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R67m customer refund is not the end of Lewis challenge

Source: Fin24, 27/10/2015

Cape Town - Lewis Group's intention to refund a total of R67.1m to
customers for the cost of loss of employment insurance, is a good
start, but not yet the end, according to a consumer watchdog.

Lewis Group [JSE:LEW] announcement on Tuesday that it intends to
refund R44.1m plus R23m in interest to a group of customers for the
cost of loss of employment insurance the company claims was mistakenly
sold to them.

This is not the end of assisting prejudiced customers, Clark Gardner,
CEO of consumer watchdog Summit Financial Wellbeing, told Fin24 on
Tuesday.

Summit is finalising a high court case to challenge more of Lewis'
charges, namely what Summit claims to be the compulsory nature of
delivery fees and the extended warranty charges.

Fin24 revealed in July that Summit went undercover at Lewis stores in
order to find out first hand what a purchase on credit would involve.
Summit claimed its mystery shopping experience had seemingly uncovered
breaches of the National Credit Act (NCA) by Lewis Group. The NCA
clearly stipulates what charges can be added under a credit
agreement.

"This is a good start, especially after the executives initially
denied the allegations and told Fin24 all its fees or charges are
within the NCA," said Gardner.

"When will these executives be accountable to their word and their
practices? Their initial response was that they didn`t breach the
NCA."

In its response to the allegations, Lewis told Fin24 at the time that
all its fees or charges are within the NCA.

Lewis Group CEO Johan Enslin said on Tuesday the refund follows an
extensive internal investigation by Lewis, which was triggered by the
National Credit Regular (NCR) bringing to the company`s attention
three instances where loss of employment insurance was sold to
customers when it should not have been.

At the time of the Summit mystery shopping investigation, one of the
mystery shoppers, for instance, reported that credit life and product
insurance charges of R6 201 were added to his purchase based on the
relevant premium rates.

"Notwithstanding the fact that I stated that I was self-employed and
the consultant entered that into the system, I was still charged for
Loss of Employment cover. The policy clearly states that a person who
is self-employed cannot claim under this policy, so why was I
charged?" reported the mystery shopper.

Gardner estimated at the time that the probability of someone being
retrenched is probably 1%. He also pointed out that Lewis Group
opposed the referral of the loss of employment insurance matter to the
National Credit Tribunal by the NCR.

"Our rough calculations show that the average refund cannot exceed R1
000 per case. So, with a refund of R44m, it would amount to 44 000
errors. How can this be human error?" asked Gardner.

"My big question to them is, therefore, where are your internal
controls, audits, risk committees and management? I cannot help but
wonder if there are not maybe a lot more irregularities hiding in
accounts. It already raises red flags that indiscretions are not being
picked up."

Gardner also said he is interested to know how many employees were
involved and what disciplinary procedures were followed.

"How do we know that these were the only consumers whose data were
captured as employed, but who are not actually employed?" asked
Gardner. He added that he questions the Lewis business model.

Other charges queried
After its mystery shopping investigation earlier this year, Summit
also questioned other charges by Lewis when customers buy on
credit.

These include delivery fees (called a handling fee).

Summit's mystery shoppers found this handling fee to be
compulsory even if they offered to transport the purchased item
themselves. The fee did not seem compulsory if one paid in cash.

In response, Lewis told Fin24 this delivery/handling fee is compulsory
for all new, first-time Lewis credit customers, because additional
proof of home address is not always conclusive and the delivery
location is not always the home address.

The group explained that the fee is not compulsory for repeat
customers or cash customers, although they can elect to pay for the
item to be delivered if they choose. The group did not indicate to
Fin24 how often it happens that new customers pay the compulsory
delivery/handling fee without making use of it.

Another fee Summit questioned at the time was the extended warranty
charged when an item was bought on credit, even where the item had its
own product warranty. In the experience of the mystery shoppers, this
fee was compulsory "as the system did not allow for its
elimination".

Lewis, on the other hand, told Fin24 the extended warranty was not
compulsory.

Credit life insurance charges were another concern for Summit.

"The fact that 1% of clients actually claim is indicative of the
actual risk and motive of these products," Gardner said at the
time.

By mid-afternoon trade Lewis Group's share price was up 0.85% on
R63.15.

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