Consumers ripped off by furniture stores

Millions of South African consumers who buy items on terms are being unwittingly ripped off by furniture companies – and there’s nothing they can do about it.

Consumers ripped off by furniture stores

By Lyse Comins and Nalisha Kalideen

This article was originally published on page 5 of The Pretoria News on November 26, 2004

Millions of South African consumers who buy items on terms are being unwittingly ripped off by furniture companies – and there’s nothing they can do about it.

With Christmas on the way, consumer unions are warning people to beware that they could legally be ripped off by furniture stores wanting to make a quick buck.

In an investigation by reporters of the Pretoria News, we found that furniture stores, which are also registered microlenders, were conducting purchases on terms as micro-loan agreements instead of credit sale (hire purchase) agreements.

‘In most cases they were placed automatically on loan agreements’

Interest rates on micro-loan agreements are between 32 percent and 34 percent compared to the 29 percent when buying on credit.

Our reporters purchased items on terms from numerous stores inGauteng and Durban and found that in most cases they were placed automatically on loan agreements which charged interest of 32 percent and upwards.

In one instance, when the reporter specifically asked the salesperson if the agreement she was entering into was a credit sale (hire purchase) one, he assured her this was the case.

But upon further inspection it was found that the agreement was a micro-loan. Because the furniture companies we visited were registered microlenders they were permitted to charge unlimited interest rates for loans under R10 000.

In all cases reporters were not made aware that they had a choice between purchasing an item on terms or being loaned money from the store, and were not told they were being placed automatically on micro-loan agreements.

‘We are not ripping them off’

But what furniture stores are doing remains legal, because unwitting consumers sign agreements without reading the fine print, which states they are entering into loan agreements.

Acting director of consumer credit investigations in the department of trade and industry Jeremiah Mela said it was morally wrong for stores to sell micro-loan purchases without explaining the difference to consumers.

“The borrower would have understood they were using it to buy furniture. The lenders have a responsibility to inform borrowers this is not an HP agreement but a money-lending agreement, and therefore the terms differ. The responsibility is on the borrower and the lender to enter into a transaction responsibly,” Mela said.

An executive of one of the furniture groups told us their company did place deals on micro-loans but said salespeople had been instructed to disclose this to consumers.

He denied the group was selling loans to customers without informing them that it was not a credit sales deal, and added it was a higher risk for the company to place customers on credit agreements.

“In terms of the risk profile we prefer to put it on a micro-loan agreement rather than an HP transaction. We sacrifice ownership of the goods on micro-finance agreements as it passes immediately to the customer so we can price for risk. We are not ripping them off,” he said.

He said competitors were entering into similar agreements.

The president of the South African Consumer Union, Ina Wilken, said the union was inundated with complaints by consumers who unwittingly found themselves unable to pay for the products they had purchased, because they were unwittingly placed on micro-loan agreements and were unable to meet the high payments.

She said about 75 percent of South Africans were uneducated when it came to financial matters and knowing their rights. She noted that the micro-lending furniture stores gave loans specifically to these people and said the union’s biggest concern was finding a way to educate them about their rights.

Engela Botha, a spokesperson for the Furniture Traders Association, said she was aware that sales representatives were getting customers to sign deals, which included purchasing life insurance, without explaining the terms of the agreement.

“I know they are doing that, which is wrong, and we find it is a big problem especially with illiterate people. There are sales staff who do not sit down and explain to the customer what they are in for. We have addressed it at meetings and asked our executives to please address the problem, but it is very widespread,” Botha said.

She said a majority of the people caught in loan agreements were poor. “The majority of these poor people are over-extended and it’s just not right,” Botha said.

Wilken urged consumers not to enter into any rash deals during Christmas and advised them to read the fine print on any document they signed.

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