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Mercedes-Benz Financial Services (Pty) Ltd South Africa v National Credit Regulator (NCT/107156/2018/56(1)) [2021] ZANCT 9 (31 May 2021)

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IN THE NATIONAL CONSUMER TRIBUNAL

HELD IN CENTURION

Case number: NCT/107156/2018/56(1)

In the matter between:

MERCEDES-BENZ FINANCIAL SERVICES                             APPLICANT

(PTY) LTD SOUTH AFRICA

and

THE NATIONAL CREDIT REGULATOR                                    RESPONDENT

Tribunal Panel:

Adv F Manamela      - Presiding Tribunal member

Prof T Woker            - Tribunal member

Mr F Sibanda            - Tribunal Member

Dates of hearing       - 25 and 26 May 2021

Date of judgment     -  31 May 2021

JUDGMENT AND REASONS

THE PARTIES

1.         The Applicant is Mercedes Benz Financial Services South Africa (Pty) Ltd, a company duly incorporated in terms of the company laws of South Africa, with registration number 1996/015840/07 (“the Applicant” or “MBFS”). The Applicant is registered with the National Credit Regulator as a credit provider with registration number NCRCP80 in terms of section 40 of the National Credit Act, Act 34 of 2005 ("the Act" or "the NCA").

2.         At the hearing, MBFS was represented by Adv Paul McNally SC and Adv Donavan Smith instructed by Webber Wentzel Attorneys.

3.         The Respondent is the National Credit Regulator ("the Respondent" or "the NCR"), an organ of state and a juristic person within the public administration established in terms of Section 12 of the NCA. It operates from its principal address at 127 Fifteenth Road, Randjespark, Midrand, Gauteng.

4.         At the hearing, the NCR was represented by Adv Paul Carstensen SC, instructed by Mafungo Attorneys.

THE APPLICATION

5.         The Applicant has brought an application in terms of section 56(1) of the NCA to the National Consumer Tribunal ("the Tribunal") to review and set aside a compliance notice issued against it by the NCR.

6.         Section 56(1) of the NCA provides that a party aggrieved by the issuance of a compliance notice may, within fifteen (15) business days after receiving the notice, object to it.

7.         Section 56 provides as follows –

"(1)   Any person issued with a notice in terms of section 54 or 55 may apply to the Tribunal in the prescribed manner and form to review the notice within—

(a)       15 business days after receiving that notice; or

(b)       such longer period as may be allowed by the Tribunal on good cause shown.

(2)       After considering any representations by the applicant and any other relevant information, the Tribunal may confirm, modify or cancel all or part of a notice.

(3)       If the Tribunal confirms or modifies all or part of a notice, the applicant must comply with that notice as confirmed or modified, within the time period specified in it."

8.    The Tribunal accordingly has jurisdiction to hear the objection to the compliance notice and "… confirm, modify or cancel all or part of the notice".

9.         This judgment is based on the documents before the Tribunal as well as submissions made by the Applicant and Respondent at the hearing held on 25 May 2021.

BACKGROUND

10.      The NCR issued a compliance notice against MBFS, in terms of section 55(1) of the NCA, on 29 March 2018, alleging that it had failed to comply with certain provisions of the NCA.[1]

11.      The compliance notice alleged that an investigation conducted by the NCR revealed that MBFS charged consumers an "on the road fee/cost" on instalment agreements, which is a contravention of sections 100(1)(a), 101, 102(1) and (2) of the NCA in that-

11.1. The "on the road fee/cost" is a credit fee or charge prohibited by section 100(1)(a) of the NCA;

11.2. The "on the road fee/cost" is not a credit fee or charge permitted to be charged on a credit agreement in terms of section 101(1) of the NCA;

11.3. The "on the road fee/cost" is not a credit fee or charge 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

11.4. MBFS charged consumers the “on the road fee” despite not having been chosen by consumers to act as the consumer's agent to arrange the service for which the fee was charged.

12.      Part B of the Compliance Notice required MBFS to take the following steps to cure the alleged contraventions of the NCA, namely –

12.1. By 9 April 2018, MBFS had to confirm in writing that it had ceased the practice; and

12.2. By 20 April 2018, MBFS had to submit a list of all the consumers who were charged these fees. By 11 May 2018, the Applicant had to refund all the consumers who were charged these fees.

