The Financial Services Tribunal (FST) has found that feeling “embarrassed for making so many errors” or avoiding inconvenience to a customer is not an excuse for falsifying a customer’s signature on a vehicle delivery note.
Eastern Cape Motor Holdings debarred the representative, “KM”, last year, citing disciplinary hearing convictions and a failure to meet the Fit and Proper Requirements of honesty and integrity.
The motor dealership provides financial services to its customers for which it is licensed as a financial services provider. KM was employed as a finance and insurance marketer.
In a decision handed down on 28 January this year, the Tribunal dismissed the application for reconsideration of the FSP’s decision to debar its representative.
Sequence of events
What should have been a quick-and-easy vehicle sale spiralled into a headache-inducing situation because of repeated human error.
Early last year, KM was required to facilitate a finance application for a Ford vehicle, but the customer later decided to switch and go for a Volkswagen instead. The signed instalment sale agreement mistakenly recorded details for the Ford vehicle. To rectify this, a new agreement was electronically signed on 16 January 2023, reflecting the correct Volkswagen details.
However, this signed agreement still showed the incorrect engine and chassis numbers. Subsequently, a third agreement was drawn up and signed by the customer later that same day, along with a delivery note.
Unfortunately, the delivery note still contained the incorrect details.
When the error was discovered, KM copied the customer’s signature from the 16 January delivery note and pasted it onto a new delivery note dated 18 January 2023 to prevent “inconvenience” to the customer.
The falsification did not go unnoticed. On 2 February 2023, a disciplinary hearing addressed allegations of misconduct against KM, accusing her of fraudulently altering an official document.
Initially pleading not guilty, KM later changed her plea to guilty during the hearing, resulting in her dismissal.
On 8 February 2023, the dealership informed KM of its intention to debar her, citing the deliberate alteration of a legal document as a material breach “of the honest and integrity requirements as noted in Board Notice 194 of 2017”.
The dealership also accused KM of being untruthful when given an opportunity to disclose her errors. On 30 March 2023, the retailer officially issued a notice of debarment to KM.
Should have, would have, could have
The vehicle was financed by Motor Finance Corporation (MFC), a division of Nedbank. Errors in the documents were brought to light by MFC.
KM argued that her actions, although negligent, did not constitute fraud and did not lead MFC to pay the vehicle’s purchase price erroneously.
The representative contended that the delivery note was immaterial – the correct contract was concluded, the motor vehicle was delivered to the customer, and the correct amount was paid by MFC to the respondent.
“I ought to have called the client in to sign the correct delivery note which would accord with version. This would have been the correct process to enable payment to be made…This was a mammoth error of judgment on my part but was never done with the intention of defrauding anybody, inducing a payment which was not due or acting in a fashion which would embarrass the company,” KM said in her defence.
She also claimed that her conduct was negligent. She said she felt embarrassed for making so many errors and did not want to inconvenience the customer to sign another document.
Material importance of a delivery note
Before a bank or a financing corporation releases funds for a vehicle purchase, it demands a completed and signed instalment sale agreement, along with a delivery note. The delivery note must have accurate details and the customer’s signature. Without a proper delivery note, the bank won’t release funds to the dealership.
The customer signed the delivery note on 16 January 2023 and on the same date took delivery of the motor vehicle. The error was identified somewhere between 16 and 18 January 2023.
On the latter date, KM copied and pasted the customer’s signature, changed the date on the delivery note, and forwarded the altered note to MFC for it to release the funds.
In the ruling, the Tribunal determined the delivery note was an essential part of the transaction.
KM intentionally misled MFC by falsely stating that the required transaction documents were signed by the customer. Using a copied or unauthorised signature could have potentially jeopardised the deal in case of a dispute between MFC, the dealership, and the customer, said FST panel member Advocate PR Long, with Advocate W Ndinisa concurring.
“This the applicant knew. It is therefore incorrect for her, to state it politely, to allege that the document was not material for the transaction. Her conduct was therefore intentional, not negligent,” Long said.
Regarding KM’s assertion that she didn’t want to inconvenience the customer, Long noted that there were alternatives. KM could have sent the delivery note for electronic signature, similar to the instalment sale agreement, or she could have met the customer in person to correct the error.
“Instead, knowing that the funds were being withheld by MFC, the applicant elected to manually copy and paste the customer’s signature and in so doing, in essence, intentionally misrepresented to MFC that the customer had signed the delivery note, in order to induce MFC to release the funds to the respondent,” he said.
Feeling embarrassed was also not a valid excuse to deviate from the process, Long said.
“If mere embarrassment is what caused the applicant, a representative with extensive experience in the financial sector, to alter a document without a client’s authorisation and compromise her integrity, she ought not to be burdened with the enormous responsibility of rendering financial services,” Long said.
He ruled that the facts supported the dealership’s finding that KM lacked honesty and integrity.
“The Tribunal can find no grounds to interfere with the respondent’s decision to debar the applicant.”
Borderline case
Included in the ruling was a minority decision the third member of the panel, Advocate NK Nxumalo, concerning the applicant’s conduct in the context of the “transaction”.
Although Nxumalo ultimately agreed with the order made in the main decision, he added that this was not a straightforward case of fraudulent misrepresentation.
Nxumalo argued that the misrepresentation in question did not pertain to “the substantive genuineness and legitimacy of the transaction but to the regularity of the delivery note”.
“Admittedly, intentional misrepresentation is dishonest. The problem here is that the irregularity of the delivery note places this case in the borderline between a financial service rendered qua representative and a generic administrative service rendered qua employee.”
He explained if it had been a cash sale, for example, the same incident could have rendered it a pure case of misconduct in an employment sense and not falling within the provisions of the FAIS Act.
“However, because the purchase was financed by a loan from MFC, the incident occurred in the rendering of an intermediary service. For these reasons, I agree with the order made in the main decision,” said Nxumalo.
“However, because the purchase was financed by a loan from MFC, the incident occurred in the rendering of an intermediary service. For these reasons, I agree with the order made in the main decision,” said Nxumalo.
In reference to above statement, are you saying that if this employee was not a FAIS representative, then she would have only been found guilty of misconduct? Obviously debarment would not be applicable. The purchase of the vehicle through a loan does not fall within the ambit of FAIS, but NCA. Does that then not put her outside of the scope of rendering financial services? Or is it because she is infact a FAIS Rep; hence whether she sells NCA or FAIS product, she is still bound by the Fit and Proper requirements of a FAIS Rep and therefore will still be debarred?