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Credit Provider fees deemed illegal – VWFS ordered to refund clients

The National Consumer Tribunal found that the “on the road fee”, admin fee and handling fee charged by Volkswagen Financial Services South Africa (Pty) Ltd (VWFS) on credit agreements are unlawful. Although this is the first ruling of its kind, a National Credit Regulator spokesperson reported, in a recent ENCA interview, that they have detected this type of conduct by other credit providers as well and are taking the necessary action.

Background

In October 2017, the National Credit Regulator (NCR) issued a compliance notice to VWFS for charging consumers an on-the-road fee, admin fee and handling fee under its credit agreements. The NCR stated that these fees were disguised as service and delivery fees in credit agreements and were in contravention of the NCA. The original notice instructed VWFS to refund consumers and submit an audit report to the regulator. VWFS did not agree with this notice and appealed to the higher authority, the National Consumer Tribunal.

The Tribunal Case

VWFS denied that charging consumers was in contravention of the NCA. It alleged that the dealer charged the disputed amounts in terms of a separate agreement concluded between the consumer and the dealer. They further submitted that it does not render the services billed for by the dealer and does not get paid for them. It merely pays the dealer what the dealer charged the consumer. VWFS, therefore, felt that they cannot be held responsible for charging the fees in contravention of the NCA.

The NCR submitted that the only agreement relevant to the matter before the Tribunal is the credit agreement concluded between VWFS and the consumer. The NCA applies only to that credit agreement, and not the purchase and sale agreement entered into between the consumer and the dealer.

The NCR further submitted that VWFS charged consumers amounts which are prohibited and fall outside the closed lists of charges that may legitimately be imposed as listed in sections 101 and 102 of the NCA.

Questions that the Tribunal then had to answer were:

  •  “If an item is not listed in section 102(1)(a) to (f) and provided the credit provider meets the requirements of section 102(2), may the credit provider charge the consumer for such items as part of the principal debt / deferred amount?”
  • “Does the credit provider have the discretion to include any expense item in the principal debt, as long as it advanced the money to the consumer and deferred the payment thereof?”

The Tribunal’s findings

The Tribunal found that, with regard to the practices of the VWFS in general and in this matter in particular, the ‘on the road’, administrative and handling fees –

  1. are credit fees or charges prohibited by section 100(1)(a) of the NCA;
  2. are not credit fees or charges permitted to be charged on a credit agreement in terms of section 101(1) of the NCA;
  3. are not credit fees or charges that can be included in the principal debt deferred of an instalment agreement or a lease agreement in terms of section 102(1) of the NCA; and
  4. are disguised or inaccurately disclosed as service and delivery fees in credit agreements in contravention of section 3(e) read with section 92(2) of the NCA.

VWFS was ordered to:

  • cease the practice and/or conduct of charging consumers the “on the road” administration and handling fees on credit agreements from April 10, 2019
  • to submit written confirmation to the national credit regulator (NCR) to this effect no later than 25 April 2019;
  • calculate the total amount of charges, fees or interest levied on the “on the road” administration and handling fees; and
  • refund all those consumers charges, fees or interest levied and submit a report by independent auditors to the regulator.

According to a TimesLive article, Volkswagen Financial Services South Africa said it was “reviewing the ruling and obtaining legal advice. We shall revert in due course.”

It will be interesting to see further developments in this space, especially with regards to the conduct of other credit providers. BMW followed a similar approach to Volkswagen, but to the best of our knowledge, the outcome of their appeal is not yet known at this stage.

Click here to download the full National Consumer Tribunal finding.

Click here to read the 2017 Moonstone article titled “Credit Regulator Cracks down again”.

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