t want to re­pos­sess cars. I have heard them say that time and time again. And they al­ways ad­vo­cate that a con­sumer should ap­proach them if they f ind they can’t meet their pay­ments. Banks will ap­pre­ci­ate that,” says Os­borne.

“But I would equally like to be­lieve that the banks, given the role they have pos­si­bly played in inf lu­enc­ing the con­sumers’ de­ci­sion to go with this scheme, do have some kind of moral obli­ga­tion. You have a whole bunch of people, low­in­come earn­ers who are go­ing to be pro­foundly af­fected by this, dev­as­tat­ingly so. Far be it for me to spec­u­late on what the banks should or shouldn’t do, but I be­lieve there is an op­por­tu­nity to gen­er­ate some good­will here,” he adds.

Absa told Fin­week that it recog­nised that some of its clients may face fi­nan­cial dif­fi­cul­ties and en­cour­aged af­fected cus­tomers to con­tact the bank on 0860 789 111 to ar­range an ap­pro­pri­ate re­pay­ment plan. Absa says that its busi­ness re­la­tion­ship with Satin­sky was re­viewed in 2013, which co­in­cided with cus­tomer com­plaints re­ceived re­lat­ing to the Blue Lakes ad­ver­tis­ing scheme. The bank has since is­sued no­tice to Satin­sky to ter­mi­nate the re­la­tion­ship.

Absa also con­firmed that it has no other agree­ment with the Satin­sky Group of com­pa­nies apart from pro­vid­ing fi­nance to cus­tomers in line with the bank’s pro­cesses and credit cri­te­ria. “The ad­ver­tis­ing ser­vice agree­ments be­tween Satin­sky clients and Blue Lakes Trad­ing and Pro­mo­tions of Hong Kong are sep­a­rate agree­ments to which Absa is not a party and does not pro­mote in any man­ner. In ad­di­tion, Absa is un­aware of which clients did in fact con­clude such agree­ments with Blue Lakes or the num­ber of clients that may be af­fected,” says Absa’s spokesper­son.

The re­al­ity is that con­sumers coun­try­wide are feel­ing the pinch and are tar­gets for the un­scrupu­lous us­ing the cheap deal as a car­rot. But con­sumers, too, need to not only be mind­ful of the risks as­so­ci­ated with cheap deals, but also of their af­ford­abil­ity lim­i­ta­tions and en­sure that they ex­plore what other op­tions are avail­able to them be­fore sign­ing on the dot­ted line.

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