Edcon is South Africa’s leading retailing group, with retail divisions that include Edgars, Red Square, Boardmans and CNA. In 2015, a representative of the National Credit Regulator, Lesiba Mashapa, claimed that the club fees were unlawful because it formed part of the credit agreement. After further investigation, the National Consumer Tribunal ruled in favour of millions of South African consumers when they declared Edcon’s club fees to be unlawful, in May 2017.
According to the National Consumer Tribunal, the retail group’s club fees were not only unlawful, it has also violated the National Credit Act. Because of this, many club members will now be refunded for the club fees that they had paid over the years. It has been confirmed that the ruling was a precedent for all credit retailers. The National Credit Regulator’s Lebogang Selibi said it would approach the retail groups about an independent audit of their loan books. This will help to establish the number of consumers who have to be refunded, as well as the amount to be repaid. The refunds could date back to 2007 when the act came into effect.
A spokesperson for this leading retail group said that management was studying the judgement and would appeal the ruling. “Edcon has always contended that the club product is a stand-alone product, which entitles voluntarily signed-up members to a number of benefits, including preferential rates and savings,” the spokesperson said.
The ruling by the National Consumer Tribunal is set to wipe out Edcon’s annual club fee income of R400m, casting a dark shadow over their already grim financial situation. The financial results for the 39 weeks to December 24, 2016, showed revenue from club fees at R418m in that period. This was down from R437m in the comparable period in 2015. Management said that the decline was mainly in the Edgars’ division, as the new club membership drive was insufficient to curb club membership exits. In the same period, the group reported a trading loss of R624m, and interest-bearing debt was more than R26bn.
The NCA prohibits other fees, charges or costs to be included in a credit agreement, irrespective of the nature of the charge, cost or fee. Retailers are expected to observe the closed list of fees and charges provided for in the NCA, while consumers are urged to check the cost of credit that is being offered.