Court ruling piles on misery for vehicle buyers

● The National Credit Regulator (NCR) appears to have come to the end of the road in its fight to outlaw the practice of padding car loans with “on-the-road” fees, including predelivery checks and car valets.

Motor dealerships and their financing bank partners will welcome the news that the Pretoria high court has endorsed the adding of on-the-road fees — also referred to as delivery or service fees — to car finance deals, ending five years of legal uncertainty over the issue.

The NCR has since 2017 been arguing that the National Credit Act (NCA) does not make provision for an on-the-road fee, administration fee or handling fee to be added to credit agreements.

It’s common practice for motor dealerships to bloat the principal vehicle debt with such fees — including the cost of a pre-delivery check, valet and even gifts for the new owner — on the grounds that these are part of the cost of preparing vehicles for sale.

The NCR’s view is that section 102 of the credit act allows for only a limited list of extras to be added to a credit agreement: a tank of fuel, number plates and licence and registration fees.

In 2017 the National Consumer Tribunal confirmed a compliance notice the NCR served on VW Financial Services, ordering the credit provider to stop adding the fees to vehicle finance contracts, and to refund the thousands of customers who’d been charged the extra amounts.

In that case, the NCR cited the example of a VW dealership invoice including an onthe-road fee of R4,446 plus a service fee of R3,990, totalling R8,436 — the same amount as was described as “service & delivery” in the VWFS contract.

The NCR issued compliance notices against Mercedes-Benz Financial Services (MBFS) and BMW Financial Services (BMWFS) for the same reasons, but the tribunal chose to cancel those notices.

The judgment handed down last week was in respect of four interrelated appeals, consolidated into a single appeal, arising from those conflicting tribunal decisions on the proper interpretation of the section of the act relating to extra charges.

Acting judge Patrick Malungana said it was the motor dealerships that imposed the costs in question, not the “financiers”.

“The financiers finance the principal debt which has been predetermined by the dealer,” he said.

“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, being the amount deferred under the agreement, plus the value of any item contemplated in section 102.

“The financiers have 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,” the judge said.

VWFS’s appeal against the tribunal’s decision was upheld with costs; the NCR’s cross-appeal was dismissed with costs; and the NCR’s appeals against the tribunal’s decisions in the BMWFS and MBFS cases were dismissed with costs.

With that, the hopes of the thousands of consumers that they would be refunded their on-the-road fees — and all the interest they paid on them for five or six years — evaporated.

And motor dealerships across the country will continue adding those “vehicle preparation” costs to their invoices, for both cash and financed deals.

A spokesperson for the NCR’s legal team told The Sunday Times it was too early to say if the NCR would appeal the ruling.

Three judges heard the matter, but one of them, judge Graham Moshoana, dissented from the majority judgment.

“If the interpretation preferred by the finance houses is accepted, then on-the-road fees may be sneaked into a credit agreement even where the consumer did not agree to them,” Moshoana said.

That is what many car buyers have complained about over the years: that the “delivery fee” appeared on the dealership’s offerto-purchase document without any discussion and no breakdown of how it was arrived at.

Critics of the entrenched industry practice argue that this fee — essentially a dealership’s operating costs — should be added to the advertised price of a vehicle rather than sneaked in as an extra.

But speaking on condition of anonymity, a former vehicle finance executive argued that consumers should be more worried about “all the other extras and whether the sale price and trade-in price is fair”.

“What we should be worrying about is why a dealership offers R10,000 less for a trade-in, or charges R8,500 for a tow bar worth more like R4,000, etc,” he said. “Added up, those amounts are far more significant than a ‘delivery’ fee.”