Companies go where tribunal fears to tread
IT looks as though oversight of the unsecured lending market is being privatised by default, as concerned private sector parties step in to fill the yawning gap left by bodies such as the National Credit Regulator and the National Credit Tribunal.
Last week, the Constitutional Court heard a case brought to the High Court in Cape Town a year ago by Stellenbosch University’s Legal Aid Clinic and businesswoman Wendy Appelbaum in a bid to protect vulnerable low-income consumers from unscrupulous lenders. It was evident from the case that existing laws, in particular the Magistrates’ Court Act, should have been amended years earlier to prevent abuse of emolument attachment orders.
More recently, Summit Financial Partners, frustrated by the seeming inability of the NCR to act on the thousands of complaints it has lodged, announced it was taking legal action against Lewis on behalf of a group of its clients.
Summit’s case against Lewis relates to claims that it massively overcharged its customers by adding in unnecessary delivery fees and excessive maintenance fees. In some instances, maintenance fees were charged on products that came with warranties. The long-term effect of the additional charges is an increase in the principal debt the consumer has to repay, and therefore the monthly interest charged.
Summit CEO Clark Gardner said he believed the fees were in direct breach of the provisions of the National Credit Act.
“The fees result in the kind of excessive overall cost of credit that the National Credit Act is designed to prevent — a R6 000 washing machine tripling in price to R18 000 on credit; a R6 000 TV escalating to R16 000 and a R6 000 laptop to R15 000,” he said.
He estimated Lewis earned about R1.5-billion on additional fees during its financial 2015 year and said this was the amount that would have to be refunded if Summit declares a class action after winning its court case. Gardner said the Lewis business model would be unsustainable if it was not allowed to charge the ancillary fees.
Last year, Lewis was ordered to refund R44-million of fees that had been wrongfully charged (it sold loss of employment insurance to pensioners and self-employed customers and also sold disability cover to pensioners) following intervention by the NCR.
The NCR’s action had been prompted by complaints lodged with it by Summit following a series of mystery-shopping expeditions it carried out.
In July last year, the NCR announced that it had referred Lewis to the National Consumer Tribunal and wanted the Tribunal to audit Lewis’s conduct and to impose an administrative fine on Lewis. The tribunal has set down a pre-hearing date for April 12.
The NCR would not comment on any of these issues.
Lewis CEO Johan Enslin said the retailer would defend the court action but declined to provide details on the matter on the grounds that it was now “sub judice”. Lewis is arguing that Summit does not have power of attorney in the matter.
At a presentation to the par-
LOADED UP: Lewis burdened clients with huge secondary charges FILING SUIT: Summit Financial Partners CEO Clark Gardner liamentary portfolio committee on trade and industry last October, Nomsa Motshegare, CEO of the NCR, said during the financial year 2014-15 the regulator had referred 48 cases to the tribunal, of which 17 had been “finalised” and R3-million in fines paid. There is no indication of how many of the finalised cases were successful.
NCR investigation also led to R176-million being refunded to a total of around 200 000 consumers and to 25 compliance DEFENDING ACTION: Lewis CEO Johan Enslin notices being issued.
Gardner said the NCR’s objectives were totally inadequate given the massive extent of South Africa’s unsecured lending problems and in light of the substantial budget the NCR has at its disposal. In 2014-15 the NCR spent R117-million, most of which went on staff and administrative expenses.
Backing his charge of inadequacy, Gardner pointed out that the NCR’s own data reveals South Africa has at least four million over-indebted consumers and that as many as 11 million consumers have missed three or more repayments.
Summit alone has lodged 4 000 complaints with the NCR and has initiated 100 magistrate’s court cases and three high court cases.
“They aim for four raids, we need 1 000 raids if we want to enforce the law and protect consumers,” said Gardner, who reckoned Summit could have done the compliance notices and raids for about 10% of the money spent by the NCR.
Part of the reason for the NCR’s poor performance is that the targeted companies have figured out loopholes in the law and processes that enable them to delay any action by what is seen as a relatively new and timid regulator. These difficulties are compounded at the tribunal, which is also slowed down by challenges from companies desperate to avoid negative rulings.
And so, private sector parties have stepped into the gap and will be increasingly relied upon to protect vulnerable consumers.