Car dealer runs foul of the FAIS Act
A couple of years ago credit life policies made the headlines after unscrupulous practices at certain furniture retailers were uncovered. At the time the FAIS Ombudsman chastised the industry for certain practices, prompting an in-depth investigation. Clearly there are still some practices that are cause for concern. In a recent FAIS Ombudsman determination a motor vehicle dealership was ordered to settle the outstanding balance on a Wesbank hire purchase agreement after “foisting” a credit life policy onto the buyer. The FAIS Ombudsman, Mr Charles Pillai, ordered the motor dealership “to compensate the widow of Cape Town restaurateur, Ivan Leighton, by paying the outstanding balance owing! The complaint was lodged with the FAIS Ombudsman by the executor of Ivan Leighton’s estate, Michael Le Roux, on behalf of the deceased’s wife, Brenda Leighton (the complainant).
The basis for the complaint
On 20 October 2004, Mr Leighton purchased a new Volkswagen Chico from the first respondent, Barons Bellville (a wholly owned subsidiary of Barloworld South Africa). The vehicle was financed through Wesbank to the amount of R79 492 and delivered to Mr Leighton’s restaurant premises on the same day. Baron’s was represented by its authorised representative, Denise Redelinghuys (the second respondent). The FAIS Ombudsman notes that the vehicle ‘delivery’ was the first time Mr Leighton met Redelinghuys.
During the delivery meeting, also attended by Mrs Leighton and her son, Redelinghuys told Mr Leighton that Wesbank required a cession to meet any outstanding debt in the event of his death. Mr Leighton “informed Redelinghuys that he had two long-standing policies with an estimated value of R200 000, more than enough to cover the outstanding debt.” At this point the complainant alleges that Redelinghuys informed Mr Leighton of an Optimum Personal Debt Protection policy, underwritten by Guardrisk Insurance Company and administered through International Cover Administrators (ICA), which would pay out the sum assured in the even of his death. Although the extent of the cover was subsequently questioned it’s clear from the facts that the policy only paid the balance outstanding on the finance agreement rather than the full value of the vehicle.
This policy was presented to Mr Leighton – pre-typed on the Barons Quotemaster system – duly signed – and ceded to Wesbank as security. The complainant says that no copies of this policy documentation were left on the premises and that no further communication relating to the policy was received from Redelinghuys. This claim was countered by the respondent who did not produce any of the documentation with their arguments. Mrs Leighton maintains she only received the policy wording (by Internet) when she contacted ICA upon lodging a claim with them after her husband passed away on 30 November 2007.
Rejected on medical non-compliance
A claim was lodged with ICA on 14 December 2007. Soon after Mrs Leighton realised that the payout would only cover the outstanding debt with Wesbank and not the full sum of the vehicle. On discovering this she requested a copy of the policy wording which revealed her husband would not have qualified for cover in terms of the policy in the first place. Herewith the policy wording and some brief comment:
Clause 2 – I have not received any treatment from any doctor during the past 12 months nor been hospitalised or undergone hospital treatment and, save for routine checkups, have had no specialist investigation during the past 5 years and have never suffered from any form of disability or heart disease, stroke, cancer or kidney disease.” Mr Leighton had previously been diagnosed with thyroid cancer in July 1997.
Clause 4 – I am aware that a redundancy/retrenchment claim will not be paid during temporary or part-time employment and that self employment is excluded from cover under the policy. At the time the vehicle was purchased, Mr Leighton was self-employed.
It came as no surprise when the claim was rejected on 11 January 2008. The rejection of the claim was not in question in this case; but rather the appropriateness of the product ‘sold’ to Mr Leighton when he purchased and financed the vehicle.
Car dealer ordered to pay compensation
The first error – a familiar occurrence in cases that reach the FAIS Ombudsman – was the absence of a record of advice. Financial services advisers must make reasonable attempts to obtain sufficient personal information before recommending a financial product. In this case the respondent was unable to furnish “any other document to show it had complied with the FAIS Act and the Code whilst rendering the financial service.”
It seems the respondent proceeded on the basis: “The vehicle was purchased on credit, hence the recommendation for debt protection cover. “Had Ms Redelinghuys applied her mind, it would have been clear that the income that Mr Leighton relied on for the application for credit comes from self-employment,” said Pillai. He dismissed the respondent’s claim that Mr Leighton had failed to disclose this fact on two grounds. First that the credit application approval process would have revealed his employment status, and second that the meeting to finalise the paperwork took place at Mr Leighton’s restaurant.
“What occurred here is that Ms Redelinghuys failed to apply her mind to the situation and, therefore, failed to advise her client appropriately,” said Pillai. He added that “the insistence by the respondent that it acted in the interests of the client throughout the transaction, and its belief that it complied with the provisions of the FAIS Act and the Code is not borne out by the facts.” The damage to the estate was determined as the outstanding amount of the indebtedness to Wesbank. The Ombudsman thus ordered the respondent to pay to the estate the amount of R27 266 with interest.
Editor’s thoughts: Years have passed since the implementation of the FAIS Act yet numerous problems remain with the sale of credit life policies linked to hire purchase and other credit instalment agreements. Too many institutions are pushing these products as a ‘must have’ add on to the sale agreement regardless of the appropriateness thereof. Is enough being done to police non-broker insurance distribution channels? Add your comments below, or send them to [email protected]
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