Pick n Pay has approved over R1 billion in credit to some 56,000 account holders since the launch of its store account in September last year.
The retailer worked with RCS to design the account to be “the most affordable form of credit” – a monthly account where no interest is charged if the balance is paid in full, Pick n Pay’s deputy CEO Richard van Rensburg said at the time of launch.
The account offers up to 55 days’ interest-free credit if the balance on their account is paid in full each month. It has flexible interest-bearing budget options and also enables a customer to place individual transactions for high ticket items on budget while still retaining the free interest benefit for the remaining transactions on the account.
Bad news for consumers
Neil Roets, CEO of debt counselling firm Debt Rescue, says the fact that consumers have notched up over R1 billion in food debt on Pick n Pay’s store card shows that South Africans are now so deep in debt that they have to resort to buying food on credit.
“At the time that Pick n Pay made the announcement to open store accounts for consumers we made the point that food was the one commodity that cash-strapped consumers should try and pay cash for. The fact that they had raked up over R1 billion in debt shows just how dire the situation has become. What for many was clearly a last resort, the Pick n Pay credit line was clearly a last-ditch effort to feed their families.
“The question now is what happens when they are unable to settle their debts with the supermarket chain at the end of the grace period? Is this going to result in large-scale hunger?”
Roets warned in September of last year that the decision by Pick n Pay to sell food on credit in their supermarkets was going to come back and haunt them because there was going to be a massive demand for this product and hugely debt-strapped consumers were going to default on these loans “on a scale not seen before”.
He pointed out that more than half of all South Africans were three months or more behind in their repayments having collectively notched up some R1,73 trillion in debt, according to the latest National Credit Regulator stats.
Difficult economic cycle
“Since the introduction of an additional 1% of VAT at the beginning of April and with fuel price increases of well over 40 cents a litre for petrol and diesel staring us in the face for May, we are in the midst of an exceptionally difficult economic cycle where the prices of everything skyrocketing and with salaries and wages in many cases remaining static.
“If consumers have reached the point of desperation that they have to buy food on credit that means that they are now at the end of their tether and in my view should not have qualified for yet more credit.”
Van Rensburg was quoted in September as saying that care had been taken with their credit offering to ensure that there were no hidden fees that exacerbated the cost of credit and they charged the lowest monthly fee of R10.
Roets was adamant saying that food was the one item that should not be bought on credit. “It is far better to buy assets such as a house or a car on credit. Food is something that you definitely should not buy on credit. If you have to finance food, then you are in big trouble.”
Failure to pay
The Pick n Pay credit product is run in conjunction with the group’s current Smart Shopper rewards card, and allows customers to purchase groceries on credit for between R1,000 and R40,000 – depending on how much each individual qualifies for.
Pick n Pay markets its credit agreement as not carrying any interest as long as users pay up in full by the end of the month. The actions taken when this fails to happen are set out in the terms and conditions. In the group’s terms and conditions for Pick n Pay credit, when a customer fails to pay their dues at the end of the month, a custom interest rate kicks in, which is charged daily, and compounded at the end of the month.
“Your interest rate will be shown to you on your initial sign-up, based on your own credit assessment – however it cannot be higher than the maximum allowed by the Credit Act. With the current repo rate this can be as high as 28% per year,” Roets said.
However, the terms and conditions also state: “If you are in arrears, additional interest will be charged on overdue amounts at the same rate as the interest rate applicable.”
Further, if your account goes into arrears, the credit provider can also do the following:
• You will be charged default administration costs and any other costs and fees relating to debt collection activities.
• Default information will be submitted to the credit bureaus, which may affect your ability to obtain further credit.
• The company may suspend your credit facility and give you 10 days’ notice before closing your account, in which event you must immediately pay your account in full.
• Your account may be handed over to debt collection agencies for the recovery of arrear amounts, the costs of which you will be responsible for and if it has to institute legal action against you in court, you will be liable for all costs incurred, including but not limited to legal costs, as well as collection charges, tracing fees and taxes.