Recent studies conducted by the Consumer Council of Fiji had found that the hire-purchase (HP) industry in Fiji generates revenue of about $60m per year.
This is the lucrative state of HP market for traders involved in this business.
The question therefore, arises, is how much of this revenue is gained from fair and ethical business practice?
The HP industry has been under the radar of the council for many years now because of the heavy influx of complaints received against it.
Complaints against hire-purchase companies have been consistently featured in the council's top 10 most recurring complaints registered annually.
In the past four years, the council registered 225 complaints from hire-purchase customers.
This does not include complaints registered with other authorities or those that are never officially lodged because of consumers' lack of awareness on issues surrounding the credit economy.
An assessment of the complaints received by the council shows that majority of the credit problems are because consumers lack understanding of their rights and responsibilities when borrowing from credit providers.
Lack of understanding of the implications of credit contracts, over committing to credit, being unable to make repayments and being unaware of their protection under the Consumer Credit Act, are some of the common problems faced by the consumers.
Hence, the council with financial support from the AusAID commissioned a project on consumer credit last year. The project consisted of two parts: one dealing with the effectiveness of the Consumer Credit Act 1999, Consumer Credit (Amendment) Act 2006 and its Regulations 2009 and the other with the practices of the hire-purchase (HP) market in Fiji.
Both reports were launched on Thursday, July 19, 2012 at the Southern Cross Hotel by Acting Prime Minister Aiyaz Sayed-Khaiyum.
This article focuses on some of the findings of HP market in Fiji.
The HP report relied on primary data collected from a nationwide survey on hire-purchase, and from HP outlets.
Size of Hire-Purchase Market
The hire-purchase business of $60m per annum is generated on the basis of $35m worth of consumer durable goods sold on HP per year.
The nation-wide survey of consumers showed that 46 per cent of all those surveyed had purchased white goods on hire-purchase during the period January 1997 to June 2011.
Twenty-nine per cent of these households had purchased on multiple occasions during this period.
A larger proportion had multiple purchases at least on one occasion.
The survey samples were taken from all 14 provinces in the country.
On the basis of the survey results, it is suggested that 81,125 households in Fiji purchased goods on hire-purchase during the period January 1997 and June 2011.
The survey results show that consumers in relatively remote provinces such as Serua, Nadroga/Navosa, and Cakaudrove relied heavily on hire-purchase.
Two relatively remote provinces, Ra and Tailevu had significantly lower incidence of reliance on hire-purchase.
The reaches of HP companies were not very effective for these two provinces.
Lau and Kadavu had a very small number of consumers relying on hire-purchase, since there is lack of easy access of consumers from these areas to major hire-purchase companies.
According to the findings by the council's consultant, HP companies generate revenue from five streams. These are:
* selling goods on cash;
* selling goods on credit by financing;
* selling extended warranty;
* insurance; and
* non-interest charges related to administrative costs.
Annually, therefore, HP companies generate $25.5m from non-interest charges related to administration such as documentation fee, telephone calls etc.
Total credit business is $57m per year which is 95 per cent of the value of the goods sold on HP annually.
The leading HP dealer in the market does not separate interest charges from other charges that make up the total credit charge.
If this is done, it becomes easier for the consumer to understand the breakdown of their financial obligations.
The credit business of the HP companies is a separate line of business from selling goods from their stores.
It is, in essence, business relating to finance. These companies, however, do not fall within the ambit of the regulatory authority of the Reserve Bank of Fiji.
Since there is no regulatory authority on financial transactions of the consumer credit transactions, the prospect of a fair trading body examining the basis of the interest charges needs to be explored by consumers and consumer bodies such as the Consumer Council of Fiji.
The need to bring financial transactions of the consumer credit industry under a credible regulatory authority is one of the recommendations of the report which needs to be given due consideration in light of the exploitation of vulnerable consumers who are suffering at the hands of the hire-purchase dealers.
Next week: more on credit charges
* This is a weekly contribution from the Consumer Council of Fiji.