On-the-road fees in vehicle finance ‘do not contravene’ credit act

The ‘on the road’ fees consumers are charged when purchasing a vehicle are legal and not a contravention of certain provisions of the National Credit Act (NCA), the High Court in Pretoria has found.

Judge Patrick Malungana, with Judge Anthony Millar concurring and Judge Graham Moshoana dissenting, handed down judgment this month to four interrelated appeals arising out of conflicting decisions from the National Consumer Tribunal – and cross appeal by the National Credit Regulator (NCR).

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The conflicting tribunal decisions related to the proper interpretation of Sections 100, 101 and 102 of the NCA and the alleged contravention of these sections by Volkswagen Financial Services SA (VWFS), BMW Financial Services SA (BMWFS) and Mercedes-Benz Financial Services SA (MBFS).

These interrelated appeals were consolidated into a single appeal for the purposes of the hearing before the High Court in Pretoria.

This followed the NCR in 2017 and 2018 issuing compliance notices against these vehicle financiers in which they were found to have charged consumers an “on the road, admin fee and handling fee” on credit agreements – which were “disguised and/or inaccurately disguised as service fee and delivery in credit agreements” in contravention of various sections of the NCA, according to the ruling.

Aggrieved by the issuance of compliance notices, the financiers approached the National Consumer Tribunal to have them reviewed and set aside.

However, in adjudicating these matters the tribunal issued conflicting decisions to the reviews lodged by MBFS, BMWFS and VWFS.

On review, the tribunal cancelled the compliance notices issued against BMWFS and MBFS.

However, it confirmed the compliance notice issued against VWFS – and ordered that VWFS must from 10 April 2019 cease the practice and/or conduct of charging consumers an “on the road, admin fee and handling fee” on credit agreements and submit written confirmation to this effect to the NCR by no later than 25 April 2019.

VWFS was also required to identify all the consumers who had paid this fee, calculate the total amount involved (charges, fees or interest levied on the “on road, admin and/or handling fees”) and refund those consumers those amounts.

VWFS was also required submit to the NCR a report by an independent auditor setting out:

• The number of consumers who were levied those charges, fees or interest;
• The number of consumers who were refunded those charges, fees or interest; and
• The total amount of charges, fees or interest refunded to consumers.

VWFS, MBFS and BMWFS argued that “the on road” fee and other pre-delivery services are not charged by the financiers but by the dealer to ensure that the vehicle is delivered to the consumer in a satisfactory manner.

They also claimed that the fee charged by the retail sellers only forms part of the purchase price and that 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.

Malungana said there is no vagueness in Section 100 of the NCA, adding that it prohibits the credit provider from charging or imposing monetary liability upon the consumer.

He said no obligation or financial liability has been imposed by the credit provider when the latter finances the principal debt, which has been pre-determined by the dealer, and that Section 101 will only be triggered if the credit provider were to charge for the goods or services prohibited in Section 100 because that would increase the cost of credit.

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Malungana stressed that dealers and financiers perform separate roles which complement each other in the process leading up to the conclusion of the credit agreement.

“I am persuaded that the financiers have not charged consumers the on road fees when they included these fees and services in the credit agreements,” he said.

He said the conundrum in the NCR’s interpretation that the financiers become the owners of a vehicle upon purchasing that vehicle from the dealer is that it is the consumer who negotiates the sale and specifications with the dealer.

Malungana said 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 only serves as a security for the fulfilment of the consumer’s obligations under the credit agreement.

“Under the circumstances, there is no merit 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,” he said.

Malungana added that the accepted interpretational principles require that a meaning must be given to Sections 100-102 that is consistent with the object and purpose of the act.

“Having regard to the object and purpose of the NCA, I am of the considered view that the financing of the ‘on the road fee’ in credit agreements will enhance accessibility by vulnerable consumers to the credit market, within the context of s 3 [Section 3] of the relevant Act.

“I therefore conclude that the financiers did not contravene the provisions of the implicated sections of the NCA,” he said.

Malungana upheld with costs the appeal lodged by VWFS and dismissed with costs the cross-appeal by the NCR in the VWFS Volkswagen Financial case.

The appeals lodged by the NCR against the decision of the National Consumer Tribunal in both the MBFServices and BMWFS cases were both dismissed with costs.