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Illegal Credit Life Insurance

The National Credit Regulator (NCR) has referred Lewis Group’s Monarch Insurance and Lewis Stores, the nation’s biggest furniture chain, to the consumer tribunal for illegal credit life insurance sales. Lewis Group has credit agreements with 690000 consumers, while 69% of their sales are done on credit.  For 2015, its total credit sales came to R1.8-billion. Retailers can legally require customers to pay credit life insurance for the term of any loan agreement entered into, thus this avenue is rather lucrative. However, reports of abuse in this regard have been haunting the industry at large recently.

 

No Cap for Credit Life Insurance

Lewis Group has been tacking unwarranted credit life insurance onto their unsecured loans for some time now. Lewis’s loans are charged at capped interest rates, which are based on the repo rate set by the South African Reserve Bank (Sarb). Accordingly, Lewis Group’s interest rates were capped at 33.2%, after the 0.25% repo rate increase. However, credit life insurance doesn’t have a cap, though the government and regulatory bodies are looking to implement a credit life insurance cap. The monthly premium of credit life insurance is expressed as Rands per R1000 of insurance coverage.

 

“Ancillary Services”

Lewis charges a monthly premium of R13.50/R1 000 for their credit life insurance. Moreover, credit retailers, like Lewis Group, often slap on an extended warranty for goods, including further fees for funeral insurance and delivery. Lewis’s income statement shows a shocking disparity between the money it makes from credit life insurance, as opposed to other avenues of revenue.

The company makes R1.3 billion from initiation fees and finance charges, R981 million from insurance, and R804 million from “ancillary services”, such as extended warrantees. After investigating Lewis Stores via ‘mystery shopping’ expeditions, Summit Financial Partners discovered that, for a TV, with an upfront price of R9 999, paying it off over a 30-month term would  cost a shocking total of R26 761.

 

Needless Cover, No Benefits

Lewis Stores have been selling credit insurance policies that cover disability and loss-of-employment, to pensioners and self-employed consumers. These consumers were paying a premium of R8.75 for every R1000 worth of cover‚ on top of their monthly furniture instalments. By making pensioners and self-employed people pay for these needless disability and loss-of-employment policies, Lewis stores are in essence stealing. The reason being, these consumers are unemployed, which means they can’t be retrenched, made redundant or suffer a loss of income from disability. In conclusion, they’re unable to claim any benefits from these kinds of cover, yet are being forced to pay premiums on them.

 

The Way Forward

Accordingly, the NCR called for the tribunal to fine Lewis Group and order them to refund the pensioners and self-employed consumers. Furthermore, the NCR requested that these policies be audited. The Department of Trade and Industry (dti) is outraged by the antics of unsecured lenders across the board, as such, it is looking to introduce stricter regulation and capped interest rates. Moreover, the Financial Services Board is considering outright cancellation of Lewis’s insurance licence. Contact Reckless Lending today, if you think you’ve been a victim of Lewis Stores and we’ll help you get financial redress.