Loan company exploited social grant beneficiaries, court rules

The Johannesburg High Court has declared that it is unreasonable to offer social grant beneficiaries insurance for disability and retrenchment if they are already disabled or unemployed.

An insurance product offered by credit provider JDG Trading included cover for disability and retrenchment. But disabled and unemployed clients, mostly social grant beneficiaries, would never be able to make a claim for disability or retrenchment.

The court ruled in May that this exploited social grant beneficiaries who took out loans from JDG Trading and infringed on their constitutional right to social assistance.

JDG Trading offers loans to social grant beneficiaries for household goods and furniture. When a customer signs up for a loan, they are required to insure the loans. They can purchase insurance from JDG Trading directly or from another provider.

Because JDG Trading’s insurance bundle included cover for disability and retrenchment, and many of its clients are already disabled or unemployed, the National Credit Regulator took JDG Trading to the National Credit Tribunal, arguing that the insurance policy was unreasonable and therefore against the National Credit Act.

The National Credit Tribunal ruled in favour of JDG Trading. The regulator then took the matter to the high court.

The regulator argued in court that by offering cover for retrenchment and disability to unemployed or disabled people, JDG Trading made customers assume a risk that was unreasonable.

JDG Trading was using these customers, who could not fully benefit from the policy, to subsidise others who could, the regulator argued.

Black Sash, represented by the Centre for Applied Legal Studies, joined as a friend of the court. They argued that the insurance policy particularly affected social grant beneficiaries and therefore infringed on the constitutional right of access to social security and social assistance.

Black Sash submitted expert evidence from an actuary to demonstrate the impact on customers.

But JDG Trading argued that its policy was not unreasonable because consumers were not obliged to sign up for its insurance and were free to obtain the insurance elsewhere.

JDG Trading argued that the regulator and Black Sash had taken a “paternalistic approach” and failed to provide any evidence of consumers who misunderstood the policy’s provisions at the time they signed up or had been deceived. They said that their product was affordable and convenient, thereby enabling greater access to credit.

Judges Shaida Mohamed and Judge Khashane Manamela of the Gauteng High Court in Johannesburg agreed with Black Sash and the regulator that the policy was unreasonable.

The consumers in this case belonged to a marginalised group who are dependent on social grants for their existence, the judges said. Because the insurance policy was offered to the consumer at the point of sale it was unlikely they had time to consider it properly.

JDG Trading had conceded that this class of consumers could never have made use of the policy and therefore it was clear they were cross-subsidising younger consumers who could benefit from the policy.

Pensioners would not knowingly sign up for a disadvantageous policy, the judges said. There was no option to exclude the disability or retrenchment cover from the bundle.

By placing an unfair burden on a vulnerable segment of society, the insurance product was at odds with the goals of the National Credit Act, which aimed to make credit more accessible and combat inequitable and discriminatory practices to this end, the court said.

The appeal was therefore upheld with each party to pay their own costs.