SCA rules BMW, Volkswagen and Mercedes-Benz did not contravene the NCA by charging OTR fees in their vehicle finance agreements.
The National Credit Regulator (NCR) has failed to overturn a judgment that found the financial services divisions of BMW, Volkswagen and Mercedes-Benz did not contravene the National Credit Act (NCA) by charging consumers for on-the-road (OTR) fees in their vehicle finance agreements.
The NCR launched the appeal in the Supreme Court of Appeal (SCA) after a majority judgment of the High Court in Pretoria found that BMW Financial Services, Volkswagen Financial Services, and Mercedes-Benz Financial Services did not charge consumers the OTR fees.
That judgment found that the three credit providers merely financed the purchase of motor vehicles on credit, the purchase price of which included the OTR fees agreed upon between consumers and motor vehicle dealers.
Judge Tati Makgoka, with Judges Ashton Schippers, Daisy Molefe, David Unterhalter, and Acting SCA Judge Mokgere Masipa concurring, dismissed the NCR’s appeal in the SCA on Friday.
However, the SCA judgment reaffirmed that organs of state pursuing public interest litigation should not ordinarily be ordered to pay costs, and set aside the costs orders made by the full court against the NCR and replaced them with an order that each party should pay its own costs.
The matter arose from the practice of credit providers including OTR fees in motor vehicle finance agreements, with the NCR determining that such fees contravened sections 100, 101 and 102 of the NCA.
OTR fees are added to the purchase price when consumers purchase vehicles through dealers.
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ORT fees
These OTR fees comprise fees for various services provided by vehicle dealers, including costs for services such as conducting a pre-delivery inspection, obtaining roadworthy certificates, licensing the vehicle, acquiring licence plates, delivery, fuel, and fees charged by the Financial Sector Conduct Authority (FSCA).
The NCR conducted investigations in 2017 into the practice of charging OTR fees within the motor retail industry.
This led to the NCR issuing compliance notices against BMW, Volkswagen and Mercedes-Benz, alleging that by including OTR fees in the financed amount, they had unlawfully imposed charges not permitted under sections 100 to 102 of the Act.
BMW, Volkswagen and Mercedes-Benz responded by applying to the National Consumer Tribunal (NCT) for orders to review and set the NCR’s compliance notices.
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Tribunal case
Their applications were submitted separately on different dates to the NCT and were considered by different panels of the tribunal.
BMW and Mercedes-Benz were successful in getting the NCT to set aside the NCR’s compliance notices, on the basis that the OTR fees were charged by dealers rather than by the credit providers themselves.
The NCT concluded that vehicle dealers are not prohibited from charging OTR fees, nor is the charging of such fees unlawful in any way.
However, the NCT panel that heard Volkswagen’s application dismissed it, concluding that it had charged the OTR fees in contravention of the NCA.
The NCT ruled, among other things, that the OTR fees are credit fees or charges prohibited by section 100(1)(a) of the NCA, and these fees are not credit fees that can be included in the principal debt.
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Appeal
On appeal, the majority of the full court of the High Court in Pretoria ruled in favour of BMW, Volkswagen and Mercedes-Benz, and found that they did not charge consumers the OTR fees separately when these fees and services were included in the credit agreements, and that these fees were negotiated between the dealers and the consumers.
The NCR argued in the SCA that sections 101 and 102 contain closed lists of charges that credit providers may lawfully impose, and OTR fees were not listed and were therefore impermissible.
BMW, Volkswagen and Mercedes-Benz maintained they did not set the OTR fees, which are determined by the dealers in agreement with the consumers, based on freedom of contract between them, prior to the request for vehicle financing.
Judge Makgoka stressed the contention by the credit providers that they only financed the credit agreement and have no responsibility to scrutinise the agreement between the dealer and the consumer is unsustainable.
He said that, unlike dealers who are not bound by the NCA, credit providers are subject to it and are therefore required to ensure the amount they finance as part of the deferred amount in the credit agreement complies with the provisions of the Act.
“Thus, a credit provider cannot close its eyes to the contents of the agreement it is requested to finance.
“Among others, a provision of a credit agreement is unlawful if its general purpose or effect is to defeat the purposes of the Act or to deceive the consumer,” he said.
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But Judge Makgoka said the cost of the accessories and services supplied by the dealer to the consumer at the consumer’s request is not a fee or charge prohibited by the NCA.
He concluded that, to the extent that credit providers have not imposed additional charges and fees on consumers similar to those mentioned in s 102(1), they have not breached section 102.
Judge Makgoka added it is clear there was a lack of clarity regarding the OTR fees, which in turn has led to a lack of transparency, and that credit providers should not ignore the NCA’s objectives, particularly transparency.
He observed that credit providers earn interest income from financing deferred amounts for the duration of credit agreements – which usually range from 60 to 72 months – and that even a seemingly small amount of OTR fees, when deferred with interest over this period, could generate substantial profits for a credit provider.
Judge Makgoka referred to the High Court minority judgment illustration of this, with an example involving a car valet, which would typically cost R100.
“Financed as part of the deferred amount at 8% over 72 months, the consumer would have paid R676 over the course of the credit agreement. This amount would be higher at the current interest rate of 10.50%, making the debt R703.60 over 72 months.
“There is no indication in the papers before us that the consumers’ attention is drawn to this fact,” he said.
Judge Makgoka said the purpose of the NCA includes ensuring a fair and transparent credit market.
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It aims to protect consumers by promoting responsible borrowing, preventing over-indebtedness, and encouraging the fulfilment of financial obligations. It also seeks to promote equity in the credit market by balancing the rights and responsibilities of credit providers and consumers.
He said credit providers are enjoined to give effect to these purposes, and to this end, this judgment has the following consequences:
- OTR fees to be added to the purchase price must be clearly specified, and the credit provider must state the nature and cost of each individual item.
- Consumers must be asked whether they prefer to pay the OTR fees in cash or have them financed as part of the deferred amount.
- To ensure an informed choice in this regard, consumers must be made aware of the difference between the cash price of the OTR fees and the total cost of the fees – including interest and all other charges – if they are to form part of the principal debt to be financed in terms of the instalment agreement.
This article was republished from Moneyweb. Read the original here.
