The Foschini Group (TFG) will oppose the National Credit Regulator’s (NCR) finding that the magazine and club fees they charge account holders contravenes the National Credit Act (NCA). This week the NCR referred TFG to the National Consumer Tribunal (NCT) for the club and magazine subscriptions they add to accounts. In June this year MrP Group was also referred to the tribunal for adding club fees to accounts and in April the tribunal ruled that Edcon was contravening the NCA by adding club fees to store accounts.

Both TFG and Edcon – and their legal counsel – argue that the club and magazine subscriptions are optional and account holders can subscribe, unsubscribe or opt out at any time without paying any penalty – they therefore view it as any other product purchased by the customer.

“The company is of the view that the referral is based on an incorrect interpretation of the applicable legislation, as the NCA does not limit which products retailers may sell to its customers on their credit accounts,” TFG said in a statement to shareholders.

The credit regulator, however, argue that while the club subscription does not present a problem, the fact that the subscription fee is added to the customer’s monthly credit account, contravenes the NCA, which does not permit the charging of any additional fee to a credit agreement.

The tribunal, for example, In June ruled in favour of Lewis Stores because it found that the furniture retailer issued a separate statement of account for club fees and extended warranties, which was not included in the customer’s credit account.

This ruling, however, upset the NCR lawyers, who vowed to fight THAT ruling, and have lodged an appeal. NCR manager for investigations and enforcement Jacqueline Peters said that because the NCA allows that a customer should be given a quotation before he or she signs any credit agreement, additional costs cannot be added to such an agreement.

The NCR also wants the tribunal to order TFG to refund the club fees they charged, to impose and administrative fine and to interdict the retailer from charging any future customers a club fee.

The selling of club and magazine subscriptions had become a lucrative income for retailers and it is estimated that it would cost Edcon in the region of R2-bn if they have to refund customers, as ordered by the tribunal. Former Edcon CEO Bernie Brooks said at the time that the retailer was prepared to dispute this finding in court, even as high as the Constitutional Court, should it become necessary. He would consider this as a test case for all retailers who offer club benefits, which has become common practice in South Africa.

Millions of customers have subscribed to these retail club benefits, which offer them benefits like funeral and insurance benefits, big discounts on in-store and various other products and services like air fare or cinema tickets – and in the case of the TFG’s stable of magazines, exclusive subscriptions.  Brooks estimates that an Edcon club member can save up to R17 000 per year on benefits offered through a subscription that costs him or her R39-59 per month.

“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 with many of our affinity partners,” the retailer said in a statement.  “The issue being contended by the NCR relates to the fact that the Club fee is not on the list of charges that are allowed to be charged on a credit agreement in terms of the NCA.  However, it is not the Club product or membership that is under contention.”