THE APPLICANT’S CASE

13.      MBFS denies charging consumers a fee in contravention of the NCA. It alleges that the entity which charges this “on the road fee” is the retailer/motor vehicle dealer (“the dealer”).  The dealer charges the consumer this fee in connection with pre-delivery inspection, vehicle registration fees, licensing fees, number plates, fuel and other items in connection with effecting delivery. 

14.      This is a standard fee which the dealer charges for particular models and the amount of any such fee is determined by the dealer. The fee forms part of the purchase price of a motor vehicle, irrespective of whether the transaction is a cash transaction or one financed through a credit provider.

15.      In addition, the consumer may require certain other modifications to the vehicle (for example a sunroof or tinted windows).  These extras and the “on the road fee” are all taken into account when determining the final purchase price of the vehicle.

16.      Where a customer pays cash for his vehicle that is the end of the matter but when a consumer requires the vehicle to be financed, the dealer provides an invoice to the MBFS for payment.[2]

17.      MBFS submits that the “on the road fee” is not a fee originating by or from MBFS as a credit provider or as a credit charge.  Therefore, it is not a “cost of credit”.

18.      MBFS also submits that the NCR has selectively enforced compliance measures in terms of the Act in a manner that is unconstitutional and unlawful.

19.      It further submits that the NCR is only entitled to issue a compliance notice when it has reasonable grounds for its belief that the Applicant failed to comply with the Act.  Given the facts which MBFS provided to the NCR during the course of the NCR’s investigation, the NCR could not reasonably have come to the belief that MBFS had failed to comply with the provisions of the Act.

20.      For the purposes of this judgment, and for reasons which will become obvious during the course of this judgment, we will only focus on the issues relating to the nature of the fees paid.

21.      MBFS provided an overview of the process for purchasing a vehicle as follows:

21.1.  The consumer will select a Mercedes Benz motor vehicle of his choice from a dealer and submit an "offer to purchase";

21.2.  In this offer to purchase the consumer and the dealer will agree on the purchase price of the motor vehicle.  The dealer will list the costs agreed to by the consumer such as the selling price of the motor vehicle, the delivery charges, any additional features that the consumer may have requested and the “on the road fee”;

21.3.  The final purchase price is then totalled and set-off against any deposit and/or the net trade-in value of the vehicle traded in by the consumer to provide the final cost of the motor vehicle;

21.4.  Suppose the consumer wishes to finance the purchase. In that case a finance application is submitted to MBFS, which then processes the application in accordance with the credit assessment procedures set out in the Act and the Regulations;

21.5.  MBFS then provides the consumer with a quotation as well as a pre-agreement in compliance with section 92 (2) of the Act, in terms of which MBFS sets out the proposed terms and conditions on which it proposes selling or leasing the motor vehicle to the consumer;

21.6.  In terms of this quotation, the cash price of the motor vehicle is listed together with the costs of any extras or additions to the motor vehicle, including the “on the road fee” less the amount of the deposit, to give the total principal debt.  The total finance charges are added to the principal debt to give the total balance payable by the consumer to MBFS;

21.7.  The quotation is binding on the parties for a period of five days where after, at the request of the consumer, MBFS must enter into the contemplated credit agreement; and

21.8.  When entering into the credit agreement MBFS provides the consumer with a tax invoice accompanied by the financing agreement.  The details and terms of the tax invoice and the financing agreement are identical to the quotation and pre-agreement disclosure.

22.      MBFS attached five examples of transactions with consumers[3] to show that the “on the road fee” is a fee charged by the dealer and not MBFS. The “on the road fee” is listed as a cost in the tax invoice generated by the dealer.

23.      One example referred to by MBFS at the hearing was the transaction concluded with Mr Bam Deane[4] who purchased a Mercedes Benz C180 from Mercedes Benz Bedfordview (the dealer).  The dealer sent a tax invoice to MBFS, which contained the following details: vehicle price (R531 320.17); active park assist (R12004.39) 9G-tronic (R22899.12); LED static headlamps (R15535.09); mirror package (R6960.52); CO2 Emissions tax (R2024); agent on the road charges (R6052.63). After certain discounts were applied the final invoice total was R509 295.92.

