Cape Town – The tough ruling against Lewis Stores is a clear warning that illegal practices in the credit industry will not be tolerated, according to Debt Rescue CEO Neil Roets.
The National Credit Regulator (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.
Shares in Lewis Group [JSE:LEW], the subsidiary Lewis Stores, was trading down -0.87% at R43.52 on Tuesday afternoon. The ruling last week sent the share price tumbling by as much as 3%, making it the biggest loser among its peers.
Lewis and Monarch Insurance Company were referred to the National Consumer Tribunal (NCT) in July 2015 for alleged breaches of the NCA, following an investigation by the NCR.
The NCT, in its first substantial ruling against a listed company, ordered Lewis Stores to refund clients for premiums on certain credit agreements it entered into since 2007.
In the judgment handed down last week, the NCT agreed with the NCRs’ 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.
Lewis was also ordered to have an independent audit conducted on all credit agreements entered into by the retail store since 2007 so that all affected consumers could be identified and be reimbursed the premiums paid for the insurance.
“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 NCR manager for investigations and enforcement Jacqueline Peters.
Roets said it was clear the NCR had adopted an aggressive stance towards the widespread illegal practices that were going on in the credit industry.
Tens of thousands of consumers, claimed Roets, had fallen victim to illegal practices such as those that Lewis Stores were found guilty.
“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”.
Roets, who manages one of the largest credit management corporates in South Africa, believes that debt review is the best way to allow consumers 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,” suggested Roets.
“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,” he added.