Shoprite flagged for ‘reckless’ lending by NCR

The National Credit Regulator (NCR) on Wednesday referred the retailer to the National Consumer Tribunal in a probe for reckless lending.

The NCR has raised two matters in which Shoprite could have contravened the National Credit Act.

The credit regulator says the retailer’s two business units Shoprite Investments and Shoprite Insurance Company have sold retrenchment and occupational disability cover to pensioners and consumers receiving government grants.

NCR’s acting manager for investigations and enforcement Jacqueline Boucher says the sale of retrenchment and occupational disability cover to pensioners and social grants recipients is “unreasonable and imposes an unreasonable cost to such consumers”.

“Shoprite sold insurance products that pensioners could not reap any benefits of. Some people could not afford the insurance products.

“Credit providers are required by law to explain the terms and conditions of insurance policies to consumers at the point of sale. Consumers should not be sold insurance that is not suitable and appropriate for their needs,” Boucher says.

Another practice the NCR has taken umbrage at is Shoprite’s ‘reckless’ credit extension to consumers in the company’s furniture businesses: Ok Furniture and House & Home. Boucher says Shoprite would have extended credit to consumers to purchase furniture at its furniture subsidiaries.

The tribunal should order Shoprite to refund the affected consumers the retrenchment and occupational disability premiums already paid, the NCR says. Other orders it proposes include: an audit conducted into Shoprite; the reckless loans written off, and Shoprite paying an administrative fine.

There is no indication as to the time frame for credit extensions in question: Boucher says the credit is over various periods of time. The probe by the NCR will determine the duration of credit extension and the value of loans in question that would possibly be written off.

A legal process will follow in which Shoprite needs to make submissions to the tribunal.

Shoprite’s corporate communication manager Sarita van Wyk says the group is not able to comment as it has not yet received any formal submissions from the regulator. “Once such documentation has been received, the relevant allegations will be investigated immediately,” says Van Wyk.

Shoprite, with a market capitalisation of R90.1 billion, has 471 furniture stores from which it recorded R196 million in trading profit for the 12 months to June 2015. Overall furniture sales grew by R4.5 billion, up by 13.01% during the financial year.

Its furniture debtor’s book grew by 11.8% to R1.9 billion while actual areas grew to 10.9% from 9.9%. SA has a chequered reckless credit history in the furniture business, following the demise of African Bank. The bank targeted low-income consumers through loans and furniture which it sold on credit through its furniture subsidiaries Ellerine Furnishers, Bears and Geen & Richards.

The NCR recently asked the tribunal to impose a fine on furniture retailer Lewis for mis-selling credit insurance. Lewis was accused of selling loss of employment cover to pensioners and self-employed consumers even they would not able to claim the benefits.

Shoprite shares were down 1.12% to R155.66 at the close.

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