Is Edcon’s monthly service fee there to subsidise others’ bad debt

Edcon is proposing to charge a monthly service fee of R22.80 (plus VAT) a month on every account. They allege they are doing this because of problems with unsecured lending in the current economic climate, ie bad debt.

I am outraged, personally, because Edcon wants to force me to subsidise the bad debt of other Edcon customers. I have an impeccable credit record and keep a low balance. Why should I be penalised because other customers go delinquent? I consider that to be an unfair business practice.

But there are reasons why every Edcon customer should be outraged.

First, the proposed service fee is a flat rate. Poll taxes and flat-rate levies, by their nature, are deeply unfair. Rich people don’t feel them but they impose a huge burden on poor people. Here we see Edcon contributing to further economic inequality in South Africa.

Second, the service fee is extortionate. If a customer had a balance of R100, say, and paid a service fee of R22.80, that would be the equivalent of an interest rate of 22.8 percent, if it were interest. That would be criminal usury.

According to the letter of the law, it is legal to charge a service fee of up to R60 (plus VAT). But take the case of a domestic servant who loses her job while owing a balance of R100 on her Edgars account. She is charged R22.80 (plus VAT) every month for six months. Then her repayments become overdue and Edcon starts to charge her interest on her balance, which by this stage is over R236.80. She is in a pit of debt she has no hope of recovering from. When jobs are as insecure as they are in South Africa, it is irresponsible for Edcon to charge such a huge service fee.

Third, store accounts are one of the few ways that young consumers can build up a credit record from scratch. The service fee of R22.80 makes a small credit limit unaffordable for people starting out in their careers.

Once again, the poor are hit worst, because they will be further economically excluded due to not having a credit record.

Fourth, it is my opinion that Edcon is being disingenuous when they say the service fee is to cover bad debt. I suspect the monthly revenue from service fees on thousands of accounts will be far more than the amount of bad debt that Edcon writes off monthly. My suspicion is that the excess revenue will go into an investment account which will earn Edcon even more revenue. If people can afford a service fee of R22.80 a month, it should be going into their own savings accounts, not Edcon’s.

Fifth, the spirit of the National Credit Act is to protect consumers from unaffordable debt on an individual basis. Institutions are obliged to evaluate potential borrowers’ circumstances on a case-bycase basis.

The flat-rate service fee, though it is not interest, is a blanket solution to bad debt, regardless of the consumer’s financial situation. That is illegal. If an individual customer is a bad credit risk, their application for an account must be declined to protect their legal rights.

Given that bad debt is a growing business problem at the moment, there are other more reasonable business solutions than crudely slapping a monthly service fee on every account. The provision should be proportionate to the risk.

I call on Edcon to stop the implementation of this unjust service fee scheme immediately, and reconsider the business problem of bad debt in the wider social context, with due regard for fair business practice.

The National Credit Act allows for a maximum of R60 monthly admin/service fees on all credit agreements – which at R22.80, Edcon is well below. Businesses have to protect their interests and service fees cover the costs of making phone calls, pulling statements, and so forth. If you find yourself in a financial pickle and can’t pay these fees, rather close the account before it becomes an issue.