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Debt experts slam Lewis in washing machine row

Jan 22 2016 14:41
Fadia Salie

Cape Town - A consumer watchdog and an independent debt counsellor on Friday entered the row over a washing machine furniture retailer Lewis Stores sold on credit to a 60-year-old gardener from George.

With all the fees the washing machine bought over 36 months, tripled in value to R17 955.

The gardener's employer, businessman Onne Vegter, posted a scathing attack on Lewis on Facebook, with an image of the purchase agreement outlining all the costs.

He accused Lewis of reckless lending, even though the retailer did request three months' bank statements from his employee.

In a letter Vegter said he had sent to Lewis' customer service department, he wrote: "To your credit, the customer reports that he was asked to present bank statements, and he was told he qualifies for the purchase. It seems to me that his lack of ability to afford such a contract and lack of understanding of the full costs involved, makes it quite likely you would be found guilty of reckless lending. I see it more as deliberate exploitation."

Lewis Group CEO Johan Enslin on Thursday denied any allegations of reckless lending, saying that interest and all costs were charged in accordance with the National Credit Act and that all processes required by the act and its related regulations were followed.

But industry role players disagree.

Clark Gardener, CEO of Summit Financial Partners, said the incident reflects exactly how Lewis does business on all their credit agreements.

"It is for this reason that in their Annual Financial results ending March 2015 that they have R2.5bn worth of merchandise sales, but R5.7bn total  revenue. This is owing to R3.2bn being charged on financial and ancillary fees."

Lewis was in the news last year after Clark's company, in a mystery shopping exercise, exposed the company for charging customers buying on credit for, among other things, credit life insurance, delivery fees (also called handling fees) and loss of employment insurance.

READ: Consumer watchdog takes Lewis on over charges

In October, Enslin told Fin24 that a refund of R67.1m to customers for the cost of loss of employment insurance had followed an extensive internal investigation by the company.

Lewis' own probe followed after the National Credit Regulator brought to the company’s attention that loss of employment insurance had been sold to customers when this should not have been the case.

"We have raised concerns about the legitimacy of these excessive fees to regulators and law makers for many years, but to my amazement there has been little done," said Clark.

"A good example of this is the amendments to the act on credit life insurance caps, which has been sitting on some politician's desk for months while our population continues to get ripped off.

"We have NCR pending complaints and imminent legal proceedings against the compulsory nature of delivery and extended warranty fees against Lewis. Not only is the compulsory nature or the trapping of consumers into paying likely to be refunded, but it also is an offence.

"In this case I would not even challenge the fees. I would instead challenge reckless lending under S81(2)(a)(i) in the National Credit Act that states an agreement is reckless if a credit provider enters into an agreement without first taking reasonable steps to assess the proposed customer's general understanding of the risks and costs of the proposed credit agreement.

"It hardly seems like reasonable steps were taken when it may be that the agreement is in Afrikaans and the customer seemed to not understand the full amount payable. Further, it would seem that service fees are described as some sort of protection fee. The recourse could be that the debt is set aside in its entirety."

Renee Marais, an independent debt counsellor from Pretoria, said in an emailed letter to Fin24 that, as "a debt counsellor for a number of years", she had read the article "with the response from Lewis with shock".

"Lewis claims it adhered to the regulations and sections in the act regarding the consumer's application for the financing of the washing machine. I beg to differ - they were selective to which part they were compliant with. The creditor is firstly required to do an assessment and the format is in the newly-published regulations, but that is not where the buck stops regarding responsible lending practices," Marais said.

"The act goes further to say that the creditor must ensure that the consumer can afford the debt. If the consumer cannot afford the debt or this credit agreement causes the consumer to become overindebted, it is also reckless.

"The creditor is also obliged to ensure that the consumer understands and appreciates the 'risks, costs or obligations under the proposes credit agreement'. Credit providers may not enter into reckless credit agreements."

Marais pointed out that the value of the washing machine was not the value of the debt. If the consumer failed to make a monthly payment and the creditor took legal action, the consumer would be liable for the total outstanding balance and legal costs which would be far more than the R18 000 on the contract.  

"I don't know what the consumer's income is, but a monthly payment for goods of R498.75 for low income earners is very high."

She said value added products (VAPS) (credit life insurance, etc) are optional and the consumer should have had the opportunity to obtain his own.   

Enslin said on Thursday that, in accordance with the act, Lewis required that goods purchased be insured against damage or destruction by accident, fire or theft and that the customer take out credit life cover while there was money outstanding to Lewis.

"The customer is not forced to take insurance cover offered by Lewis and can provide a policy of his own. In this case, the customer elected to take up the insurance cover offered by Lewis."

Marais also questioned whether the salesperson discussing the VAPS with the customer was a duly registered agent with the Financial Services Board.

"A layman is not allowed to give financial advice to any consumer if not properly trained and licensed."

Marais said the amendments in the act require all staff of creditors to be trained in the sections and regulations of the act.

She added: "Insurance on a single item that is only designed to cover the debt is also in my opinion irresponsible. The consumer is probably able to obtain comprehensive insurance at a much lower cost elsewhere that will cover a great deal more than just the cover of the washing machine."

Marais said looking at the consumer's bank statements was also not enough. "Did Lewis also ask for proof of income, obtain an ITC report to ensure that there is a reasonable basis to conclude that any future payments can be met by the consumer?"

She suggested the matter be escalated to the National Credit Regulator for further investigation.

On Vegter's advice, the customer and a family member went back to the store on Tuesday to have the contract cancelled because it was just too expensive for him.

Enslin confirmed that the customer had asked to cancel the contract and said that Lewis was willing to accede to this request, even though it fell outside the five working day cooling-off period in which customers may cancel their contracts.

"Lewis will collect the washing machine from the customer’s home and refund the deposit paid," said Enslin.

Follow Fin24 on Twitter, Facebook, Google+ and Pinterest. 24.com encourages commentary submitted via MyNews24. Contributions of 200 words or more will be considered for publication.

retail  |  credit

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