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JD Group II
| Date: |
20 May 2007 12:00 |
| Producer: |
Michael Duffett
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| Show: | Carte Blanche |
'Chris' (Joshua Doore salesman): 'This is crazy. How can Joshua Doore say that we are not doing our jobs properly?'
This is Chris's response to an internal memo that the JD Group sent to all its stores the morning after a Carte Blanche programme a few weeks ago.
We told the story of how Linda Ellerston had approached the High Court in Pretoria for a ruling as to whether a furniture loan she received from a Joshua Doore store in Silverton was legal.
We reported that since 1992, the JD Group had been in the money lending business in the form of furniture loans. These loans with a much higher interest rate were often given to unsuspecting customers instead of your normal HP, where the interest payable, until recently, was just 20 percent.
[Carte Blanche March 2007] Herman le Roux (National Consumer Watch): 'In my opinion this is the greatest scam in retailing industry of South Africa in its history.'
In court in June last year, JD said that Linda Ellerston had been made aware that she was signing for a loan and they produced two sworn affidavits from staff at the Silverton branch insisting that Linda and all other customers are always given the choice between an HP and a loan at the much higher interest rate.
But hidden cameras revealed that JD staff were not offering both credit options. At every store we visited, bar one, only loans were offered. And in this Russels store, the manager said that their system would not even allow for HP transactions.
Journalist: 'So you don't do HP accounts?'
Manager: 'No sir, we don't do HP accounts.'
The court hearing took place 11 months ago, but the presiding judge has yet to make a ruling as to the legality of these furniture loans.
Ruda Landman (Carte Blanche presenter): 'There was an immediatel response after we broadcast the programme. The JD group issued this internal memo to all its furniture retailers saying, amongst other things, and we quote, 'We are conducting business in a legal way'.'
The memo also stated - 'Group policy has always demanded that the consumer is made aware of the nature and contents of the contracts entered into'.
Bongani, not his real name, is a JD furniture store salesman somewhere in South Africa.
Ruda: 'Tell us about the memo that was sent out after out programme?'
'Bongani' (Morkels salesman): 'It's a lie.'
Bongani had always fought against giving clients the more expensive furniture loans despite, he says, initially being offered a R10 incentive per loan he wrote up.
'Bongani': 'At one stage myself and some friends, we said, no, let them fire us, this is wrong. We are not going to be paid R10 to be mercenaries.'
Bongani wrote up more HPs at the cheaper interest rate and this did not sit well with his bosses.
'Bongani': 'I've been called many times to the office of the manager and many times I have had to sign the counselling forms and things like that.'
He would be taken to task for his poor performance in not reaching furniture loan targets.
'Chris': 'The discussion inside the shop of the Carte Blanche programme was just to go blame the salesmen. After they discussed it everybody decided to blame the sales people and it is not true, JD is to blame for all this.'
Herman: 'That memo, it is a bit laughable. It looks to be another face-saving exercise in front of their staff.'
Herman le Roux runs National Consumer Watch. His phone didn't stop ringing after the Carte Blanche story.
Herman: 'We got hundreds of calls all complaining about the same thing that they did not get a choice between an HP and a loan agreement.'
Nick Ferreira was one person who contacted Herman for advice. He had purchased goods at Joshua Doore but after watching the Carte Blanche programme he checked his contract.
Nick Ferreira (JD Group customer): 'Got the contract out the car ... saw our contract was a loan agreement and not an HP.'
He confronted the manageress at Joshua Doore, who then, he says, phoned head office.
Nick: 'Phoned Glen, from head office, and he explained to her that I've signed a legal document on loan agreement and they can't do anything to it.'
Now furious, Nick noticed the JD staff memo, which JD had issued in response to our first story. He grabbed it stomped out of the store with staff in hot pursuit.
Nick: 'They said to me Mr Ferreira you can't take it. I said to them you pinched my money I am pinching this form now.'
But two days later the branch called him back to the store and cancelled his furniture and gave him an HP contract.
Hennie too marched into a JD store to demand that the loan he had been paying for five months be changed to an HP.
