The High Court in Pretoria has found that BMW Financial Services (BMWFS), Mercedes-Benz Financial Services (MBFS) and Volkswagen Financial Services (VWFS) did not charge consumers “on the road” (OTR) fees in contravention of the National Credit Act (NCA).
In a judgment handed down on 20 January, it also found that the financing of OTR fees in credit agreements does not contravene sections 100, 101 and 102 of the NCA.
In 2017 and 2018, the NCR issued compliance notices against the finance houses following an investigation. The NCR said the financiers were found to have charged consumers an “on the road, admin fee and handling fee” that was “disguised and/or inaccurately disguised” as service and delivery fees in credit agreements, in contravention of the NCA.
Before the NCR began cracking down on OTR fees, many dealerships added these fees to the price of a financed vehicle to cover “extras” including, for example, a pre-delivery inspection/safety check, cleaning, and admin. These extras could add up to thousands of rands.
The NCR contended that adding OTR fees to vehicle finance agreements was not permissible under the NCA. It said the Act allows only for initiation fees, actual delivery of a vehicle, extended warranties, a tank of fuel, and licence and registration fees. Any additional expenses should not be built into the purchase price.
The NCR ordered the financiers to furnish it with a list of all consumers who had been charged OTR fees since 1 June 2007 (when the NCA came into effect), show evidence of how much they were charged, and refund (OTR fees plus interest) all affected consumers by 14 December 2017.
Tribunal’s conflicting decisions
The three vehicle financiers approached the National Consumer Tribunal (NCT) to have the compliance notices reviewed and set aside. After adjudicating the matters, the tribunal issued conflicting decisions.
In 2019, the NCT confirmed the compliance notice issued against VWFS but modified it in certain respects.
It ordered that, from 10 April 2019, VWFS must cease charging consumers “on road”, admin and handling fees on credit agreements and submit written confirmation to this effect to the NCR by 25 April 2019.
VWFS was also required to calculate the total amount of charges, fees or interest levied on OTR, admin and/or handling fees and refund consumers those charges, fees or interest levied.
However, in May 2021, the NCT cancelled the compliance notices issued against MBFS and BMWFS, after concluding that OTR fees are allowed.
The decision by the Full Bench of the High Court related to four interrelated appeals and a cross appeal by the NCR. The four appeals were consolidated into a single appeal, which arose from the NCT’s conflicting decisions relating to the interpretation of sections 100, 101 and 102 of the NCA and the vehicle financiers’ purported contravention of these sections.
These sections prescribe the types and nature of fees, and/or services that credit providers may charge or not charge consumers in respect of an instalment sale, a mortgage agreement, a secured loan or a lease agreement.
VWFS, MBFS and BWWFS contended that OTR fees and other pre-delivery services are not charged by the financiers but by dealers to ensure that a vehicle is delivered to a consumer in a satisfactory manner.
They submitted that the fees charged by the retailers form only part of the purchase price. These fees are determined and charged by the dealer to cover the costs of vehicle registration, licensing fees and number plates, fuel and other items in connection with effecting delivery.
OTR fees are charged by dealers, not financiers
Judge Patrick Malungana, with Judge Anthony Millar concurring, said section 100 of the NCA prohibits a credit provider from charging or imposing monetary liability upon a consumer. “No obligation or financial liability has been imposed by a credit provider when the latter finances the principal debt, which has been pre-determined by the dealer.”
He said section 101 will be triggered only if the credit provider were to charge for the goods or services prohibited in section 100, because that would increase the cost of credit.
Dealers and financiers perform separate roles which complement each other in the process leading up to the conclusion of the credit agreement.
“It was clear that section 101 prohibits a credit provider from requiring payment by a consumer under the credit agreement of any money or other consideration except the principal debt – the amount deferred under the agreement, plus the value of any item contemplated in section 102,” Judge Malungana said.
He said the vehicle financiers correctly argued that the NCA does not contain any prohibition on what amounts may be financed by the credit provider at the request of the consumer.
Judge Malungana said the “conundrum” in the NCR’s interpretation that the financiers become the owners of a vehicle upon purchasing the vehicle from the dealer is that it is the consumer who negotiates the sale and specifications with the dealer.
“The NCR concedes that the dealer and the consumer add the extras to the purchase price payable for the vehicle selected by the consumer in the pre-agreement stage. It seems to me that the financier merely finances the principal debt, which constitutes the purchase price and other extras, including the ‘on the road’ fee plus other services.”
The registration of the vehicle in the name of the financier served only as security for the fulfilment of the consumer’s obligations under the credit agreement.
“Under the circumstances, there [are] no merits in the NCR’s argument that the credit provider had charged consumers ‘on the road’ fees in contravention of the provisions of the NCA. The dealer imposes the monetary liability on the value of the fees and services which it provides to the consumer at the initial stage of the sale process.”
Judge Malungana said that, taking into account the aims and purpose of the NCA, he was of the view that the financing of OTR fees in credit agreements “will enhance accessibility by vulnerable consumers to the credit market”.
Costs order
The NCR asked the court not to grant costs against it if its application failed, because it was merely fulfilling its statutory obligations.
Judge Malungana said the matter involved legitimate issues of compliance with the NCA that require interpretation of the relevant sections.
“That places the matter squarely in the sphere of public interest litigation notwithstanding that the parties to litigation are private entities. It is members of the public who buy the products and make use of the services rendered by these entities, and it is in the best interest of the public that the legal dispute surrounding the interpretation of the relevant sections be resolved. The outcome of these proceedings will also have an impact on other entities who find themselves in similar situations,” he said.
Judge Malungana therefore awarded costs, including the costs of two counsel, against the NCR.
Dissenting judgment
The third judge on the Full Bench, Judge Graham Moshoana, handed down a dissenting judgment, contending that OTR fees are not included in section 102 of the NCA.
He said a credit provider is prohibited from charging or imposing a monetary liability on a consumer where such charge or liability is deferred or promised to be deferred and where the said charge or monetary liability is payable to a third party in respect of any fee, commission, expense or amount.
Judge Moshoana said a charge or liability must be in respect of a credit facility where the credit provider undertakes to supply the goods to the consumer.
Therefore, even where OTR fees are directly “charged” to the consumer by the dealer, “the moment the credit provider advances a credit facility and undertakes to supply the goods (movable property and the OTRs included) and defers the obligation for the consumer for the cost of the goods, a monetary liability is imposed on a consumer in respect of the fees, commission, expense or other amounts payable by the credit provider to a third party (dealer), contrary to the provisions of the NCA”.
He said the “only saving grace” for the fees, expenses, commission or any other amounts payable by the credit provider to a third party is when in section 102 or elsewhere in the NCA such payment is allowed. He said the costs that could be included in the cost of credit were the principal debt, initiation fee, service fee, interest, cost of credit insurance, default administration charges, and collection costs.
“Anything outside the listed costs or fees by the credit provider is a prohibited payment required from the consumer. The OTRs as defined elsewhere in this judgment fall outside the costs or the fees listed. Accordingly, the credit provider is by law prohibited to require the consumer to pay for the OTRs,” Judge Moshoana said.
I think on the road fees should be revised by both the parties.
It’s not fair for consumers to pay for Four years for example for fees that were hidden in the contract.
To cover the dealership cost they can then create a sundry invoice to also cover their cost, this cost can then be dealt in”cash”. Or once off.
The honours lies with the dealer to educate their customers.