The Office of the FAIS Ombud was correct when it dismissed a complaint that centred on whether a bank had properly advised a client about the importance of taking out credit life insurance when he bought a motor vehicle.
This was what the Financial Services Tribunal (FST) concluded after being directed by the High Court in Pretoria to reconsider its previous ruling that also upheld the FAIS Ombud’s decision.
The matter dates back to June 2021, when Kedibone Matongo’s husband bought a BMW X5 Drive 30DM Sport from Supertech Shelly Beach (Pty) Ltd for R2 254 908. The purchase was financed by Standard Bank.
Matongo’s husband was involved in a fatal motor vehicle accident three months later. She lodged a claim with Standard Bank, expecting a payout from a credit life cover policy allegedly taken out by her late husband in respect of the motor vehicle.
But, in April 2022, the bank informed her that no credit life cover existed for the vehicle, and the outstanding balance was R2 221 101.64. Her husband had a straight life cover policy, and Matongo received a pay-out of R2 million from this policy.
Standard Bank maintained that her husband had declined credit life cover, opting instead to make his own arrangements.
Dissatisfied, Matongo lodged a complaint with the FAIS Ombud in November 2022, which was dismissed. She then approached the Tribunal. In September 2023, Judge Louis Harms, the deputy chairperson of the Tribunal, dismissed her application for reconsideration, saying it had no prospects of success, and the claim exceeded the Ombud’s jurisdictional limit, which was R800 000 at the time.
Matongo challenged this ruling in the High Court, which, in October 2024, set aside Judge Harms’s decision and remitted the case to the Tribunal for reconsideration by a new panel.
Was credit life insurance declined?
The Tribunal had to decide whether it would serve any purpose to set aside the Ombud’s determination and remit it for further consideration.
Addressing the merits of the application, a key issue was whether Matongo’s husband was properly advised about taking credit life insurance and whether he knowingly declined it. The dispute involved two agreements: the purchase agreement with the dealer and the financing agreement with Standard Bank.
Matongo argued that the Ombud erred in finding that Standard Bank offered her husband credit life insurance, which he refused. She cited section 106 of the National Credit Act, asserting that her husband’s refusal of the dealer’s insurance offer, opting to arrange his own, did not equate to refusing the bank’s offer.
The Tribunal found this concession relevant, because it supported her husband’s awareness of the importance of credit life cover and his decision not to take it when signing the instalment sale agreement with Standard Bank.
The bank’s letter of 7 December 2022, issued after investigating Matongo’s complaint, stated that her husband was offered credit life assurance but declined it. This was evidenced by the electronically signed instalment sale agreement, which included a customer declaration stating: “I confirm that the benefits of credit insurance in relation to this agreement have been fully explained to me and, unless the costs of the credit expressly provide otherwise, I have chosen not to take out such insurance.”
Matongo argued this declaration was made to the dealer, not the bank, but the Tribunal rejected this contention. It noted that the declaration was on the bank’s document, and the official at the dealer’s premises acted as a bank representative.
Standard Bank further explained that Matongo’s husband signed a “Client mandate and record of advice”, confirming his decision to decline credit life insurance covering death, dread disease, disability, and retrenchment. The Ombud found no evidence that credit life cover was taken despite advice being provided.
The Tribunal said Matongo’s claim that the life cover policy was a credit life policy was mistaken. The bank clarified this was a standard life policy, not linked to the vehicle loan.
Matongo’s counsel argued that credit life premiums were included in the vehicle’s total cost. But the Tribunal said this was incorrect, because the agreement’s “Cost of credit” section showed no premium amount for credit life insurance.
The Tribunal found Matongo’s allegations that the bank failed to ensure her husband understood the risks of not taking credit life cover speculative and unsupported. He declined credit life cover on two occasions: first, when completing documents at the dealer’s premises, stating he would arrange his own cover, and second, when signing the bank’s instalment sale agreement. The Tribunal concluded that these actions refuted claims of inadequate advice or the existence of credit life cover.
The Tribunal deemed Matongo’s application frivolous and vexatious under section 234(4) of the Financial Sector Regulation Act, which allows the summary dismissal of applications lacking legal merit or serious purpose. It defined a frivolous claim as one that is absurd or without serious purpose and a vexatious claim as one launched without a serious legal basis.
Assuming the above article is accurate, it seems like her husband probably chose to take an ordinary life policy, which would still pay out to his widow even if he had died after the end of the loan term of the car loan, instead of credit life insurance that would only provide cover during the term of the loan and even then the cover would be decreasing as the loan was expected to be paid off. This was probably a sensible option, assuming he didn’t have a crystal ball to tell him he would be dead in three months. However, his widow seems to be a chancer who was hoping for a payout on a non-existent credit life policy on top of her payout from the ordinary life policy.