National Consumer Tribunal ruling could cost Edcon millions

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Although a financial sanction, such as an administrative fine and refund of fees, is still to be announced, the ruling has grim implications, given Edcon's financial situation.

On Tuesday, the tribunal ruled that the club fees charged by Edcon to credit customers were unlawful and contravened the National Credit Act.

Tribunal finds the club fee charged by Edcon to be unlawful

3 May 2017

The National Credit Regulator's (NCR's) Lebogang Selibi said it would approach Edcon about an independent audit of its loan book to establish the number of consumers to be refunded and the amount to be repaid. The refunds could date back to 2007, when the act came into effect.

A spokesman for Edcon said management was studying the judgment and would appeal against the order. "Edcon has always contended that the club product is a stand-alone product, which entitles voluntarily signed-up members to a number of benefits, including preferential rates and savings."

The case was brought by the NCR in November 2015.

Regulator Lesiba Mashapa said sections 100, 101 and 102 of the act prohibited club fees from being included in a credit agreement. Edcon said membership was optional, not a condition of a credit agreement.

However, Mashapa argued (in 2015) that the fee formed part of the credit agreement and even if Edcon made the club agreement a supplementary one, it would still fall foul of the act. A key issue was whether club membership was available to cash customers.

Tuesday's ruling backs Mashapa's argument that Edcon was charging a club fee on credit agreements. "It is now settled that the charging of a club fee on credit agreements is not permitted by the [act]," said Jacqueline Peters, NCR manager of investigations and enforcement.

On Wednesday, Peters confirmed the ruling was a precedent for all credit retailers.

Edcon was unable to provide details about the current value of monthly club fees or the number of members. "Edcon estimates that a club member can save up to R17,000 per member over 12 months if all the benefits are used on a regular basis," it said.

The financial results for the 39 weeks to 24 December 2016 showed revenue from club fees at R418m in that period. This was down from R437m in the comparable period in 2015.

Management said the decline was mainly in the Edgars' division "as the new club membership drive was insufficient to curb club membership exits".

In the same period, the group reported a trading loss of R624m and interest-bearing debt was more than R26bn.

One analyst, who has tracked the regulator and the tribunal, said the good news for Edcon and other retailers was that final decisions were drawn-out affairs and inevitably diluted by legal challenges. He said there was little prospect of Edcon having to repay 10 years' fees.

Source: Business Day