Picture: Simphiwe Mbokazi
Picture: Simphiwe Mbokazi
File Image: IOL
File Image: IOL

JOHANNESBURG - The National  Consumer Tribunal yesterday (Wednesday) slapped Africa’s biggest food retailer Shoprite with a R1 million fine after it was found guilty of reckless lending.

The tribunal said the fine was meant to tighten compliance with the National Credit Act.  It said in addition, Shoprite would also have to appoint a debt counsellor at its own costs, to determine whether the affected consumers were over-indebted.

The fine comes days after South African retailer, Steinhoff, said it planned to acquire a controlling stake in Shoprite through a  R35.5 billion share deal. The National Credit Regulator (NCR) manager for investigations and enforcement Jacqueline Peters said the fine followed random investigation samples that were taken from consumers who had entered into credit agreements with the company between 2013 and 2015. 

File Image: IOL

Also read: Shoprite Holdings guilty of reckless lending

“This is the first case of this kind against a furniture retailer where a fine of R1 million has been imposed,” said Peters. The Shoprite Group yesterday said the tribunal had found that one of its subsidiaries extended credit to some of its customers to buy "goods from its OK Furniture stores too easily".

“This matter relates to credit agreements concluded in June 2013 and June 2014 with nine consumers from amongst thousands. In all these cases the credit extended was settled in full by the customers concerned," the company said. ​ It defended the granting of credit.

"The credit granting offices adhere to strict measures and are satisfied that the current process serves the best interests of its customers and is in compliance with legislation,” the company said. NCR chief executive, Nomsa Motshegare, earlier said the judgement followed revelation that the company had entered into credit agreements with consumers without conducting a reasonable assessment of their ability to afford the loans.

 “Some of the conduct of Shoprite that was found to be in contravention of the National Credit Act (NCA) was that Shoprite, when assessing whether a consumer could afford a loan or not, took into account unverified income of another person, such as a spouse or a life partner”, said Motshegare. “The NCR believes that this judgment by the Tribunal reaffirms the undesirability of reckless lending in our society.” 

It was reported that Shoprite’s furniture subsidiary, OK Furniture, was ranked the company’s best performing brand in the year to June after the division’s profit rose by 15.3 percent in the period. However, questions have been raised on whether the R1 million fine was a deterrent to reckless leading.

Have you read: Steinhoff share deal for big Checkers stake

An analyst who spoke on condition of anonymity said the fine appeared to be more of a slap on the wrist than a serious finding. “I would not rank Shoprite as a bad credit provider and there are much worse when it comes to abusive practises and reckless lending - Lewis Stores being one.  It is however a good thing that the NCR is finally beginning to show its teeth and to enforce the NCA. Without enforcement, laws and regulations are worthless and we need a firm and vigilant regulator to ensure all players comply and that there is a level playing field. 

Ron Klipin, a portfolio manager at Johannesburg based Cratos Wealth, said that the fine was a wakeup call for Shoprite, and that despite the fine, the brand would remain strong  and well entrenched. Klipin said a lot furniture retailers had broken the affordable loans code.

“The fine is unlikely to tarnish the company’s image, and is minute compared to its turnover,”said Klipin. “The Ok Furniture brand is strong and relevant as it services lower LSM  (Living Standards Measure)  market which is likely to have been the problem area.” 

The fine comes as Shoprite’s food division had beefed up its performance compared to its competitors. “Shoprite’s Checkers Division is starting to eat Woolworths and Pick Pay’s lunch, in fresh and   prepared foods,” said Klipin.