Friday, 3 May 2013

Let’s regulate credit

I think everyone knows by now what I think about store credit. It’s abusive, often based on deception and is a staggeringly expensive way to buy things. It’s also incredibly risky, mainly because stores neglect to explain to customers how their credit agreements actually work. That’s why we hear so often of people ending up hideously in debt, deeply unhappy and with their financial reputations ruined.

Our recent undercover survey of furniture stores confirmed this. All of our mystery shoppers were told that they would be allowed to read the credit agreement only at the time they signed it. Without exception.

I think that’s wrong, morally wrong. I think it’s deliberately deceptive and stores should stop it.

But why do they do it anyway? Why do they go out of their way to keep their customers in the dark? That’s simple. They don’t want their customers to know what the agreements contain because if they did a lot of them would run away screaming. Given that furniture stores make most of their profits from moneylending they have to protect that part of their business above all things.

Most importantly the stores never, and yes I mean never, take the time to warn customers what will happen if things go wrong. They fail to explain that if the customer has a problem paying his or her instalments and the goods are repossessed they will still be lumbered with the debt. Repossession of the goods doesn’t mean the agreement is cancelled, it just means you’ll owe the store slightly less money. Until debt collectors get involved when the debt will just get bigger and bigger.

So what should be done to protect consumers? What can we do to prevent more people falling victim to this deception?

I think I know. We need action from authorities.

My personal preference is for NBFIRA, the Non-Bank Financial Institutions Regulatory Authority to get involved. Partially that’s because it’s their job to do so. The Act that created NBFIRA says that two of their objectives are fostering within non-bank financial institutions the “highest standards of conduct of business” and “fairness, efficiency and orderliness”. But can NBFIRA regulate furniture stores? Yes, it can. The Act lists the various types of companies that NBFIRA covers, including the usual suspects like micro-lenders, insurance brokers and pensions funds but most importantly it specifically mentions “finance or leasing” companies.

That means stores that sell on credit.

The other reason I’d like to see NBFIRA on the case is their track record. They’re effective, aggressive and get things done. They know their job and they’re not afraid to get their hands dirty doing it.

The problem is that NBFIRA is already incredibly busy, dealing with loan sharks, insurance and pensions firms. It’ll be a while before they can turn their attention to furniture stores but does that mean nothing can be done?

Certainly not. I think we can deal with this rather quickly. I think we have another weapon that can be used.

The Consumer Protection Regulations.

They already forbid a store from “causing a probability of confusion or of misunderstanding as to the legal rights, obligations, or remedies of a party to a transaction” but I don’t think that’s enough. I want a new regulation dealing specifically with credit purchases. But, you might ask, don’t we have to pass a new law to do that? Don’t we have to involve Parliament, committees and endless consultation to get that done? Nope.

Section 17 (1) (g) of the Consumer Protection Regulations states that “acts of unfair business practice” can include any “method, act or practice that the Minister may, upon the recommendations of the Director, determine, by Order, to be an unfair business practice”.

So let’s translate that. All it would take would be for the Director of the Consumer Protection Unit to write to the Minister of Trade and Industry politely asking her to order that stores shouldn’t be so secretive about their contracts. But isn’t it going to take ages to draft the new order?

No, I’ve written it for them. They can start with this.
"It shall be an unfair business practice for any supplier who offers products or services for sale by way of a credit agreement not to clearly and completely explain to customers, in writing and before the customer signs any agreement, the details of the agreement, the penalties that might be applied and obligations incurred in the event of default of payment, and the remedies available to the customer in the event of failure by the supplier to deliver the products or service in any way."
Then we want another regulation that guarantees a cooling off period when credit agreements are signed. That would give the consumer a few days to realise their mistake and change their mind. This has already been done in many other countries and it’s a really useful protection. Yes, it’ll inconvenience stores, it might cost them some money getting their goods back, but we can protect them from that. The cost of the return can be taken from the deposit the customer gave the store when they signed the agreement.

Try this.
“Any agreement relating to a sale of goods on credit shall contain a statement explaining that the customer may cancel the agreement in writing within 5 days of signature of that agreement. Any penalties applied by the supplier as a result of the cancellation may not exceed the amount of any deposit made when the agreement was signed.”
Then all we need is some enforcement. There is absolutely no point in having well-written laws and nice-sounding regulations unless someone is prepared to use them to protect the public.

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