SA Taxi hits credit insurance pothole

2014-01-12 14:01

Company issued compliance order after investigation reveals insurance discounts were not passed on to customers

Vehicle financing company SA?Taxi, a subsidiary of JSE-listed financial services group Transaction Capital, is again in trouble for mismanaging its credit life insurance products.

In November, the National Credit Regulator slapped SA?Taxi with a compliance notice after a yearlong investigation into the way it handled insurance on behalf of its customers.

A compliance notice is issued when a person or entity fails to comply with the National Credit Act. It sets out how the law was breached, as well as what remedial action needs to be taken.

The investigation revealed that SA Taxi, which paid premiums on credit life insurance on its customers’ behalf, received discounts from insurers but neither disclosed nor passed these on to the customers.

The regulator’s Lesiba Mashapa told City Press the investigation was prompted by complaints from a number of customers who said they suspected that SA?Taxi was overcharging them for credit insurance.

Investigators uncovered information showing customers paid more for insurance than the amount SA?Taxi paid on their behalf to the insurance company.

Mashapa said: “We have given them a notice that they are not compliant with the National Credit Act and told them what they need to do to comply.

“The regulator instructed SA?Taxi to refund consumers the discounts that were received from the insurance company.”

He was unable to say how much SA?Taxi had received in discounts, but said it was the first time the regulator had come across such a case, which it hoped would act as a deterrent to other credit providers.

This was not the first time the group has come under scrutiny for its credit insurance products. Three years ago, three entrepreneurs from Durban – Robert Hlela, Bhabha Dlamini and Thengezakhe Kwela – took the group to court for its failure to let them change insurance brokers.

About two years before that, SA Taxi had helped the three realise one of their aspirations by financing each man’s purchase of a minibus taxi.

The group provided both finance and credit life insurance on their vehicles, an arrangement that worked well until another insurance broker came along.

The other broker offered the three taxi owners a more competitive deal with the same insurance company SA?Taxi had found for them. The three quickly signed up and asked SA?Taxi to effect the change.

But SA?Taxi refused, forcing the trio to take the financier to the KwaZulu-Natal High Court, which ruled that the taxi owners should be allowed to choose their own broker. But their victory was short-lived as SA?Taxi successfully appealed the ruling last February.

Another group of taxi owners made similar claims against SA?Taxi in the South Gauteng High Court. The case is still pending.

Complaints against the financier in this case also made their way to the Financial Services Board and the regulator.

According to Mashapa, SA Taxi has now objected to the regulator’s compliance notice and has sent the matter to the national consumer tribunal for review.

After considering representations from all parties, the tribunal could then confirm, change or cancel the notice.

According to Tembisa Marele, the spokesperson of the Financial Services Board, the board had received a complaint relating to a prior agreement SA?Taxi had with Hollard Insurance for insurance policies sold alongside credit.

She said: “As a condition of the credit provision, the insurance policy was ceded to the credit provider.

“This cession was interpreted as restricting the taxi operator from cancelling this policy and taking out alternative cover with a different insurer.

“This interpretation became the subject of a legal challenge, which is still before the courts.”

Meanwhile, SA Taxi has cancelled its arrangement with Hollard, giving policyholders the option to either be underwritten by Guardrisk Insurance or another insurer of their choice.

“It has been communicated to the [Financial Services Board] that taxi operators will be given free choice with respect to both their insurer and their broker.

The board is monitoring the implementation of this,” said Marele.

Representatives of SA?Taxi were not available for comment by the time of going to print.

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