THE RETAIL FINANCIAL SERVICES RIP-OFF (07.02.2008)

Retailers, especially in the furniture and electronics goods sectors are continuing to exploit the lack of financial literacy among many consumers. Cases of maintenance contracts being sold along with lounge suites, policies against retrenchment being sold to retirees and a plethora of other charges are now legion.

Lower and middle income earners, who form the bulk of trade union members, are the prime targets. And all of this has added to quite frightening levels of household debt.

“We are aware that most of these retailers make more money out of insurance policies and other financial services than they do out of selling their goods,” says SA Confederation of Trade Unions (Sacotu) general secretary, Dennis George.

But, like Cosatu spokesperson, Patrick Craven, he was still shocked to hear of the findings of the financial services ombud published last week. In it, ombud Charles Pillai castigated retailers for a range of practices that have seen consumers burdened with thousands of rands of additional and unnecessary debt.

However, there has been little financial education within union structures, although both Cosatu and Sacotu this week agreed with Pillai’s call for an aggressive campaign to impart financial literacy to consumers.

Pillai made the call in his published finding because the case seemed to be a classic of its kind. It involved a KwaZulu-Natal domestic worker, Thulisiwe Gumede, who bought goods and a television licence to the value of R3 004 from a store in Port Shepstone.

Gumede, who completed one year of secondary schooling and earns R300 a week, was presented with numerous papers to sign. She says she noticed the figure of R6 243.89 and queried it, only to be told not to worry as it was only part of the calculations made by the shop.

When Gumede got home with her purchases, a stove a TV set and the licence, she checked the paperwork she had been given — to discover that she apparently owed R6 649.89 or more than double the value of the items purchased. She took the matter up with her employer, Estelle van Zyl.

Like Gumede, Van Zyl had difficulty understanding the loan agreement and together the two women approached the retailer, only to be told that that nothing could be done because Gumede had signed the documentation. She was liable for a loan debt of R6 243 which attracted an interest rate of 32.5 per cent a year. “It can’t be stopped,” the women were told.

A breakdown of the various charges levied later revealed that Gumede had also been charged R348.60 for delivery of the goods, although she had transported them herself. Some of the documentation also did not appear to have been properly filled in.

Because Van Zyl had heard of the financial services ombud and most of the additional charges related to financial services, the matter ended up on Pillai’s desk. It was the latest in a string of similar complaints borne out by investigations.

Pillai felt he was compelled to draw attention to these practices “to inform the consumer what to expect and to prepare to avoid them”. He sees education as the key, both for consumers and for retailers and shop assistants who seem to be dealing more and more in financial services.

In the meantime, the account has been settled at an acceptable rate and Pillai has ordered the store to repay Gumede R1 412.40, with interest at 15 per cent s year from 14 October 2006 until payment and to foot the R1 000 in case fees.