24.      The cash price of the vehicle, plus the additional charges and VAT, were then listed on the instalment agreement/credit agreement[5] concluded between Mr Deane and MBFS. 

25.      In line with the above process, MBFS argues that that the legal construct of the relationship between the dealer, consumer and credit provider consists of three contracts.  These are:

25.1.  The sale agreement between the dealer and the consumer;

25.2.  The sale agreement between the dealer and MBFS; and

25.3.  The instalment agreement between MBFS and the consumer.

26.      MBFS acknowledges that on certain of the transactions[6] the “on the road fee” was listed in the financing agreement and the quotation and pre-agreement under the heading “Extras/Additions (in terms of section 102 of the National Credit Act)” but submits that this is not a correct reflection of the true situation.  Despite the wording used, the “on the road fee” is not an additional cost charged by MBFS and accordingly is not in fact a charge as contemplated in section 102.

27.      MBFS stressed that its main argument is that the “on the road fee” is part of the principal debt as are the other extras which the consumer has requested.  These all make up the total amount which the consumer is requesting the credit provider to finance.  This is a permitted charge in terms of section 101(1) (a) which provides that the credit provider may require payment of the “principal debt” plus the value of any item contemplated in section 102. In line with section 101(1) (a) MBFS is entitled to finance the “principal debt”.

28.      MBFS further submits that when the NCR relies on section 102 and submits that only items listed in section 102 can be included on the instalment agreement, this constitutes a mis-interpretation of the Act. Section 102 is only relevant to the situation where it is the credit provider that is providing these services.  MBFS is not being asked to provide these services, therefore section 102 is irrelevant to this situation.  Only section 101 is relevant.

29.      MBFS submits that the true focus of the inquiry must be on the “principal debt” and what constitutes the principal debt.  Is this just the “raw” price of the vehicle or does it include further additions?  If further additions can be included in the principal debt then how is a distinction made between some items which can be included and other items which cannot. When a tax invoice is presented to MBFS, the consumer is asking MBFS to finance a debt which includes a number of different items. MBFS does not exercise any discretion regarding the components of this debt, it simply provides the finance.  This must be regarded as the “principal debt” in line with section 101 (1) (a) and it is to this “principal debt” that MBFS is entitled to add its finance charges. 

THE RESPONDENT’S CASE 

30.      The NCR disputes that three agreements are involved in the legal construct. The NCR submits that there is no evidence of any sale agreement between dealer and consumer.  The only evidence before the Tribunal is the agreement of sale between dealer and credit provider and the instalment agreement between consumer and MBFS.

31.      The NCR submits that in terms of the written instalment agreements between MBFS and consumers, it is clear that MBFS charges an amount in respect of an on the road fee” which MBFS admits forms part of the “principal debt” and attracts interest. Therefore, it is part of the “cost of credit”.

32.      The “on the road fee” contains prohibited amounts in terms of section 100, 101 and 102 of the Act; these sections contain a closed list of amounts that a credit provider may charge in terms of a credit agreement.

33.      The NCR referred to the documents contained in MB8 which dealt with the sale of a vehicle to a Mr Khan. An invoice dated 28 April 2018 was addressed by the dealer, NMI Durban South Motors (Pty) Ltd t/a Garden City Motors Shelley Beach, to MBFS. This document was addressed from the dealer to MBFS and not the consumer as is the same with every tax invoice.  Thus, the purchase price is payable by MBFS and not the consumer. Each invoice also states that the vehicle is delivered “on your behalf to (the consumer)”.

34.      Once the vehicle is sold by the dealer to MBFS for cash, it is in turn sold by MBFS to the consumer in terms of an instalment agreement.  It is clear from the provisions of the instalment agreement that MBFS is the seller of the vehicle and MBFS sells the vehicle to the consumer.