Hennie Basson (JD Group customer): 'She said to me, no, the contract is fixed, they can't do anything on it ... and then, two days after I said I will take my money back, she phoned me back and said she spoke to her GM and they can change it to an HP'
Hennie is now R1849 better off.
Ruda: 'We wanted to know from JD if this is now company policy. Could all customers who were only offered loans now approach their local JD store to have their loans converted to HP, with the lower interest rate.'
Unfortunately we can't give you that answer because JD refused an interview citing the sub judice rule. In one of their emails to us, they requested us to disclose the following. We quote: 'You have ignored the fact that instalment sales agreements and loans agreements are an industry norm and that all major players follow both concepts which are lawful'.
Ruda: 'It is true that this is an industry norm. Whether it is lawful or not is part of what the judge in Linda Ellerston's case has to decide.'
Besides several articles in the press after our first programme, Carte Blanche received a stream of emails from the public and also past and present JD employees.
This man writes: 'The JD group story was just the tip of the iceberg in this saga.'
An ex-senior manager writes: 'Linda's story does not even come near to opening Pandora's box.'
We made contact with this ex-manager who told us about the extreme pressure he experienced when stores had to reach their month end targets.
'Graham' (Ex-JD Group manager): 'You would sit in the branch until 10 o'clock at night until it is achieved. That is when funny things started to happen. People that might want to take HP agreements ... the regional manager or the manager would scrutinise those customer and put them onto loan agreements without the customer signing.'
Ruda: 'In our last story we drew our case studies from Gauteng and the Cape. But the pattern is the same into the farthest corners of the country. This is Vryheid in northern KwaZulu-Natal.'
Meet Thobile Magubane, who works for the educational department in Vryheid. On the day we interviewed her this article appeared in the press. The JD Group expressed concern that - 'customers are starting to default on their loans at a higher rate than previously'. Thobile is one such customer. But her story raises serious questions.
Late last year Thobile, who looks after five children, went into this Russell's store and bought furniture for a whopping R58 120 of which R15 145 was for insurance.
Thobile Magubane (JD Group customer): 'I bought so much because I had this money from my pension.'
Her take home salary is R3151 and she gets a widow's pension of R3000. So could she afford the instalments?
Thobile: 'During my interview with the salesman they said it would be about R1400-and-something. They said if I get this small fortune I could afford it.'
She only got to see how much her actual instalment was when her furniture was delivered. She was in for R2494 per month.
We sat down with her and did some calculations.
Her expenses every month are R5290 leaving her with just R861 - well short of the required R2490 monthly instalment. Clearly she couldn't afford it. Her stop orders bounced and Russells is threatening to repossess her goods.
Ray Williams (FairDebt): 'It is very clear in this case the JD Group is going to get their money back regardless of the fact that they have lent recklessly to the client. They are going to garnishee her and she is going to pay R120 000 to R150 000 back. She is going to be a client for life.'
Ray Williams established FairDebt in Vryheid, a company which assists debtors claim back overcharging, by, in his words, 'unscrupulous debt collectors'. The garnishee order he talks about is a court order which forces a person like Thobile to pay her debt. This is how it works.
If a debtor does not pay her account, she can be handed over to an attorney who then gets a court order to have instalments taken off her salary. The court allows for a 10 percent collection fee and other small tariffs and this amount goes to the attorney for his time and work. The court issues instructions for the debtor's employer to deduct a certain amount from her salary. The employer pays this amount to the attorney who then passes it on to the creditor, in this case, the JD Group.
Ray: 'This one R40 000 back ... on this one R7 000.'
Ray is deeply concerned about tens of thousands of garnishee orders that the JD Group has instituted against defaulters. He believes that every JD customer who has approached him about their garnishee order has a legitimate claim. Ray's concerns are echoed by Clarke Gardner of Summit Financial Partners who has audited 70 000 of the 1.75 million garnishee orders that have been set in motion by various South African creditors.
Clark Gardner (Summit Financial Partners): 'It is riddled with abuse. If we had to extrapolate our audit findings there must be over a billion rand being over-deducted from already distressed borrowers and going into the pockets of unscrupulous lenders and collectors alike. One of our most significant irregularities we have identified in these garnishee deductions orders is the contingency arrangement between the creditors and their collectors.'
