Consumer Protection Act (CPA): Additional protection for beneficiary fund members
Given that the beneficiary fund industry is newly regulated - with amendments made to the Pension Funds Act in 2008 specifically to protect “widows and orphans” following the Fidentia scandal – is the CPA regulation overkill?
The CPA, like the Financial Advisory and Intermediary Services Act (FAIS), focuses on regulating the function rather than the institution. It must be read in conjunction with other laws that regulate the financial services industry, since there is considerable overlap with existing legislation such as FAIS. However, the legislation that offers the most protection to the consumer will take precedence.
Is it too much?
It may appear that the CPA is overkill, but the answer to the question “Is it too much?” has to be no. The CPA forms an integral part of the redressing of the inequalities of our past. The legislature aims to ensure compliance with the Constitution so that citizens are able to exercise their rights in an open and democratic society based on the principles of human dignity and equality.
Protecting the most vulnerable
The beneficiary fund industry serves one of society’s most vulnerable sectors: minor dependants, many of whom have lost both parents and are cared for by guardians.
Part of the purpose of the CPA is to reduce any disadvantages in access to any supply of goods or services by consumers who:
• are low income earners in low income communities,
• live in remote areas,
• are minors, seniors or other vulnerable consumers,
• have low literacy and numeracy levels,
• have limited fluency in the language of the service provider.
This consumer profile closely matches that of typical beneficiary fund members, most of whom live in rural areas. An informal survey by Fairheads last year into financial literacy among guardians in rural areas revealed that an average of 50% are unable to complete forms in their mother tongue and 90% do not know basic financial literacy concepts such as the difference between capital and interest.
Communication is crucial
This is why a member communication strategy and policy are so essential. PF130 already requires service providers to have such a strategy and the CPA will make sure that it happens. The CPA will further ensure that there is ongoing monitoring of client communication and, in the process, ensure that communication of product information and services takes place. In this way, beneficiary fund service providers have an important social role to fulfil in elevating levels of financial literacy in South Africa.
What should service providers be doing?
At a minimum, member communication must comply with plain language requirements, especially with regard to the average education level of the client base. The plain language requirement addresses the effectiveness of getting the message across clearly, efficiently and effectively, and in ways which are best suited to the client demographic. Communication media should be adapted to members’ convenience, such as SMS and radio. Strategies should be forward-looking, to incorporate growing future trends such as web-enabled mobile communications like Facebook and Twitter.
Consumer recourse
The CPA also focuses on fixed term contracts, strict liability requirements and complaints. All member communication should therefore contain the contact details of the CPA regulator which means that members now not only have recourse to the Pensions Funds Adjudicator but also to the Consumer Protectorate.
Stronger communication efforts will not go unnoticed by the industry and incentives such as Imbasa Yegolide awards and the IRF communication challenge go a long way to ensuring healthy competition.
