Credit regulator 'stalls' action against Lewis
The National Credit Regulator's failure to act is being blamed for delaying a financial wellness company's attempt to bring a class action against retailer Lewis for alleged breaches of the National Credit Act.
Summit Financial Partners may only take its case against the furniture retailer further - to the National Consumer Tribunal or the high court - once the regulator has dealt with its complaints. And according to Summit CEO Clark Gardner, his firm lodged its first complaint against Lewis with the credit regulator more than two years ago.
Frustrated by the regulator's lack of action, Summit has launched an application in the High Court in Cape Town for a declaratory order on the legal status of the delivery fees charged by Lewis.
"If the regulator does not assist, one can ask the courts to determine the legality of a practice. This of course comes at great expense to Summit," Gardner said.
"We have spent millions of rands on legal fees the past year fighting NCA breaches that should have been challenged via the NCR complaints process at zero cost to consumers and consumer rights entities."
Summit claims that the furniture giant has made millions of rands from charging "unreasonable" delivery fees - and a substantial portion of the money should be refunded to consumers.
According to Summit's complaint, Lewis charged delivery fees that were allegedly unreasonable given that they were levied on consumers who bought goods such as cellphones and laptops; excessive in relation to the actual cost of travel and labour; were included as a compulsory charge for first-time consumers of credit; and were added to the principal debt without the consumer appointing Lewis to act as their agent to provide the service, as required by the NCA, according to Summit's complaint.
NCR CEO Nomsa Motshegarethis week refused to refused to explain why it was taking the regulator so long to conclude the investigation into Summit's complaint against Lewis. She said only that a report relating to the NCR's investigation "is being reviewed".
R1 100 for 3km
In its complaint, Summit alleged that in 2014, Lewis CEO Johan Enslin had confirmed to Gardner that delivery fees were compulsory for new customers who were buying items on credit. In an e-mail to Summit, Les Davies, Lewis's chief financial officer, wrote that delivery fees were mandatory for new credit customers to enable Lewis to verify the customers' home addresses, because documentary proof was not always conclusive.
But Summit contends that even if the delivery fee was to verify customers' addresses, such an expense would be covered by an initiation fee - and Lewis already charged the maximum initiation fee allowed by the act.
In support of the claims of overcharging, Summit's complaint includes the credit agreement of a consumer who was charged R1100 to have an item delivered to his house 3km from the store. Lewis charged another customer R800 for a delivery 2.5km away.
"The pricing of delivery fees is not based on actual costs incurred and distances travelled, but rather as an additional revenue and margin booster to generate profits," Summit's complaint states.
Summit also submitted affidavits by former employees stating that delivery fees were among Lewis's "profit makers" - along with extended warranty contracts and add-on products such as MasterGuard - and that performance targets were set for the collection of these fees or sale of these products.
Leon Mocke, a former regional controller for Lewis in the West Coast region, said stores were expected to target a delivery fee equal to 9% of sales.
Mocke was subjected to a disciplinary process for failing to meet his performance targets, and - strangely - accused of achieving "-4.35%" for delivery charges.
In its complaint, Summit commented: "Such a target makes no sense unless it is the company's policy to merely maximise revenue from additional services with no regard to the actual service provided."
Etienne Landman, a former internal auditor at Lewis, said branches were told to achieve these targets "whatever the circumstances".
Former branch manager Elsabe Gagiano has memos from her regional controller threatening that managers would be disciplined for failure to meet the "profit makers".
Said Summit: "Lewis's staff are caught in a quandary between providing services that are NCA compliant, or failing to meet their targets and face losing their jobs."
The financial company called on the regulator to refer Lewis to the tribunal for engaging in prohibited conduct.
Claire Morrissey, Lewis's general manager of legal services, said it would be inappropriate to comment because the issue was the subject of court actions initiated by Summit and was thus sub judice.
And now the stakes in this long-running saga have been raised: Summit's debt-counselling business is under investigation by the regulator. The probe was launched not long after Summit complained to the public protector in November that the credit regulator had failed to fulfil its mandate.
However, Motshegare denied that Summit's complaint to the public protector and the regulator's investigation were linked. She said the regulator had received complaints against Summit.
Urgency it deserves
Gardner said his company was not concerned about the investigation of his debt-counselling business, but that an equal effort should be put into investigating the charging of compulsory delivery fees.
"We know that the evidence provided in our complaint confirms the practice, which the NCR has agreed is in breach of the act. What we can't understand is why this complaint has not been treated with the urgency it deserves. These are the poorest of the poor being prejudiced and financially abused."