35.      The NCR submits that although the consumer selects the vehicle and its accessories from the dealer and agrees on the purchase price for the vehicle, including other costs payable, the dealer does not sell the vehicle to the consumer. Therefore, the dealer does not charge the consumer any fees, as MBFS alleges.[7]

36.       MBFS charges the consumer the “on the road fee” in terms of the instalment agreement.  In the case of Mr Khan, the selling price on the invoice from the dealer is an amount of R318 173.91 which is then referred to as the cash price of the vehicle on the credit agreement. The dealer’s invoice refers to delivery charges in the amount of R3478.26 excluding VAT, a total of R4000.00 including VAT.  This amount is then reflected in the instalment agreement under the sections “Extras/Additions (in terms of section 102 of the National Credit Act) which includes “on the road”: R4000 including VAT”.

37.      The NCR submits that this shows that an additional charge for the “on the road fee” is charged by the dealer to MBFS, in terms of the dealer’s invoice, and is paid by MBFS when it acquires ownership of the vehicle from the dealer.

38.      After that, MBFS charges the same amount to the consumer for the “on the road fee”.

39.      The NCR submits that there is no basis for MBFS to contend that the dealer charges the “on the road fee” to the consumer, not MBFS.  The dealer is not a party to the instalment agreement; it is MBFS that includes the amount in the agreement.  Hence it forms part of the instalment agreement.

40.      It is incumbent upon MBFS to refuse to include the “on the road fee” in its instalment agreements for payment by consumers where MBFS:

(a)  was not chosen by consumers to arrange the services for which the fee was charged to consumers; and

(b)  did not itself render or provide services to consumers for which the fee was charged.

41.      The NCR submits that sections 100, 101 and 102 of the NCA prohibit charging any fees or costs except those specifically listed in sections 101(1) and 102(1). The "on the road fee” is not listed in the sections; therefore, credit providers may not include it in the credit agreement.

42.      In this regard section 100(1)(a) of the NCA provides that a credit provider must not charge an amount to or impose a monetary liability on the consumer in respect of a credit fee or charge prohibited by the Act. The Act requires the credit provider not to charge an amount or impose monetary liability on the consumer regarding a credit fee or charge prohibited by the Act.  In other words, there is a responsibility on the credit provider to interrogate the invoice's charges and ensure that no prohibited costs are included.

43.      When the dealer presents an invoice to MBFS for financing, MBFS has the opportunity to query the fees and charges reflected on the invoice and to refuse to finance any fee or charge not permitted in terms of the Act to ensure its compliance with the obligations imposed by the Act.  MBFS could even have communicated with all dealers that it would not finance the “on the road fee” in its instalment agreements.  It had the opportunity and authority to do so.

44.      MBFS is the one that charged consumers the “on the road fee” as part of instalment agreements.  Therefore, MBFS should be held responsible and should be liable to refund all consumers who were charged such a fee as part of their instalment agreements.

PREVIOUS DECISIONS OF THE TRIBUNAL

45.      The facts and legal issues in this matter are similar (although not in every respect) to two matters that the Tribunal has already dealt with.  These are Volkswagen Financial Services SA (Pty) Ltd v National Credit Regulator (NCT/94937/2017/56(1)) [2019] ZANCT 175 (4 April 2019) SAFLII and BMW Financial Services SA (Pty) Ltd v National Credit Regulator NCT/93829/2017/56(1) heard on 4 and 5 May 2021 with judgment handed down on 10 May 2021.

46.      In the Volkswagen matter the Tribunal concluded inter alia that “on the road fees” are credit fees or charges prohibited by section 100 (1) (a) of the NCA and that these fees are not credit fees that can be included in the principal debt deferred in terms of an instalment agreement according to section 102 (1) of the Act.

47.      The Volkswagen decision of the Tribunal is currently on appeal in the High Court.

48.      In the BMW matter the Tribunal respectfully disagreed with the reasoning and the conclusions drawn by the learned members in the Volkswagen matter.  The Tribunal concluded that a dealer is not prohibited from charging an "on the road fee" nor is charging such a fee unlawful in any way. The Tribunal noted that the transaction may be subject to the provisions of the Consumer Protection Act 68 of 2008 ("the CPA"), but there is nothing inherently unlawful regarding an agreed cost or fee.

