The pitfalls of loans – Consumer rights

THE guilty verdict against Lewis Stores for infringing the National Credit Act by the National Credit Regulator (NCR) was just the tip of the iceberg and many more listed and privately-held entities extending loans were guilty of these practices.

Neil Roets, CEO of one of the lar­gest credit management corporates in South Africa, said the malpractices that Lewis Stores were found guilty of were widespread in the credit industry and that tens of thousands of consumers had been victimised by these illegal practices.
The NCR found Lewis Stores guilty of infringing the National Credit Act (NCA), relating to credit insurance and disability cover sold to pensioners and self-employed consumers.

“The NCR considers this a great victory and will be returning to the NCT (National Consumer Tribunal) to argue the imposition of a fine on Lewis Stores,” said Jacqueline Peters, NCR manager for investigations and enforcement.

In July, 2015, Lewis and Monarch Insurance Company were referred to the NCT for alleged breaches of the NCA, following an investigation by the NCR.

The investigation found that loss of employment cover as part of credit insurance was sold to pensioners and self-employed consumers and disability cover as part of credit insurance was sold to pensioners.

The same applied to the sale of occupational disability cover to pen­sioners where they no longer had an occupation.

The NCR, in a judgment handed down on Wednesday, agreed with the NCA’s submissions and found that Lewis had acted unreasonably by offer­ing or demanding pensioners or unem­ployed consumers to take out loss of employment insurance and had acted unreasonably by offering or demand­ing pensioners to take out disability insurance.

The NCR said that an independent audit would be conducted on all credit agreements entered into by Lewis since 2007 so that all affected consumers could be identified and be reimbursed the premiums paid for the insurance.

In October last year, Lewis Group announced it was refunding R44.1m to a group of its customers for the cost of loss of employment insurance mistakenly sold to them, together with R23m in interest accrued on this amount.

Group CEO Johan Enslin at the time blamed the malpractice of collecting illegal insurance payments on “human error at our stores”.

Roets said it was clear that the NCR had adopted an aggressive stance towards the widespread illegal prac­tices that were going on in the credit industry,

“We see the wreckage of these prac­tices when down-and-out consumers – many on the verge of bankruptcy – come to us to seek help by being placed under debt review, which remains the best way to retain assets and get out from under crushing debt loads.”

He said a major problem that nobody had addressed was the widespread financial illiteracy that was present in society,

“When we interview prospective cli­ents prior to having them placed under debt review by a magistrate, it becomes clearly evident that many consumers – perhaps even the majority – did not fully understand the documents they signed.

“Government should be playing a much larger role in promoting finan­cial literacy so that consumers better understand their rights and obligations before they enter into loan agreements or other financial transactions.” Roets said.

“We should perhaps even look at introducing special courses at school level to inculcate an awareness of the dangers and pitfalls of borrowing money at extortionately high interest rates and signing away their rights because they did not understand the fine print on credit agreements they are required to sign,” Roets said.

Gerry Pieterse Mediaservices

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