A unit of retailer Pepkor Holdings has been sued by South Africa's National Credit Regulator for selling unemployment and disability insurance to pensioners on welfare who would never be able to claim those benefits.
The High Court case against JDG Trading, which sells furniture and offers financial services, accuses the company of taking advantage of some of South Africa's poorest and least financially literate people. In 2015, the regulator initially took JDG to the National Credit Tribunal over the practice in a case that was unsuccessful.
JDG "is selling insurance that certain consumers, pensioners and disabled persons do not need, cannot claim benefits for, and yet pay for,: the NCR said in court documents. "There appears to be a lack of compliance with the duty to explain this to pensioners, particularly to those illiterate pensioners."
A date for the case to be heard is yet to be set.
JDG sells the insurance as a mandatory requirement for customers who wish to buy goods from its stores on credit. The cover enables the company to be repaid in the event of the shopper's death, unemployment or disability, even though only the first of those applies to some buyers, including pensioners.
In its own court papers, JDG says that the "bundled" nature of the credit insurance makes the policies cheaper on average for clients, some of whom are employed. The company accuses the regulator of being "paternalistic" for assuming that pensioners don’t understand what they are purchasing.
"We are in no position to provide further comment as the legal process remains ongoing," Pepkor said.
The case is similar to one filed against South African retailer Lewis Group four years ago. It also follows court actions against a unit of Net 1 UEPS Technologies, which ran payments for South Africa's welfare department and used that system to deduct extra cash for products ranging from loans to mobile-phone airtime.
More than 17 million people in South Africa get welfare payments, which total about R150 billion a year. Those payments will be temporarily increased because of the impact of the coronavirus outbreak.
"This is completely at odds with the principles of social solidarity and consumer protection," said Roseanne Harris, a university professor and former president of the Actuarial Society of South Africa, in an independent expert statement included in an application by the Black Sash Trust to join the case as an amicus.
"I am very concerned that JD Group appears to be suggesting that vulnerable policy holders should cross-subsidise the employed."
Harris's analysis of the policy showed that retrenchment cover is the biggest component of its costs and together with disability cover resulted in the premium being four times the amount that could be justified by population mortality for life cover only.
Pepkor, which also owns the Pep and Ackermans clothing chains, is one of South Africa's biggest retailers. Its majority shareholder is Steinhoff International Holdings NV, the global furniture retailer that came close to collapse following an accounting scandal in late 2017.