49.      The question then arises as to how this inherently lawful fee can change to being unlawful or prohibited when reflected in an instalment agreement. In the BMW matter the Tribunal found that this simple question presents the fatal flaw in the NCR's argument. There is no rational or legal basis for why the lawful nature of this fee would change.

50.      The Tribunal, in BMW, acknowledged that the NCA aims to protect consumers by regulating the actions of credit providers.[8] Among many other provisions, it seeks to limit and clarify the fees and costs a credit provider may charge. It does not however, seek to regulate transactions between consumers and suppliers. In this regard, it does not limit or restrict the goods, fees, and charges imposed by a supplier of goods on consumers. Further, it does not contain any provisions restricting what types of goods, fees and charges a credit provider may finance.

51.      The Tribunal in BMW referred to the matter of Edcon Holdings Limited v The National Consumer Tribunal and Another (A237/2017) [2018] ZAGPPHC 372; 2018 (5) SA 609 (GP) (24 May 2018), where the court considered the nature of club fees in a credit agreement. The court stated –

"In the context of s 101, the word 'require' can only be interpreted to mean to demand from a consumer who applies for credit, or to impose an obligation on such consumer, to pay for something which is not permitted in terms of the section. Edcon's credit agreements do not place any obligation on a consumer to pay a Club fee. The consumer has a choice whether or not to apply for Club membership. The Club fee charged is clearly not a cost of the credit which is extended to the consumer in terms of the credit agreement."

52.      The Tribunal held that the same approach can be applied to the "on the road fee". The consumer negotiates and agrees with the dealer to pay the fee. The fee is not reflected in the instalment agreement as a demand from the credit provider to the consumer. It is not a “cost of credit”.

53.      Following the same principle, sections 100, 101 and 102 of the NCA use the words "must not charge" or "impose a monetary liability on". Seen in the context of the specific sections and the NCA as a whole, this only applies in instances when the credit provider imposes a fee directly for a specific service provided. The service provided is that of granting credit. The fees charged by the credit provider in BMW related to the services of providing credit and were clearly reflected as initiation fees, interest and monthly service fees. The Tribunal held that the NCA permits these fees and charges hence the Tribunal in BMW, did not agree with the reasoning and decision of the Tribunal in the Volkswagen matter.

54.      As explained by the Tribunal in the BMW decision, previous Tribunal decisions do not bind the Tribunal. The Tribunal in that decision referred to the Competition Appeal Court decision of Standard Bank of South Africa Limited v The Competition Commission of South Africa (160/CAC/Nov17, CR212Feb17 /DSC027Apr17) [2018] ZACAC 5 (31 May 2018) SAFLII where the Competition Appeal Court considered the stare decisis principle and whether it applies to the Competition Tribunal. The court said (at Par 20) –

"The Tribunal is a specialist administrative tribunal created under the Act, not a court of law. This is not to say that it does not perform functions akin to that of a court. As Sachs, J said in Sidumo and Another v Rustenburg Platinum Mines Ltd and Others (footnotes omitted): 

 

"218 The performance of judicial functions is not confined to courts of law. Administrative tribunals are increasingly performing the same functions as courts of law do and they do so by similar process. Thus an administrative body may in the discharge of its duties under a statute function as if it were a court of law and perform judicial functions. And at times it is not easy to draw a clear line of demarcation between tribunals which are and those which are not Courts of Law. What characterises a judicial function are proceedings in which rights are legally determined and liability imposed by a competent authority upon a consideration of the facts and the circumstances placed before it.””

220 But the performance of judicial functions does not transform an administrative tribunal into a court of law."

[21]      Following from this proposition concerning the Tribunal's status, flows the consequence that the Tribunal is not bound by its own previous decisions."

55.      The Tribunal in the BMW decision pointed out that the National Consumer Tribunal is similarly created by the NCA and has virtually identical powers to the Competition Tribunal. The principles applied by the court in the Standard Bank matter above are equally applicable to the Tribunal. Therefore, as stated above, the Tribunal is not bound by previous decisions of the Tribunal

THE RELEVANT SECTIONS OF THE NCA 

56.      For the purposes of this judgment the relevant sections of the NCA are section 100, section 101 and section 102.

