R67m customer refund is not the end of Lewis challenge

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.

READ: Lewis Group refunds R67.1m to customers

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.

READ: Consumer watchdog takes Lewis on over charges

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.

ALSO READ: Lewis shareholders clash with board

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