So what is this contingency arrangement? Pieter Jordaan's expertise lies in credit management and he has written several books on the subject.
Pieter Jordaan (Professional Business School): 'What the debt collectors do is they make an arrangement with their client, the supplier, that they will pay them say 25 percent, as a commission on a contingency basis. If they collect and they are successful and they claim the money they will get paid 25 percent. If he is not successful they don't pay him. This is attractive for the supplier because at least they will get 75 percent. But this is an agreement between the debt collector and the client and it has nothing to do with the debtor.'
JD appears to do it differently. The additional fee agreement of 25 percent that they have with their attorneys is then billed back to the customer. Look at the JD accounts of some customers with garnishee orders instituted against them. Ray says the same arrangement exists with their many debt collectors who visit the homes of late payers to physically pick up outstanding balances.
Leticia Davids, not her real name, keeps a careful watch on her a JD account. She struggled at some stage to pay when she lost her job but she has always paid something and always kept in contact with the branch.
'Leticia Davids' (JD Group customer): 'The lady from the accounts department told me that they will come and collect the money. They will send a collector to come and collect the money at my home.'
Little did she realise that each time a collector came to fetch an instalment, she would be charged legal fees of 25 percent on the money she handed over
'Leticia': 'If I had known they were charging me those fees I would have gone into the shops myself to pay them.'
Ray: 'Before we start with the queries with the contingency fee, I had opinions from six different attorneys and two magistrates and they all came back with the same comments: that it is illegal and that they cannot believe that these people ever got away with it in the past.'
We contacted the Northern Province Law society for their legal opinion.
We quote from their response: 'The fee of 25 percent on all monies collected in terms of the a contingency arrangement is between JD and its attorneys, and may not be recovered from the debtor'.
Ray: 'This is great news. We always knew that this was the case. Not only is the JD Group in trouble but also all those micro-lenders and other retailers who are adding the contingency fee back onto the accounts.'
Bernard: 'This is tantamount to theft because they are actually stealing something back from the debtor. The poor debtor ends up paying considerably more for the debt than what the garnishee order is.'
Ruda: 'What would you feel like if you were part of the JD Groups Executive?'
Ray: 'I would run away. This is not a small problem. You are not supposed to pay the legal costs. People are suddenly realising that.'
Ray believes that any JD customer whose had a garnishee order against them, or had money physically collected from them via a debt collector, should request a detailed statement in order to determine the extent of overcharging.
Ray: 'They will all get money back. Between 25 and 30 percent straightforward from the contingency fee that was added onto the account.'
We have established that these practices are not the norm in the industry. The Ellerines Group and Lewis Stores, who both have in-house legal teams, do not appear to charge this 25 percent legal fee to their defaulting customers.
Ray: 'That's problem number one, but unfortunately it doesn't stop there. The first one is contingency fee the second one is files getting handed over to more than one attorney.'
Rejoice Ndwandwa (JD Group customer): 'My husband was always asking me, 'Where are you taking the money?', 'Where is the money?' I was afraid to tell him.'
Recently Ray met Rejoice Ndwandwa who was struggling to manage her debt to the JD Group. She had bought furniture for the amount of R38 000. Her instalment was R1708. She went into arrears. She discovered, after studying her payslip that Morkels had taken out not one but two garnishee orders for the same debt. The first one for R800, and the second for R1850. You can see the double deductions reflected on her statement.
Ruda: 'How did it affect you when all that money was going off your account every month?'
Rejoice: 'It was very bad, it was very frustrating, my life was a living hell.'
Her efforts to sort out the mess proved fruitless.
Rejoice: 'I ended up going there, but there was no help at all. And then at the end I heard of Ray ... then I came here.'
Ray immediately stopped the second illegal garnishee order against her and referred her back to the store who refunded her R6 900.
He is demanding a further R40 972 - the overpayment on her account.