57.      Section 100 provides that —

"(1)   A credit provider must not charge an amount to, or impose a monetary liability on, the consumer in respect of—

(a)    a credit fee or charge prohibited by this Act;

(b)    an amount of a fee or charge exceeding the amount that may be charged consistent with this Act;

(c)     an interest charge under a credit agreement exceeding the amount that may be charged consistent with this Act; or

(d)    any fee, charge, commission, expense or other amount payable by the credit provider to any third party in respect of a credit agreement, except as contemplated in section 102 or elsewhere in this Act.

(2)    …"

58.      Section 101 provides that —

"(1) A credit agreement must not require payment by the consumer of any money or other consideration, except (a) the principal debt, being the amount deferred in terms of the agreement, plus the value of any item contemplated in section 102; (b) an initiation fee, (c) a service fee, …; (d) interest, …; and (e) cost of any credit insurance provided in accordance with section 106; (f) default administration charges, … and (g) collection costs, …

59.      Section 102(1) provides that —

"(1)   If a credit agreement is an instalment agreement, a mortgage agreement, a secured loan or a lease, the credit provider may include in the principal debt deferred under the agreement any of the following items to the extent that they are applicable in respect of any goods that are the subject of the agreement—

(a)    an initiation fee as contemplated in section 101 (1) (b), if the consumer has been offered and declined the option of paying that fee separately;

(b)    the cost of an extended warranty agreement;

(c)     delivery, installation and initial fuelling charges;

(d)    connection fees, levies or charges;

(e)    taxes, licence or registration fees; or

(f)     subject to section 106, the premiums of any credit insurance payable in respect of that credit agreement.

(2)     A credit provider must not—

(a)    charge an amount in terms of subsection (1) unless the consumer chooses to have the credit provider act as the consumer's agent in arranging for the service concerned;

(b)    require the consumer to appoint the credit provider as the consumer's agent for the purpose of arranging any service mentioned in subsection (1); or

(c)     charge the consumer an amount under subsection (1) in excess of—

(i)      the actual amount payable by the credit provider for the service, as determined after taking into account any discount or other rebate or other applicable allowance received or receivable by the credit provider; or

(ii)     the fair market value of a service contemplated in subsection (1), if the credit provider delivers that service directly without paying a charge to a third party…."

CONSIDERATION OF THE FACTS

60.      Critical issues which need to be considered are the concept of an “on the road fee”; what constitutes the principal debt and the legal construct that governs the transactions between the dealer, credit provider and the consumer.

On the road fee”

61.      As pointed out by Van Heerden and Renke in their article published in the Annual Banking Law Update 2019[9] the concept of an “on the road fee” is not defined in the NCA but in practice these fees are charged by dealers when a vehicle is purchased.[10]

62.      There is no standard document that sets out what is included in an “on the road fee” nor does the Motor Industry Ombudsman of South Africa (MIOSA)[11] prescribe what fees can be charged.

63.      The “on the road fee” is a composite fee that includes fees for a number of services provided by the dealer, including such things as a fee for carrying out a pre-delivery inspection, the cost to obtain a roadworthy certificate, the cost to license the vehicle and to obtain license plates, the cost of delivery fuel and fees charged by the Financial Sector Conduct Authority (FSCA).[12] 

64.      As explained by Van Heerden and Renke:

these expenses and fees represent costs that are actually incurred, and someone has to pay for it.  That someone is the consumer who wants to become the owner of the car, be it by way of a cash transaction or eventually after he or she has paid all his or her obligations in terms of a credit agreement whereby the purchase of the car is financed”.

65.      In its supplementary affidavit MBFS explains that Mercedez Benz dealers charge an “on the road fee” for the following:

Natis costs                                                                   R121.05

Number plates                                                             R141.23

License and Registration document                        R867.54

Licence and Registration service provider cost    R625.44

Fuel cost                                                                      R1008.77

Pre-Delivery inspection (PDI)                                   R2421.05

Dealer Agent service fee.                                          R867.54[13]

TOTAL COST                                                             R6052.63

66.      Van Heerden and Renke point out that if a consumer can afford to pay cash, he will pay these fees directly to the dealer in cash. However, as is the case with most consumers in South Africa, very few can pay cash and therefore the transaction will have to be financed by a credit provider.[14]

67.      In these circumstances, the dealer will provide an invoice to the credit provider who will pay the dealer the purchase price of the vehicle.  The purchase price will also include the “on the road fee” and any administrative or handling fees charged by the dealer.

