Ombud assists domestic
The determination by the Fais (Financial Advisory and Intermediary Services) Ombud where a domestic worker bought furniture worth R2 799, but ended up owing R6468, has attracted the attention of a panel appointed to identify the extent of misconduct in the consumer credit insurance market.
The independent panel chaired by Peet Nienaber, a judge and retired Ombud for Long Term Insurance, described the Ombud's ruling as a classic example of market misconduct in the furniture and retail business.
Nienaber was speaking last week at the presentation of the more than 200-page report which was commissioned jointly by the Life Offices' Association (LOA) and the South African Insurance Association (Saia) last July. These bodies, as well as the national treasury and the Financial Services Board, will respond soon.
The report was commissioned after complaints of excessive commission and fees and the practices of improper and inappropriate marketing and distribution conduct were reported.
In a move that could shake up the shambolic small-goods hire purchase (HP) industry, Fais Ombud and Charles Pillai, ruled against Barnetts Furniture and Appliance Store in Port Shepstone, KwaZulu-Natal, after Ntiya Thuliswe Gumede, of rural Transkei, complained to him.
Barnetts is a subsidiary of the JSE-listed JD Group which has brands such as Bradlows, Russells, Joshua Doore, Giddies Electric Express, Price 'n Pride and Morkels.
Gumede told Pillai she bought a small TV and stove, and a TV licence for R225 on credit. She said she could not understand why she owed R6468,89 instead of R2799.
The amount included finance charges of R1668, an insurance premium of R344, a "contract fee" of R102 and delivery charges of R348 - though Gumede collected the goods at the store herself.
The package for which she signed included "a goods insurance policy", an "extended guarantee contract" and a credit life policy, which she claimed was not explained to her or she would not have bought them. Gumede says that she was misled because when she asked about the "big amount of R6243", she was told not to worry because this "is only the different calculations that the shop makes to get to the end figure".
In his investigation, Pillai found that Barnetts had breached most of the basic provisions of the Fais Act as well as the General Code.
Besides some irregularities in Gumede's application, she was also charged for the warranty which was disguised as part of the purchase price.
Pillai said Barnetts' practice resulted in vulnerable people being duped into incurring enormous debt when all they wanted was a simple piece of furniture or an appliance.
He ordered Barnetts to refund Gumede R1412,40 with interest while she would pay the store R2823 - which is the cash retail price of the goods plus the costs of the television licence.
He found the "loan agreement" had no force and effect, declaring that the transaction only be treated as if it was a cash purchase as at the transaction date. Pillai urged the Financial Services Board to intervene urgently and declare business practices adopted by these furniture retailers undesirable.
He said these practices sought to circumvent the Fais Act by adding on additional life policies, warranties and goods policies without following the precepts of the act which relate to properly advising their clients.
He urged trade unions to ensure that their members are properly advised and given the necessary consumer education.
Pillai recommended to the National Credit Regulator that it investigates whether furniture retailers generally, and the JD Group in particular, complied with the provisions of Fais Act.
Pillai also asked the Competition Commission to probe any possible anti-competitive conduct by the JD Group, in particular, abuse of market power.
He said: "It would be extremely naive of me to think that this is an isolated or exceptional case."
He said his office had received other complaints involving the JD Group.