Pick’n’Pay made headlines earlier this week after announcing plans to grant its customers the right to buy food on credit through its ‘smart-shopper’ card. The company argued that its proposed program was a means to an end in a country where citizens were finding it increasingly hard to purchase food at certain times of the month. The precarious and often volatile nature of the economy as well as an unemployment rate hovering above 30% were some of the reasons the company put forth to justify why it had chosen to sail these barely chartered waters.
The design of the scheme is fairly simple and quite straight forward. If you qualify for the ‘smart-shopper’ card, you will be able to buy food for up to R40 000, depending on your credit score, after which you will be liable to pay it back within 55 days from the day of purchase. The monthly service fee is set at R10. However, if you fail to settle your bill on time, you will be liable to pay an additional interest cost to the tune of 21% annually. On any other day, this wouldn’t be a cause for concern, except that more than half of all South Africans are three months or more behind on all their payments. According to the National Credit Regulator, the collective bill of this payment default is a staggering R1.7 trillion. This means that for every R100 earned by a South African, R70 goes toward servicing debt. Incidentally, the overwhelming majority of people in this bracket are Pick’n’Pay customers, who make up the lower and middle income groups. Pick’n’Pay knows this, which is why it is endeavouring to pocket a huge chunk of the R1.7 trillion debt pie. You might be tempted to point out that other retailers, Woolworths comes to mind in this regard, are already providing food on credit to their customers. However, to compare Woolworths with Pick’n’Pay customers is to be oblivious of the achingly obvious – that the two are in completely different income brackets, with the former being in a better position to settle its payments while the latter may likely slip further into the abyss of debt. So, what happens if you run into arrears? Well, according to Business Tech, the following is a likely scenario:
- You will be charged default administration costs and any other costs and fees relating to debt collection activities;
- Default information will be submitted to the credit bureaus, which may affect your ability to obtain further credit;
- The company may suspend your credit facility and give you 10 days’ notice before closing your account, in which event you must immediately pay your account in full;
- Your account may be handed over to debt collection agencies for the recovery of arrear amount, the costs of which you will be responsible for; and
- If it has to institute legal action against you in court, you will be liable for all costs incurred, including but not limited to legal costs, as well as collection charges, tracing fees and taxes.
It certainly doesn’t take a credit law professor to deduce that nothing good could ever come out of this initiative. It is not, as Pick’n’Pay claims, about meeting the poor half way. If anything, nothing could be further from it. It is quite simply manicured predatory lending, the oldest trick of preying on the vulnerable.