68.      According to Pretorius,[15] the main difficulty with these fees, is not so much that they are charged, it is that they are not always adequately disclosed to consumers.  They are often not included in the advertised price and so consumers are taken by surprise when they find that they have to pay additional costs. This is an issue that would fall under the CPA.  For example, section 23 of the CPA regulates the disclosure of price for goods and services.  

69.      Nevertheless, as pointed out by Van Heerden and Renke, and as explained by Pretorius, “on the road fees”:

relate to vital services undertaken by dealers to ensure that the car can eventually be delivered to the consumer – not services that credit providers undertake in the ordinary course of their business.”[16]

70.      In addition to the “on the road fee”, the dealer may also charge for certain “add-ons”.  These dealer add-ons may include special wheels, fitting a tracker system or providing tinted windows. These add-ons, the vehicle’s base price and the “on the road fee” when added together constitute the final price that the dealer requires for the motor vehicle. 

71.      We turn now to the issue of what constitutes the “principal debt” that the credit provider can finance.

The principal debt

72.      The principal debt is defined in section 1 as the “amount calculated in section 101(1) (a)”.  This section then refers to the principal debt as the “amount deferred” plus (our emphasis) section 102 costs.  Therefore, Section 101 (1) (a) refers to the principal debt that the consumer has to repay before any section 102 costs are added.

73.      It considering what constitutes the principal debt, it is essential to distinguish between items that make up the principal debt and fees that the credit provider is entitled to add to the principal debt as compensation for allowing the consumer an extended period in which to repay the debt.

74.      The instalment agreements submitted to the Tribunal indicate that they do set out other additional costs for which the consumer is paying and are not limited only to the vehicle’s base or “raw” price.  The NCR does not dispute that the dealer may add other additional costs to the principal debt for the services or goods that it provides, such as a sunroof or vehicle tint.  However, it does dispute those items that form part of the “on the road fee” because these items are listed, or are not listed, in section 102. 

75.      The NCR argues that the section 102 list is a closed list. Therefore, if the services are listed there, the credit provider may only include them as part of the credit agreement if it (the credit provider) has been authorised to provide the services and, if the services are not listed in section 102, the credit provider may not charge for them at all.

76.      Section 102 deals with amounts that the credit provider may include in the principal debt and on which the credit provider may charge fees as set out in section 101 (b) to (g).  Section 101 (b) to (g) sets out the normal fees which credit providers are entitled to charge as compensation for allowing the consumer an extended period in which to repay the debt.

77.      As pointed out by Van Heerden and Renke, the fees and charges set out in section 102 are not the normal fees or charges which a credit provider may charge for granting credit, but the legislature has seen fit to allow the credit provider to charge for these fees if the credit provider actually provides the services and if the credit provider is authorised by the consumer to charge these fees.[17]  A useful example here is where the credit provider sells a washing machine to a consumer and agrees to deliver it to the consumer’s home, or provides an extended warranty for a washing machine.  A credit provider may include fees for these services provided the consumer agrees that the credit provider may provide these services.

78.      This is also what happened in the cases of Edcon Holdings Ltd v The National Consumer Tribunal GNP case no A237/2017 (23 May 2018) and National Credit Regulator v Lewis Stores (Pty) Ltd  2020 (2) 390 (SCA). In both these matters the credit provider created a service which consumers could acquire if they wanted them. This is very different to the situation where the credit provider is invoiced for an amount that made up the sale price of a vehicle. The credit provider has paid out that amount to the dealer and it then allows the consumer an extended time to repay which includes the added extras that the dealer provided.

