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Shoprite faces scrutiny over reckless lending

by , 15 October 2015

The National Credit Regulator (NCR) has highlighted that Shoprite may be guilty of reckless lending. The regulator has now referred the matter to the National Credit Tribunal.

The allegations involve activities at two of the company's units.

Let's take a closer look at what's going on…

Shoprite breached the National Credit Act

Two units of Shoprite [JSE:SHP], Shoprite Investments and Shoprite Insurance, are under investigation, reports Fin24. This comes after the NCR found that the units “sold job loss insurance and occupational disability cover to pensioners and consumers who are receiving government social grants for the elderly”.

The regulator also said that Shoprite “sold a consumer a job loss insurance policy for a six month loan that had a waiting period of six months,” says IOL. This comes as the government cracks “down on reckless lending”.

The NCR now wants an audit conducted into Shoprite, notes BDLive.

The referral to the National Consumer Tribunal could “order Shoprite to refund the affected consumers, write off the reckless loans and pay an administrative fine” for breaching the National Credit Act, says Fin24.

The NCR says Shoprite’s actions are “unreasonable and imposes an unreasonable cost to such consumers,” says MoneyWeb. Plus the sale of unaffordable insurance products didn’t provide any benefit to the consumers who bought them.

The impact of the probe on Shoprite

Shares in Shoprite reacted to the news, falling “as much as 3.4%” yesterday, says Bloomberg. By market close, the share was 1.1% down.

Nic Norman Smith, a portfolio manager with Lentus Asset Management, said this could be damaging to Shoprite’s brand reputation, but the group would take it on the chin,” adds IOL. He said the outcome “was unlikely to be material”.

At time of writing, Shoprite shares were trading 0.5% lower at R154.88 against a rise of 0.3% in the JSE Top 40 Index.

Time will tell what the consumer tribunal does with the National Credit Regulator’s findings about Shoprite.

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Shoprite faces scrutiny over reckless lending
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