New laws limit rate of insurance charged on credit purchases
THE days of retailers charging consumers arbitrary, and in many cases excessively hefty, life insurance premiums for credit purchases are over.
Effective from August 9, amendments to the National Credit Act (NCA) mean credit providers can now offer credit life insurance policies to consumers at a rate of R4.50 for every R1 000 of credit secured and only under special circumstances can they charge consumers R5.50 per R1 000.
The changes in the act have reined in interest charges and limited the insurance rates that companies can impose on their customers.
According to an industry expert, some companies have been charging as much as R57 per R1 000 credit.
Two recent examples involving unwarranted insurance-related costs include one in which the National Credit Regulator late last year called on the National Consumer Tribunal to fine the JD Group for mis-selling.
Also last year, the Lewis Group refunded a total of R67.1-million to pensioners and self-employed customers for “mistakenly” selling them unemployment insurance
Until the new regulations, the NCA has regulated the industry but not the costs, cover and benefits.
Specialist credit life insurance company Switch2 chief executive Sasha Knott said that credit life insurance providers, along with any retailers which shared any profits from the sale of high credit life insurance to consumers, would certainly see a drop in revenue going forward.
“For example, the new regulations ban the provision of occupational disability cover to pensioners and provide for cover other than retrenchment for self-employed individuals,” Knott said.
“Importantly, the amendments only apply to new loans granted after August 9. This means that consumers, for example, with credit cards with a credit life insurance product attached may stay locked into that agreement for years, unless they change it.
“So there will be many cases where consumers will continue to pay the same premium.”
Citing other concerns which had led to the amendments, Knott said there were instances where credit life insurance had been offered to consumers that was unsuitable and inappropriate for their needs.
“An example was in 2015, when Shoprite’s sale of retrenchment and occupational disability cover to pensioners and social grant recipients was found by the NCA to be unreasonable.”
Knott said that in 2012 the consumer credit insurance market turned over an estimated R16-billion, with 90% accruing to the top 15 players.
A survey among retailers yesterday showed that much of the information and requirements around the amendments – which include that retailers disclose and explain all obligations and costs to consumers – has not yet filtered down to all shop floors.
Pepkor’s Sleep Master, formerly owned by JD Group, said new booklets concerning credit insurance had been distributed among branches.
“I don’t know anything about the amendments, but I am confident they will be implemented through the new sales of products and the credit agreements,” Sleep Master’s Uitenhage store manageress Michelle Christoffels said. “I think we currently charge around R8.50 per R1 000 credit.”
Bears furniture store in Uitenhage’s second-in-charge, Abigail Ruiters, was, however, fully aware of the amendments and said the store’s insurance charges had been reduced from 24% to 23.75% on August 9.
The amendments only apply to new loans granted after August 9