A referral by the NCR may see the removal of the Edgars Club fee.
In early November, the National Credit Regulator (NCR) referred Edcon Limited to the National Consumer Tribunal for charging consumers a club fee on credit agreements. This follows the referral of JDG Trading to the Tribunal for their club membership fees.
City Press has over the years raised concerns about the practice of stores such as Jet and Edgars of automatically including a club membership fee when customers open a store account. Although the companies argue that this fee is optional, customers by and large found that the fee was included without their express consent.
National Credit Regulator Lesiba Mashapa has argued that under sections 100, 101 and 102 of the National Credit Act, club fees are not permitted to be charged as part of a credit agreement.
In response to a query by City Press, Edcon stated that their legal team is studying the notice and supplementary documents “to better understand the Regulator’s position” and that the company “will issue a statement at the appropriate time.”
Edcon did however provide City Press with information on the benefits that Edcon Club membership provides to members, such as discounted movie tickets, funeral cover and emergency services.
In their opinion, the Club membership “is an optional product, which is in no way a condition of any credit agreement, that prospective and existing credit customers can sign up for.”
Edcon’s position therefore is that this is a supplementary agreement which has no bearing on the credit agreement and that Club revenue is disclosed under ‘other income’ in their financials.
Mashapa told City Press that this is not the case and currently the fee forms part of the credit agreement. Even if Edcon changed the agreement to be a supplementary agreement, Mashapa believes that this would still fall foul of the NCA.
Section 91 of the NCA states that “a credit provider must not directly or indirectly require or induce a consumer to enter into a supplementary agreement or sign any document that contains a provision that would be unlawful if it were included in a credit agreement.”
The NCR won a similar ruling in 2014 when it took Barko Financial Services before the Tribunal for charging an additional fee for the successful processing of debt repayments.
Like Edcon, Barko contended that this additional fee did not contravene the NCA as the agreement was voluntary and it was paid to a third party (NuPay) in terms of a separate agreement.
The case went all the way to the Supreme Court of Appeal where Judge Ponnan decided that Barko had indeed induced consumers to sign up for the additional fee as the meaning of induced is “to succeed in persuading or leading someone to do something.”
Judge Ponnan found that when it came to informing the consumer of the Nupay agreement, it was Barko’s employees who explained the advantages to the consumer. “That exercise, no doubt, is intended to persuade the consumer that it is in their best interests to sign that agreement,” Judge Ponnan wrote in the judgement.
As Edcon’s salespeople are incentivised to sign up club members, the Barko case could set a precedent. Currently the way that the fee appears on the statement could also add to the NCR’s case, as interest is charged on the club membership fee if there is an outstanding balance, although Edcon confirmed to City Press that if the club membership is the only charge on the account no interest is charged and that if the account is dormant for more than three months the fee is automatically cancelled after three months of non-payment of the club membership fee.
If the Tribunal agrees with the NCR, Edcon would be ordered to stop the practice, refund consumers the club fees charged and may also face an administrative fine. Edcon was unable to provide figures as to the amount of money that would have to be repaid as they are still investigating the referral.
This article originally appeared in City Press.