FAIS Ombud lambastes credit retailer
On 29 January 2008 the FAIS Ombud issued a determination which sends a warning to the country’s unscrupulous furniture retailers. Although it is hard to imagine how the situation outlined in the 89 page ruling can still occur in South Africa’s highly regu
FAIS Ombud, Charles Pillai, summaries the complaint as follows: “In short the complaint relates to additional life policies, warranties, goods policies, administration, club membership and delivery charges commonly sold as an adjunct to the purchase of various consumer items.”
David versus Goliath
The FAIS Ombud has used this case as a platform to rap the entire credit retail industry on its knuckles. It is certainly no accident that, in the opening paragraphs, he paints a David and Goliath picture, pitting a domestic worker earning R300 per week against a JSE listed corporate giant which generated revenues of R12.9bn in 2007. The respondent in this case is a subsidiary of JD Group – JDG Trading (Pty) Ltd. In the determination Pillai notes that the respondent “trades throughout the length and breadth of South Africa, through 928 business units under different brand names known variously as Russels, Bradlows, Joshua Doore, Electric Express, Price ‘n Pride, Barnetts and Morkels.”
His determination serves more than to simply address and remedy the complaint brought to his office and quickly becomes a lesson in morality. “Our investigations have established that a substantial portion of the retail furniture industry’s business has now turned to the rendering of financial services, which appears to be far more lucrative than the mere retailing of furniture and appliances,” writes Pillai. He warns that furniture retailers are not exempt from the terms, conditions and Acts that regulate the rest of the financial services industry.
Furthermore, Pillai notes that because these retailers deal with the “most vulnerable of consumers who are not financially literate and easily exploited” they should exercise additional care. With the FSB already drawn in through the complaint, Pillai wastes no time in suggesting the National Credit Regulator “investigate whether furniture retailers generally and the JD Group in particular comply with the provisions of the said Act (National Credit Act).” He also forwarded a copy of the determination to the Competition Commission and the Life Offices’ Association. The latter is already investigating practices in the marketing and sales of credit life policies.
A litany of errors
In his summary the FAIS Ombud lists a number of shortcomings in Barnetts’ dealings with the claimant. The first was that the Terms and Conditions (a three page document) were not present when the claimant signed the Schedule to the Loan Agreement. Pillai notes that “on the Respondent’s own version, the agreement was incomplete at point of sale.” There were also serious shortcomings with a number of the documents the complainant signed. The ‘Extended Guarantee Contract’ was not properly completed with important fields left blank. This prompted the Ombud to comment: “The Extended Guarantee Contract is equally invalid and of no force and effect, the cost of which was disguised in the purchase price.” The last straw was an R348.60 delivery charge levied despite the fact the claimant had collected the goods from the store.
The respondent was negligent in concluding the sale of financial products without proper disclosure. From the facts of the case the Ombud found the claimant was not aware she was purchasing insurance – or that the option existed to supply proof of own insurance. In summary the respondent violated the FAIS Act, violated the FSOS Act and failed to comply with the General Code of Conduct for Financial Services Provider sand their Representatives.
The loan agreement was never in force
The key finding in the case was that the ‘loan agreement’ was not properly concluded and therefore “of no force and effect”. In light of this finding the purchase could be treated as a cash purchase on the transaction date. “Accordingly the Complainant is obliged to pay to the Respondent the cash retail price of the goods plus the costs of the television licence. This amounts to R2 823.00.”
Since the complainant had already paid instalments totalling R4 584.00 and the amount of R348.60 (an incorrectly charged delivery fee) had already been refunded the Ombud ordered the respondent to pay the complainant the sum of R1 412.40 with interest at 15% per annum from October 2006. This interest pales into insignificance when one considers that the respondent charged 32.5% interest on the loan under contest in this claim. The Ombud also ordered the respondent to pay the case fees of R1 000.
What worries us is that had the respondent completed the documents correctly and spent a bit more time with the claimant they could have completed the transaction on exactly the same terms; but leaving the claimant with no ‘legal’ leg to stand on. We believe that it is not the system or regulatory body that saved the complainant in this case; but rather the arrogance and negligence of the respondent...
Editor’s thoughts: This case highlights the damage an unscrupulous sales person can achieve with little effort. It also reveals that despite the National Credit Act some micro-lenders can still legally charge 32.5% interest. What are your thoughts on the sales tactics employed by credit furniture retailers? And do you think the various Acts and regulatory bodies do enough to protect the poor? Add your comment at the end of this article, or send it to gareth@fanews.co.za
