FAIS Ombud questions honesty of provider who charges additional commission without consent

The FAIS Ombud has ordered a financial services provider to repay a client R639, 80 which had been charged as double commission without the client’s consent.

Charles Pillai (pictured), the Ombud for Financial Services Providers, ruled against Roger Wilco Trading 117 CC, trading as Augusta Motors, a close corporation and a duly authorised financial services provider, carrying on business in Kuilsrivier, Western Cape. The financial service was rendered by a key individual of the business, Benjamin Petrus van der Merwe.

Zuluiga Paulse of Kuilsriver, Western Cape, complained that Van der Merwe had sold a Mechanical Breakdown Insurance Policy to her without her knowledge when she bought a motor vehicle on 25 January 2006.

The amount for the policy was R3355.20 and the captured amount on her contract was R3995. No disclosure was made in respect of fees or charges.

The policy document under the heading “Premium Details” reflected an amount of R3355.20 inclusive of VAT, and the WesBank hire purchase agreement stated “warranty R3, 995.”

She sold the motor vehicle six months later, and as she had never claimed on the policy was entitled to be refunded a portion of the policy charges.

The refund amount was calculated on the R3355.20 and not the R3 995 reflected in the WesBank document. Upon seeking an explanation from the Respondent as to why these figures differed, the Complainant was advised by Van der Merwe that the difference of R639.80 reflected his commission.

Complainant discovered that the “commission” of R639.80 was over and above the commission already incorporated within the policy purchase price of R3355.20.

Complainant’s attempts to recover this additional commission were unsuccessful and she referred the matter to the Office of the FAIS Ombud.

Van der Merwe said the commission charge was a standard practice within the motor industry. He did not respond further.

However, enquiries with the product administrator confirmed that; “the gross premium of R3355.20 is already inclusive of dealer’s commission”.

The FAIS Ombud said in his ruling that despite being afforded ample opportunity to respond to the allegations, the Respondent has failed to do so.

Pillai accepted that by not responding, the Respondent admitted the Complainant’s version.

The Ombud said on the documentation and other evidence before him, no such disclosure of the commission had been made.

“There does not even appear to be a method or means to ascertain the commission encompassed within the R3355.20 much less the fact that the larger figure reflected on the hire purchase agreement comprised an additional commission.

“First and foremost it is required of a provider that they ‘must at all times render financial services honestly, fairly, with due skill, care and diligence, and in the interests of clients’.

“The fact that the Respondent saw fit not to disclose the primary or the additional commission must raise questions as to the honesty and integrity of the Respondent.

“It goes without saying that no record of advice as required by the code is evident.”

Pillai said the Respondent’s failure to disclose deprived the Complainant of the ability to make an informed decision and this resulted in a loss.

“There is every indication that had complainant been placed in a position where she could have made an informed decision, she would not have taken the policy with the additional commission.”

This complaint was upheld and the Respondent was ordered to pay complainant the sum of R639.80.

Click here to read the full determination (PDF file)