Court confirms reckless lending ruling against Shoprite

The Pretoria High Court has upheld a 2017 decision by the National Consumer Tribunal that Shoprite was guilty of reckless lending, by adjusting credit bureau information as well as customers’ future financial commitments to ensure they received credit.

It has been ordered to pay a R1 million fine within 30 days, confirming the earlier decision by the tribunal.

The retail group has also been ordered to appoint a debt counsellor at its own cost to ensure affected customers are not over-indebted.

In 2014 the National Credit Regulator (NCR) was prompted by newspaper articles to investigate claims of reckless lending by some retailers, and this led it to focus on Shoprite.

The regulator asked Shoprite for a list of all credit agreements with customers between June 2013 and 2014, and then followed this up with a request for evidence of affordability assessments – which is a requirement of the National Credit Act (NCA).

The NCA prohibits credit providers from extending credit without examining the customer’s debt repayment history as well as “existing financial means, prospects and obligations”.

The Act defines the extension of credit to an over-indebted customer as reckless lending.

The data supplied by Shoprite appeared to suggest some customers were being granted credit when 80% of their net incomes were already committed to prior debt obligations.

In some instances, customers were being pushed to the point of paying 90% of their net incomes in settlement of debts. Evidence was also presented to the court that some credit was granted without consulting the consumer’s credit history with the credit bureaus.

Shoprite had argued that the regulator didn’t have reasonable grounds, based on objective information, that gave rise to the suspicion that it was granting credit recklessly. It further argued that the data on which the regulator relied was not specific enough to launch an investigation.

Additional credit for the highly indebted

The regulator pointed to several customers whose budgets were already in the red at the end of the month, due to prior debt repayment obligations, yet were given additional credit by the retailer. In other cases, Shoprite disregarded certain monthly expenses and ignored instalments due to existing creditors.

Shoprite contended that the tribunal had erred in failing to take into account various adjustments it had made in its affordability calculations, for the very reason that the affordability assessments were often deemed incomplete and did not reflect the customers’ true financial position.

The High Court found several problems with Shoprite’s adjustments:

• Customers were unaware of the way the retailer was arranging their financial affairs,
• Customers were not consulted on whether they were prepared to sacrifice short-term insurance or DStv subscriptions to obtain fresh credit;
• Shoprite did not have the income and expense information of the credit applicants’ spouses; and
• The assumption that the spouse would cover the credit repayment in the event of default was “speculative to say the least”.

“The most astonishing aspect of Shoprite’s approach is the fact that many customers still had negative affordability figures after the ‘adjustment’ exercise,” reads the judgment.

“In view of the aforesaid, I agree with the finding of the tribunal that Shoprite extended reckless credit.”

The court also noted that the consumers affected by Shoprite’s conduct are mostly pensioners and individuals with low average income – in other words, financially vulnerable members of society.

Shoprite must now comply with the tribunal’s order by paying the R1 million fine and appointing a debt counsellor, who will be contacting affected consumers.

NCR CEO Nomsa Motshegare welcomed the court’s finding and is appealing to “any consumers who believe they may be a victim of reckless credit granted by Shoprite to lodge a complaint with the NCR”.

Complaints should be emailed to complaints@ncr.org.za.

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