18 Apr 2010

Credit Costs More – Than The Price Tag

National Credit Act (NCA) No Comments

By Trishika  Veeragudu (Attorney) @ Lucid Living

If you purchased furniture recently or are in the process of making a purchase, you will benefit from reading this.

The facts pertaining to this article, is from one of my recent cases. Let me introduce you to my client – Jonas (who’s true identity has been concealed) who earns R2500-00 a month before deductions.  Jonas recently purchased a bed for R3000-00. He opted for an instalment sale agreement (credit agreement) at an affordable monthly payment of R342-84.When Jonas received his first statement he was startled to discover that he would be paying almost R8,000 for the bed over the 2 year instalment period.

Jones wanted to cancel the purchase, but the retailer refused alleging that the credit agreement was binding. Jonas approached Lucid Living for assistance.

Jonas’ gripe was that he would be paying almost 3 times the advertised price of the bed, over the 2 year credit agreement. He could not understand how that was possible. Jonas knew that he would incur certain interest charges with this purchase, but did not expect it to amount to R8,000.

We were shocked to discover that Jonas was not given a copy of the credit agreement. After obtaining a copy from the retailer and considering the terms of the credit agreement, we discovered that in addition to the cost of the bed, the following costs were also included –

  • all risk insurance, at a premium of R50 per month;
  • an extended warranty policy on the bed, at a cost of R450;
  • fabric protector, at a cost of R400;
  • 24 month club membership (offered by  the retailer), at a cost of R15-00 per month;
  • an initiation fee of R400; and
  • a delivery fee of R350.

These costs are added to the price of the bed and amounts to the ‘total credit cost’ which incurs interest at a rate of 29.5% over the 2 year term.

Jonas contends that the “add on” items had not been disclosed to him and he most certainly did not agree to paying for them. Jonas was under the impression that he would be paying only for the bed.

When we addressed our client’s complaint regarding a lack of disclosure, the retailer advised us that everything was explained to Jonas. The retailer pointed out that they use an interview checklist, requiring step by step confirmation of the processes explained to the customer, that is signed by the customer. While it is difficult to refute their defence, we know that the process can be manipulated to take advantage of a vulnerable customer like Jonas.

After signing, trying to prove otherwise is rather difficult as you, the consumer rely on your oral communication with the sales agent while the sales agent has a written and signed document (credit agreement) by you.

I personally have been to stores where the sales agent ticks the checklist for me and requests me to sign without fully explaining the contents and implications.  Under the provisions of the National Credit Act, the sales agent is under a duty to fully explain the terms and conditions of the credit agreement and ensure that you understand and appreciate the contents thereof. If the credit provider’s representative fails to discharge this duty, the credit agreement may be considered reckless credit and be declared void.


Read before signing
While processing you application for credit, the sales agent normally hands you a lengthy instalment sale agreement to sign.  Most people just sign the credit agreement, without even reading it. It is never a good idea to sign an agreement without reading.  In terms of the National Credit Act, a pre-agreement statement is valid for five days, so you rather advise the sales agent that you will look through the credit agreement and once you are comfortable that you understand its contents, sign and hand it back.

Never sign blank documents
If you are handed an agreement that has blank spaces and the sales agent offers (in the interest of saving your time and effort) to complete the credit agreement after you have signed, advise the agent that you would prefer to sign the completed credit agreement.  Never sign a document that can be amended. This leaves you vulnerable to fraud arising from a sales agent including add-on items and changing what you originally agreed to.

Understand what “add-on’s” are offered
Specifically enquire from the sales agent what credit charges are included in the credit agreement.  Look for costs related to “add-on’s” and consider whether you really need them.

Sales agents attempt to disguise club fees and extended warranties within the purchase price, to boost their commissions. Look through the credit agreement costs carefully and satisfy yourself that there are no unnecessary charges.

In terms of the National Credit Act, a credit provider should not sell you credit life polices at premiums out of proportion with the retail price of the goods.  Further you have the choice to substitute the credit provider’s credit life policy with a policy of your own choice.

Consider cash rather than adding to your purchase price
If you do require any add-on’s like an extended warranty, consider paying for it upfront in cash rather than having it added to you purchase price as this will incur interest.

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