This SCA ruling means that if a bank-financed used car has a defect, the bank is now also responsible - not just the used car dealer.
In a ground-breaking judgment, the Supreme Court of Appeal has ruled that a bank is not only a creditor, but also a supplier that is subject to the provisions of the Consumer Protection Act (CPA) if it finances your car.
Until now, consumers who bought a used car that had problems in the first six months could return it to the dealer and receive a refund. If the car was financed by a bank, the consumer had to repay the bank after getting the refund from the dealer, or the court or Consumer Tribunal could order the dealer to repay the bank’s share directly to the bank.
The bank would never be in the picture otherwise. However, the Supreme Court of Appeal (SCA), did not agree with this and ruled that the bank is also a supplier and must therefore take responsibility for the defective car.
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SCA’s ground-breaking ruling a victory for consumers and wake-up call for banks
Consumer attorney Trudie Broekmann, who represented the consumer, says this “ground-breaking judgment is a victory for consumers and a wake-up call for banks”. She says it is a game-changer for consumers, banks, and dealerships, and will compel banks to repay consumers who bought a defective vehicle financed by the institution.
The SCA ruled against WesBank on 10 December in favour of the consumer, Alta Van Niekerk, upholding her appeal with costs against an earlier order of the Mahikeng High Court. In addition, the SCA ordered the bank to repay Van Niekerk R170 023 for the defective Ford Ranger it financed.
“Where a consumer would previously have returned his vehicle to the dealership if it turned out to be a lemon, from now on, the financier has to carry the can. This has huge risk and commercial implications for the banks.”
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Consumers can thank SCA for this course-correcting ruling
She says consumers can thank the SCA for this course-correcting judgment, which places appropriate responsibility on the banks. “Until now, they have been in the business of washing their hands of defects, even those which endanger road-users’ lives. They just wanted their money paid back and always said they had no business with defective cars.”
Van Niekerk bought a 2012 Ford Ranger 3.2 TDCI 4×4 Automatic for her son in September 2017 and paid R150 000 as a deposit by way of a vehicle traded in, with the balance financed by WesBank.
However, four days after taking delivery of the bakkie, a defect in the oil cooler of the gearbox was discovered, and despite repairs, the bakkie overheated two months later. The Van Niekerks’ expert mechanic later discovered that a gearbox too small for the bakkie had been installed during the “repair” by the dealership in Klerksdorp.
Van Niekerk’s son then returned the bakkie to the dealership, stating that he was no longer interested in it. He also formally cancelled the agreement through Trudie Broekmann Attorneys, in a letter sent to the dealership as well as WesBank, claiming a refund.
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Bank sued consumer for outstanding payments, but consumer appealed to SCA
The bank ignored the letter despite Broekmann’s proactive attempts to get a response. When WesBank kept on sending debit orders for the car finance instalments and deducting it from Van Niekerk’s account, his attorneys assisted him to reverse the debit orders until they stopped.
Then, during 2019, WesBank sued Van Niekerk for the balance due on the credit agreement. Her attorneys filed a counterclaim for confirmation of her cancellation of the agreement as well as repayment of all amounts paid to WesBank, totalling R170 023, in terms of Section 56 of the Consumer Protection Act.
On 30 August 2022, the High Court in Mahikeng handed down judgment in favour of WesBank with costs and dismissed Van Niekerk’s counterclaim, concluding that she waived her right to cancel the agreement by initially returning the vehicle to the dealership to be repaired.
The court also decided that the CPA does not apply to the credit agreement between Van Niekerk and WesBank as the bank was not the supplier of the vehicle. That is when Broekmann urged Van Niekerk to appeal.
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SCA ruled bank wears to hats: creditor and supplier
Van Niekerk’s legal team argued before the SCA that, due to being supplied with a vehicle that was defective at the time of sale, she was entitled to return the vehicle, cancel the agreement, stop paying instalments to the bank and claim a refund of all amounts already paid to WesBank.
In its judgment, the SCA decided that for purposes of the CPA, “the bank most certainly wore two hats when it entered into the agreement: supplier and credit provider”.
The judges stated that it was their “inescapable conclusion” that the bank was the supplier of the vehicle based on the bank’s contract which stated that it retains ownership of the bakkie until the final instalment has been paid.
Broekmann points out that the banks follow this approach so that they can repossess the vehicle if the consumer defaults on instalments.
The judgment confirmed that, based on the mechanic’s evidence, it was clear that the bakkie had latent (hidden) defects which impaired its use and that also entitled the consumer to cancel the contract using a common law remedy.
The court rejected the bank’s argument that if a consumer initially agrees to have a defective car repaired, they cannot cancel if another defect becomes evident, or the first defect recurs.
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Bank as supplier must also warrant quality of vehicle SCA ruled
“The CPA requires that any goods sold must be safe, of good quality, in good working order and free from any defects. Under Section 56, the bank as the supplier warrants that the vehicle complies with these standards and should this not be the case, consumers have the right to return the vehicle to the bank within six months after purchase, and the bank has to either repair, replace or refund the consumer.”
Broekmann warns that the judgment affects the vehicle sector dramatically, but goes even further as it applies to all goods financed with retention of ownership by the financier, even when the consumer is a corporation to which the CPA does not apply.
The judgment confirms that consumers who buy goods financed through banks may now claim directly against the banks for repairs of goods in case of defects, or to replace them with a properly functioning product, or cancel the contract and obtain a refund from the bank.
Broekmann says this avoids the problems consumers encounter when claiming from dealerships, such as unfounded accusations of driver abuse and dealerships going belly-up.
In addition, she says, the bank will be liable to compensate all affected consumers for any harm caused by the defective product, for example, a pile-up where multiple vehicles may be written off, and road users injured or killed due to defects on a used car, Broekmann says.
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Banks will bring focus to quality assurance after this SCA ruling
She believes banks will likely bring a welcome focus on quality assurance across the market for financed goods in response to the ruling. She refutes the contention that banks will simply pass on the additional cost to the consumer because the National Credit Act prevents this.
“I am optimistic that the shift caused by this excellent judgment will improve road safety for all road users, greater honesty when dealerships market cars and banks taking responsibility for goods they finance.”
Will the banks not simply refer the matter to the Constitutional Court for review? Broekmann says she does not think so. “There is no constitutional aspect which is a requirement for such an appeal. The only other basis you can take it to the Constitutional Court is if there is a triable issue in the public interest.
“Although this case is in the public interest, the points of law are actually very obvious. I do not believe the Constitutional Court will reach any other result. Even if WesBank applies to the Constitutional Court, I do strongly believe the Constitutional Court will not allow it.”
