Business Day

Tri­bunal wants au­dit of all Lewis credit deals

- ANN CROTTY Writer at Large Business · White-collar Crime · Crime · Summit · Sinclair Lewis · Hilton Saven

IN ITS first sub­stan­tial rul­ing against a listed com­pany, the Na­tional Con­sumer Tri­bunal has or­dered Lewis Stores to over­see an in­de­pen­dent au­dit of all the credit agree­ments it has en­tered into since 2007.

In­dus­try sources say the num­ber of agree­ments could top a stag­ger­ing 1-mil­lion. On Wed­nes­day, the tri­bunal ruled that Lewis had con­tra­vened the Na­tional Credit Act.

By the close of trade on Wed­nes­day, the Lewis share price had not re­acted to the news, but the rul­ing’s wide-rang­ing im­pli­ca­tions are ex­pected to have a damp­ing ef­fect on the price in com­ing weeks.

Lewis Group man­age­ment said on Wed­nes­day evening that it was con­sid­er­ing the find­ings and would re­spond for­mally on Thurs­day.

The un­ex­pect­edly tough rul­ing from the tri­bunal will not only dam­age Lewis’s rep­u­ta­tion but is likely to tie it up in a po­ten­tially un­lim­ited in­de­pen­dent au­dit of the group’s en­tire base of credit cus­tomers.

The Na­tional Credit Reg­u­la­tor (NCR) con­sid­ered this “a great vic­tory”, said me­dia re­la­tions of­fi­cer Le­bo­gang Selibi. The NCR would re­turn to the tri­bunal to ar­gue the im­po­si­tion of a fine on Lewis Stores, she said.

The NCR has al­ready asked for a R10m fine to be im­posed, although the reg­u­la­tions al­low for a fine of up to 10% of the com­pany’s turnover.

The tri­bunal’s rul­ing deals with the first of three re­fer­rals re­lat­ing to Lewis made by the NCR in the past 15 months. That re­fer­ral re­lated to al­le­ga­tions that Lewis sold re­trench­ment cover to pen­sion­ers and self­em­ployed con­sumers. It in­cluded al­le­ga­tions that the re­tailer sold dis­abil­ity cover as part of credit in­surance to pen­sion­ers.

Fol­low­ing its own in­ves­ti­ga­tion into the al­le­ga­tions re­lat­ing to re­trench­ment in­surance, Lewis

un­der­took to re­pay R67m to its af­fected cus­tomers. How­ever, it has not in­ves­ti­gated the mis­selling of dis­abil­ity in­surance.

Sub­se­quent re­fer­rals by the NCR to the tri­bunal re­lated to war­ranty charges and club mem­ber­ship fees charged by Lewis. Lewis said these al­le­ga­tions were with­out merit.

Although the tri­bunal’s judg­ment re­lates to the mis­selling of in­surance, the scope of the in­de­pen­dent au­dit that it has or­dered ap­pears to be un­re­stricted. Ac­cord­ing to a me­dia state­ment re­leased by the NCR on Wed­nes­day, the tri­bunal “or­dered that an in­de­pen­dent au­dit be con­ducted on all credit agree­ments en­tered into by Lewis Stores since 2007”.

For Lewis, the po­ten­tial threat of an in­de­pen­dent au­dit is that it might re­veal the ex­is­tence of other con­tra­ven­tions of the Na­tional Credit Act in­clud­ing the is­sues dealt with in the NCR’s two later re­fer­rals.

For Lewis’s di­rec­tors, the judg­ment comes at a time when they are al­ready bat­tling to pro­tect their rep­u­ta­tion in the high court. David Wool­lam, an ex­ec­u­tive di­rec­tor of Sum­mit Fi­nan­cial Part­ners, launched a prece­dent-set­ting sec­tion 165 de­riv­a­tive ac­tion against four di­rec­tors in Au­gust.

Wool­lam wants the com­pany to de­clare CEO Jo­han Enslin, chief fi­nan­cial of­fi­cer Les Davies, board chair­man David Nurek and chair­man of the au­dit and risk com­mit­tee Hil­ton Saven delin­quent.

Wool­lam has ar­gued that the di­rec­tors have in­dulged in ques­tion­able prac­tices that have prej­u­diced un­in­formed con­sumers.

On Wed­nes­day, Wool­lam said the tri­bunal’s rul­ing val­i­dated the con­cerns of Sum­mit Fi­nan­cial Part­ners. “We be­lieve this is only the tip of the ice­berg.”

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