Earlier this year Summit Financial Wellbeing, a consumer watchdog group, carried out a number of mystery shopper visits to Lewis furniture stores. The investigation suggests that Lewis is overcharging customers that buy on credit, in direct contravention of the National Credit Act. The mystery shoppers revealed:
- Lewis charges a “transportation fee” or “handling fee”, regardless of whether Lewis is delivering the goods purchased or not. If queried, the fee cannot be deducted.
- Lewis charges an extended warranty fee to credit customers, even if the item already comes with its own warranty. Again, this charge is compulsory and cannot be deducted.
- Compulsory credit life insurance was also charged for, which included loss of employment cover. While the National Credit Act does allow for compulsory life insurance, the cover offered by Lewis was also compulsory for pensioners and self-employed people, who do not qualify for loss of employment cover. This cover could not be declined.
- The National Credit Act procedures for assessing creditworthiness were not properly followed – only one month’s payslip was requested, and, to avoid delays in the application, one mystery shopper was noted as “single” even though he was married.
As an example of the scale of the charges, one mystery shopper applied for credit on a R9 999.99 item at Lewis, and after fees, insurance and interest, would have paid a total of R15 996.90, which is just under R6 000 more than the cost price. The case is now before the National Consumer Tribunal.
If you want to avoid falling victim to unscrupulous retail credit providers, this is how you can ensure that a credit agreement is fair and lawful.
Make sure you understand how much interest you are being chargedInterest is expressed in a percent that is calculated annually, but with a portion of the annual amount charged monthly. So for instance, if you are charged 20% interest on a R10 000 item, you will pay R2 000 annually, or R167 per month. This amount is in addition to the monthly repayment that you owe on the item purchased.
Furthermore, the National Credit Regulator caps the amount of interest that can be charged on unsecured credit. The formula for the maximum interest rate is (Repo Rate x 2.2) + 20%. Since the repo rate is currently 6%, (6 x 2.2) + 20% is 33.2%. This means that for as long as the repo rate stays at 6%, you should never be charged more than 33.2% per annum.
Ask the financial services department at the store for a written breakdown of the interest rate you will be charged and the total and monthly interest you will pay.
Query all fees The National Credit Regulator is strict about the fees that credit providers can charge, with caps on all of those fees. The credit-related fees that they are allowed to charge are:
- initiation fees,
- service fees
- and credit insurance premiums.
In the Lewis case, certain other fees were also charged, even if the relevant service wasn’t provided, for example the delivery fee, or if the service was not relevant to the customer or the product they were buying, for example the extended warranty or loss of employment cover. Be sure that all fees are legitimate.
It is also worth noting that any other fees apart from interest, initiation fees, services fees and credit insurance premiums are not regulated and capped by the National Credit Regulator. Beware of how much you are paying!
Shop around When you have all the information about the credit agreement from one store, it’s vital that you shop around, for two reasons: a similar item may be cheaper at another store, and the interest and fees may be less at another store. Ensure that you are comparing the final total when comparing costs, and not just the original cost of the item.
It’s also worth approaching your bank to find out whether they will lend you the same amount of money at a better interest rate and with reduced fees.
Be honest in your credit applicationWhen you do settle on a retailer and credit provider, be completely honest when you apply for credit. Remember that the questions asked are there to protect you, the consumer, from debt that you cannot afford. If you are dishonest so that you can take out more credit, you might find yourself in serious financial trouble further down the line.
In addition, if the store is willing to be dishonest on your behalf, it’s an indication that they are more interested in making the sale than in following proper procedure.
Read policy documents and credit agreements Although it requires some time and effort, it’s vital that you request and read through all documents relevant to your credit agreement. You might well discover, as the Lewis mystery shopper did, that you are signing up and paying for benefits you will never be able to claim on or for services you have not received. You might also learn about benefits that could be useful to you in future if something does go wrong.
If in any doubt, contact the National Credit Regulator It can be tricky to work out whether a credit provider is acting fairly and whether all the charges are fair and appropriate. If you are in any doubt, you can contact the National Credit Regulator helpline on 0860 627 627, and they will look into your application or quotation.
Always ask yourself, do I need to go into credit in the first place? Before you go into credit, it is always a good idea to ask yourself, “Do I really need to?” It is much better to save for an item than to borrow money to buy it. Of course, if you really need something like a new fridge, and you don’t have the cash to buy it, you’ll have to borrow money. But if you’re just chasing the immediate gratification of a new TV or lounge suite, then do yourself a huge financial favour and save before you spend.