The Lewis Group [JSE:LEW] is refunding R44.1m to a group of its customers for the cost of loss of employment insurance mistakenly sold to them, together with R23m in interest accrued on this amount.
According to Johan Enslin, CEO of Lewis Group, the refund follows an extensive internal investigation by Lewis, which was triggered by the National Credit Regular (NCR) bringing to the company’s attention three such instances.
Lewis Group’s share price increased by over 1% to between R63.27 and R63.56 on Tuesday.
“As a result of human error at our stores, loss of employment insurance products were sold to pensioners and self-employed customers contrary to our company policy,” said Enslin. “The issue relates to less than 1% of all insurance premiums earned by the Lewis Group since 2007.”
Fin24 reported in July that a mystery shopping experience by Summit Financial Wellbeing, a company which fights for consumer rights and lobbies for change in the financial services industry, uncovered major breaches of the National Credit Act (NCA) by Lewis Group.
Loss of employment insurance cover is used to settle customers’ outstanding balances on their credit agreements in the event of their retrenchment or redundancy. Pensioners and self-employed people cannot be retrenched, and are therefore not eligible for such cover. The sale of such cover to such persons should not have occurred.
“We have now identified the affected customers and the calculations of the amounts to be refunded have been verified by Lewis Group’s auditors,” he said.
About 30% of those affected are existing Lewis customers and the refunds will be credited to their accounts. The remainder of the affected people have settled their accounts and Lewis will refund these customers directly.
“We apologise to these customers and are in the process of contacting them to advise of the refunds due to them. In the case of customers who have already settled their accounts, we are using all possible channels to reach them and will make physical house visits if required,” said Enslin.
Commenting on how the errors happened, Enslin explained, “Although our IT systems included coded controls which excluded loss of employment insurance cover from being selected as an option to sell for certain categories of customers, our investigation revealed that mistakes occurred during the process of entering the client’s employment status details into the system.”
“We take the wellbeing of our customers very seriously and have implemented a number of preventative measures to ensure this type of human error does not happen again,” says Enslin.
“Firstly, staff training, testing and monitoring has always been a priority for Lewis, but we have scaled up these activities significantly. This includes increased staff training on refined credit processes as well as increasing oversight at branch level.”
Secondly, the group has significantly improved its IT systems to address these matters, says Enslin.
Lewis has also enhanced checks in the credit application process. “Our credit approval is done on a centralised basis at head office and has been improved in that all customers who are captured as self-employed or pensioner at store level, are re-checked centrally to ensure loss of employment insurance is not being erroneously sold to them.”
“This is further backed up by a monthly exception report on all transactions involving pensioners and self-employed customers, which is again reviewed to ensure that no loss of employment insurance is incorrectly sold to these individuals.”
“We have also embarked on a communications campaign to further educate customers around their rights on credit-related issues, which includes insurance. Lastly, we have increased the frequency of our mystery shopping research to identify areas that can be further improved.
“At Lewis our focus is on placing customers at the centre of all that we do. This philosophy results in the fact that 50% of our business is from repeat customers, something we are very proud of and which is unique in the South African furniture retail market.
“We know that our customers are satisfied with our merchandise, levels of service and our credit offering, but this matter has been a clear reminder that we cannot rest on our laurels and we will continue to work tirelessly to ensure that something like this does not happen again,” concludes Enslin.
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