Lewis furniture stores have been referred to the National Consumer Tribunal for breach of the National Credit Act (NCA) following a secret shopper experiment carried out by Summit Financial Partners and an investigation by the National Credit Regulator (NCR).
According to Summit, its mystery shopping expedition revealed evident breaches to the NCA by Lewis and found that in one incident, Lewis inflates its prices.
The mystery shopper went into Lewis to buy a television but from the onset realised that prices seemed inflated. “The LED TV we wished to buy was a LG47LB561T and was marked on sale at R9, 999.99. A quick check of the online prices for the same model from the large retailers showed a price range of R6, 500 and R6, 800. Thus before you even start with the cost of credit, Lewis is charging a premium of 50% compared to the cash retailers.”
Following a number secret shopping escapades that were taped by Summit, the company found a number of discrepancies in the way that the furniture store conducts business.
For consumers buying on credit, there is a mandatory delivery or handling fee that Lewis charged, and this gets added regardless of whether customers pledge to take the item home themselves. However, this fee is not compulsory when paying cash for items.
One of the secret shoppers revealed: “The quote contained a handling charge / delivery fee of R750. When I told her that I wanted to take the TV away with me in my car, she said that it was no longer a delivery fee but a handling fee. When pressed further, she said it was to cover the cost of fetching the TV and taking it to the suppliers when it broke down (so much for faith in your own product). I said that the TV had a warranty and that I would take it when it broke down and was told that I had no choice and the charge was compulsory. I asked if the charge would be levied if I was buying for cash and she said it would not.”
Another issue brought to the attention of Summit was the extended warranty, which the furniture group insisted on the secret shoppers taking out. This extended warranty is automatically selected on the system when items are bought on credit and the customer does not have the choice to refuse this warranty.
According to one of the shoppers, this extended warranty was listed as ‘maintenance’ on the quote that they received. Even after stating that he did not want this extended warranty, the shopper was told that it was a term of the contract and he did not have a choice but to take out the extended warranty.
The shopper stated: “When I got home and checked online what the manufacturer’s warranty was on this TV I discovered I was covered for a full two years. I was therefore being charged a compulsory extended warranty of R1710 for the remaining six months of my repayment contract after the two year period. I went online again to see what an extended warranty would cost from a cash retailer and found that a one year additional warranty over and above the initial two year manufacturer’s warranty would cost about R500.”
Lewis staffers also insisted that the mystery shopper take out a store club card adding that it was compulsory to have this when purchasing an item on credit. The clubcard fee, according to Lewis’ website, is R25 a month.
However, the staff did reveal to the customer that they could cancel the club card the following month if they desired.
According to reports, the Lewis Group insists that all of its fees and costs are compliant with the NCA.
Following a request for comment, Lewis has told Justmoney that it will release a statement shortly, which we will publish.
Altering customer information
The secret shoppers found that some of the Lewis staff alter some of the information provided to them to make it easier for the customer to be approved for credit.
A sales assistant indicated that the customer was purchasing a refrigerator rather than a television on the application form. “When I questioned this, she proudly told me that selecting an “essential” item would give me a bigger Open to Buy (credit limit) than if she selected a luxury item such as a TV,” explained the shopper.
Other changes came, when the customer’s monthly living expenses were indicated as R10 per month. The sales assistant reportedly said that if the customer indicated their real monthly expenses their credit application would probably be declined.
The shopper was also listed as single on the system, after informing the sales assistant that he was married, because if he is listed as married his wife had to bring in documents and it would be “a huge hassle.”
A report revealed that Lewis has emphasised that altering or manipulating customer information is against the company’s policy.
Credit life insurance
Another added cost that customers are being made to pay is for credit life insurance. Credit life insurance is usually charged on items bought on credit to reduce the risk to the company should something happen to the consumer and they are unable to pay the outstanding monthly instalments.
The NCR has proposed that a cap of R4 per R1 000 be placed on the amount that can be charged for credit life insurance.
According to the quote provided by Lewis to the secret shopper, credit life and product insurance charges of R6,201 were added based on the relevant premium rates.
“Notwithstanding the fact that I stated that I was self-employed and the consultant entered that into the system. I was charged for Loss of Employment cover. The policy clearly states that a person who is self-employed cannot claim under this policy, so why was I charged?” said the mystery shopper.
Lewis is not the only company to make it into the news recently regarding excessive credit life insurance fees. Finbond was recently referred to the National Consumer Tribunal charging its customers high credit life charges.
For more information on Finbond, click here.
The National Consumer Tribunal
Following Summit’s expose, The NCR referred Lewis Stores, together with the Monarch Insurance Company to the National Consumer Tribunal. Monarch Insurance Company is owned by the Lewis Group and offers insurance products through Lewis’ stores.
During its investigation, the NCR found that Lewis Stores and Monarch have:
“Sold loss of employment cover as part of credit insurance to pensioners and self-employed consumers. The loss of employment cover sold is meant to settle the pensioners and self-employed consumers’ outstanding balances under their credit agreements with Lewis Stores in the event of their retrenchment or redundancy from employment; and
“Sold disability cover as part of credit insurance to pensioners. The disability cover sold is meant to settle the pensioners’ outstanding balances under their credit agreements with Lewis Stores in the event they become disabled to continue with their occupation,” revealed the NCR in a statement.
Lesiba Mashapa, company secretary at the NCR, said: “Pensioners and self-employed consumers are not employed and cannot be retrenched or become redundant from employment. They should not be offered loss of employment cover as part of credit insurance. This is the first case of mis-selling of credit insurance in South Africa which the NCR has referred to the Tribunal to obtain redress for the pensioners.”
The NCR is asking the Tribunal to order Lewis and Monarch to refund their pensioner and self-employed customers, as well as conduct an audit of both companies, and to impose an administrative fine on Lewis Stores.
|Lewis Stores - Actual Quote
(key in red on left)
|Selling Price||8 771.92|
|plus VAT||1 228.07|
|4 Selling price (incl VAT)||9 999.99|
|2 add Extended warranty||1 710.00|
|1 add Delivery charge / handling fee||750.00|
|Basic loan amount||12 459.99|
|Loan origination fee (incl VAT)||1 140.00|
|Original Principal Debt (OPD)||13 599.99|
|Finance charges||4 485.90|
|3 Credit Life Insurance and product insurance||6 201.00|
|Monthly service fee||1 710.00|
|Total repayable||25 996.89|
|Monthly insurance fee - credit life (per R1000 - flatrate)||135.64|
|Monthly insurance fee - Product (per R1000 flatrate)||71.06|
|Monthly service fee (incl VAT)||57.00|
|Total monthly instalment||866.56|
|Effective rates (IRR)|
|Admin fees, handling fees and extended warranties||38.9%|
|Insurance - credit life||21.0%|
|Insurance - Product||10.4%|
|Interest income (loan only)||4 485.90|
|Admin fees handling fees and extended warranties||5 310.00|
|Insurance income||6 201.00|
|Total income||15 996.90|
Source: Summit Financial Partners