THE recent referral by the National Credit Regulator (NCR) of Mr Price to the National Consumer Tribunal after an NCR investigation found that the retailer had charged consumers a club fee on their credit agreements has highlighted questionable credit practices by some lenders and retailers.
The NCR had undertaken to conduct industry-wide investigations into the cost of credit to root out illegal fees.
Nthupang Magolego, a senior legal adviser at the NCR, says that consumers should not enter into credit agreements they do not fully understand.
“The National Credit Act (NCA) allows consumers, before signing credit agreements, to be given a quotation that sets out the cost of credit. Consumers should request this quotation from their credit providers so that they can properly check the cost of credit that is being offered,” he says.
The NCR has asked the tribunal to:
• Order Mr Price to refund the affected consumers the club fees charged;
• Order Mr Price to conduct an independent audit into its loan book to determine the number of consumers to be refunded;
• Interdict Mr Price from charging consumers a club fee on credit agreements; and
• Impose an appropriate administrative fine on Mr Price.
Mr Price was the second retailer this year to be taken to task by the NCR over unlawful club fees on credit products. Edcon was earlier in the year found to have contravened the NCA since at least 2007.
Christopher Ball, the chief innovation officer of Fincheck, a financial product comparison website, says consumers need to be proactive and assertive when signing up for club membership.
“Charging a club fee on credit agreements is illegal and not permitted by the NCR unless the consumer has given his or her consent. Although these clubs can benefit club members, they place an additional burden on many consumers who are already battling to meet their monthly retail store payments.
“The club fees for big retail chains such as Mr Price and Edcon range from R12 to R60 a month. This is a lot for those whose monthly income is just a few thousand rand,” Ball says.
CREDIT LIFE COVER
Another bone of contention for the NCR are the abuses in the lucrative credit life insurance space, into which it has instigated investigations.
Credit providers are permitted to make credit life insurance mandatory when you take out an unsecured loan. However, they cannot dictate the policy you must take out. You are allowed to use a product offered by a provider of your choosing, or to use existing life cover and make the provider the beneficiary.
Sasha Knott, the chief executive of Switch2, a financial advice site that helps you to choose credit life cover, among other things, says that where consumers are, for example, securing a home loan, they also have the right to cede an existing life policy against that loan, making the credit provider the beneficiary, and are not obliged to take out a new policy as cover.
“Retailers and lenders cannot refuse consumers the right to choose their own credit life insurance policies. The NCA states that consumers must be given, and be informed of, the right to waive a proposed policy and substitute another of their own choosing,” Knott says.
The draft credit life insurance regulations were published for public comment in November last year and are expected to come into effect in August.
The NCR says the regulations will limit the cost of credit life insurance to R4.50 per R1 000 of the deferred amount for credit facilities, unsecured loans, developmental credit agreements and other types of credit agreements. For home loans, the cost of credit life insurance will be limited to R2 per R1 000 of the deferred amount.
To see how you can save on your premium payments, provided you know your outstanding balances, you can use the calculator on the Switch2 website, www.switch2.co.za.