Pick n Pay has moved to allay fears that it is preying on South Africa’s most vulnerable with its recently-launched store credit offering, saying that it is trying to offer the fairest package it can, with no hidden costs.

The credit product will function with the group’s current Smart Shopper rewards card, and will allow customers to purchase groceries on credit for between R1,000 and R40,000 – depending on how much each individual qualifies for.

The agreement carries no initiation fees, no transaction fees, and a monthly service fee of R10.

Deputy CEO, Richard van Rensburg said that the retailer is following the National Credit Act strictly, and even conceded that it was not a good idea to buy consumable items like food on interest-bearing credit.

However, he stressed that the Pick n Pay product did not charge any interest, provided customers pay the full amount due by the end of the month. The credit offer also has debt insurance available as an additional buy-on.

Debt counsellors have warned consumers against going this route, saying that if you have reached the point of having to purchase food on credit, you’re already in major financial trouble.

Consumers in this position are already at risk of being unable to pay back the money at the end of the month, and going the route of food on credit will undoubtedly add to an already stressed debt problem.

What happens when you can’t pay

Pick n Pay markets its credit agreement as not carrying any interest as long as users pay up in full by the end of the month. The actions taken when this fails to happen are hidden in the terms and conditions.

The credit product is underwritten by RCS, which operates the store credit for retailers like Coricraft, Cape Union Mart and Supaquick, among others.

In the group’s terms and conditions for Pick n Pay credit, when a customer fails to pay their dues at the end of the month, a custom interest rate kicks in, which is charged daily, and compounded at the end of the month.

Your interest rate will be shown to you on your initial sign-up, based on your own credit assessment – however RCS says it can not be higher than the maximum allowed by the Credit Act. With the repo rate at 6.75%, this is around 28% per year, for unsecured credit.

However, the terms and conditions also state: “If you are in arrears, additional interest will be charged on overdue amounts at the same rate as the interest rate applicable.”

Further, if your account goes into arrears, the credit provider can also do the following:

• 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 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.

These terms and conditions are standard, and reflect many credit agreements – however, its these same charges that often lead to consumers becoming so indebted in the first place.

Nearly half of credit-active South Africans are already in financial distress, with some surveys showing that for every R100 spent, R72 goes to servicing debt in the country.

“Food is a necessary living expense which you need to be able to have access to and it’s not wise to spend credit on food, especially when you can’t afford to pay that credit off in its full capacity at the end of the month,” said debt counsellor, Deborah Solomon.

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