Pieter: 'Now it depends how many of these things [double garnishee orders] are there. If this is an isolated case ... well, I think it could be a mistake or it could be that they are doing it on purpose. But if there is a lot of these and this is the trend within there company, then this needs to be investigated in a little more detail.'
In Ray's small 'word of mouth' business, he has encountered 30 such cases of JD double garnishee orders.
Ray is confident he'll get JD to pay the R40 000 he believes is rightfully due to Rejoice, because he's had success with another JD client, Jabu Khumalo, who teaches at a school 40 kilometres outside Vryheid. After defaulting on her loan, she too discovered that the JD Ggroup had taken out two garnishee orders against her for the same debt. This second deduction of R1 121 was illegal and played havoc in her life.
Jabu Khumalo (JD Group customer): 'Sometimes I couldn't even afford to come to work. I would phone my principal that I could not afford to come to work and that I would have to borrow money from loan sharks.'
For over a year, she would borrow taxi fare for the 40km trip into town to get answers from Joshua Doore and their attorneys.
Jabu: 'I would go into town, to and fro, maybe thrice a week and nothing happened.'
Finally the store stopped the second garnishee order.
Jabu: 'I was puzzled. How come they hadn't noticed the mistake a lot earlier? I was very much upset.'
Then she met Ray who worked out that she was owed R14 000 and sent her back to the JD store to demand a refund. The store offered her R2 000.
Ray: 'I then said, 'No, it is R14 000 because the second judgement is illegal'. They then sent somebody from Durban, 400km to come and see us, and two or three days later they gave us a check for R14 000.'
JD has apologised to Jabu and gave her a R1 000 gift voucher.
But there's more. Because our case studies had double deductions being taken off their salaries, their JD accounts went into a credit balance fairly quickly. But month after month these credit balances appear to be written off to so called legal fees. In Jabu's case she was in credit for 13 months.
Jabu: 'It means that even top dogs there were very much aware of the situation but they didn't bother to contact me. I don't know if they were doing that deliberately or what. I felt used and cheated.'
Ray: 'Every single time the account goes into credit it gets charged. When I asked the clerks at store level what is happening here surely you should phone the person that their account is in credit, he said my instruction is not to phone and to transfer anything above R10.'
We have a copy of the Joshua Doore standing instructions manual, confirming what Ray was told.
It states that where a credit balance has existed for a period of three months or longer such amounts must be transferred to the unclaimed balances account at head office where they will be written off.
The standing instructions dated January 2001 add that when a customer requests repayment they must present the required documentary proof - and we quote - 'we are obliged to refund the amount claimed'.
We tried on several occasions to get an interview with the JD Group and we made it clear that our questions would not be sub judice in respect of the Linda Ellerston court hearing. In our email we stated that we wanted to ask them questions about their debt collecting practices.
In their written response they disagree with our interpretation of the sub judice rule and again refused an interview.
In the interests of transparency, we believe that the JD Group need to answer the following questions:
Which laws allow them to charge a 25 percent legal fee?
What steps are they taking to comprehensively audit their whole operation to weed out double garnishee orders?
Do they ever contact clients who have credit balances?
How much money have they written off in customer credit balances over the last 10 years?
In the meantime, Ray can hardly keep up with his workload. For him there's no better feeling than getting creditors to pay back money to clients that is rightfully theirs.
Ray: 'You know how many people we get an SMS from that say thank you very much we can now live.'
The results of Ray's efforts have had a life changing impact for Jabu for example who got R14 000 back.
Jabu: 'I used the money to pay my sister's school fees and to pay off my debts.'
But she has some harsh words for the JD Group.
Jabu: 'I am very angry with them. There are thousands of people out there who are cheated in the same manner as myself, or even more. My message to those people is that they mustn't sit there and relax on their laurels. They must get their act together and do something.'
IMPORTANT DISCLAIMER:While every attempt has been made to ensure this transcript or summary is accurate, Carte Blanche or its agents cannot be held liable for any claims arising out of inaccuracies caused by human error or electronic fault. This transcript was typed from a transcription recording unit and not from an original script, so due to the possibility of mishearing and the difficulty, in some cases, of identifying individual speakers, errors cannot be ruled out.
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