Legal construct of the relationship between MBFS, the dealer and the consumer

79.      It is important to consider the various transactions that are involved when a consumer purchases a vehicle from a dealer and the consumer requires credit to pay for the vehicle. As Van Heerden and Renke state, a consideration of these various transactions will “illuminate the different items and amounts that are being charged in the process, by whom they are charged and what their nature is”.[18]

80.      MBFS submits that there are three contracts involved when a consumer requires credit to purchase a motor vehicle.  The first is the purchase and sale agreement between the dealer and the consumer. The second is when the dealer sells the motor vehicle to the credit provider for cash, and the third is when the credit provider sells the vehicle to the consumer in terms of an instalment agreement.

81.      The NCR, however, submits that there are only two contracts.  There is no evidence of a contract between consumer and dealer.  Regard must be had only to the invoice that the dealer provides to MBFS (in terms of which MBFS becomes the owner of the vehicle) and the instalment agreement that MBFS concludes with the consumer.  As MBFS has included the fees on its instalment agreement, it can only be MBFS charging these fees, and as these charges fall outside the closed list of charges allowed in sections 101 and 102, MBFS is acting in contravention of the NCA.

82.      In our view the approach adopted by the NCR cannot be correct.  There is no doubt that there is an initial contract between the dealer and the consumer.  Critical issues which need to be dealt with are the goods to be sold and the price to be paid.  These are negotiated between dealer and consumer.[19]  The credit provider does not play a role in these negotiations.

83.      Otto, Van Heerden and Barnard explain that an important result of a valid sale between dealer and consumer is the naturalia that now form part of the sale agreement. Most importantly, this includes the common law rights and duties of the parties.  The most important common law duty of the consumer is to pay the purchase price.[20]   

84.      The consumer's ultimate price invariably contains other amounts added to cover a variety of expenses, including “on the road fees”. The critical point to note is that the dealer incurs these fees and expenses and they are added to the price of the vehicle even before a credit provider is involved. 

85.      If the contract involves a cash sale, then that is the end of the matter but as most consumers require credit to purchase an expensive item such as a vehicle, consumers must turn to credit providers. In the circumstances considered in this judgment, the dealer is not in the business of granting credit; hence the consumer needs to turn to a separate person, the credit provider.  The relationship between dealer and credit provider may differ from case to case and will depend on each financial institution's procedures and trade usage.[21]

86.      However, in this instance, it has been explained (and this is common cause) that the vehicle is sold to the credit provider for cash, The credit provider takes over ownership of the vehicle to provide security for its debt.[22] In MFC (A Division of Nedbank Ltd) v Botha,[23] Binns-Ward J held that the credit provider’s real role in the sale of a vehicle is one of credit provider and not one of suppler of the goods in question.[24]  This approach has been criticised by Otto, Van Heerden and Barnard who argue that in such a situation, a credit provider wears two hats – that of credit provider and that of supplier in terms of the common law and for the purposes of the CPA.[25] 

87.      Be that as it may, when the vehicle is financed, the dealer’s expenses and fees are not then added on by the credit provider as a “cost of credit”. They are already present even before any credit is granted.[26] 

88.      As Van Heerden and Renke point out, “they are already charged by and reflected on the dealer’s invoice as part of the deferred amount as referred to in section 101(1) (a)”.[27]  That is, they are part of the principal debt before the section 102 costs are added.  “On the road fees” are not charged by the credit provider and the credit provider does not derive any benefit from them apart from the interest which is earned because the consumer is paying the amount back over a period of time. Because the credit provider has granted the consumer an extended time in which to repay the loan, the credit provider is entitled to then charge the “costs of credit” which are set out in section 101(1) (b) to (g).

89.      We agree with the views of the Tribunal in the BMW matter where it stated that the NCR's submissions regarding the wording of the credit agreement and the credit provider becoming the vehicle's seller do not change the nature of the fees or the position of the credit provider as far as the NCA is concerned.[28] The credit provider in these circumstances remains a credit provider in the context of the NCA and the credit agreement. It does not suddenly become the party charging the "on the road fee”.

90.      In the event of a dispute between a consumer and a dealer as to the nature of the "on the road fee” and why it was charged, the consumer would have to pursue the matter with the dealer. The consumer agrees to this fee with the dealer before the credit agreement is concluded. The credit provider may not even know what these fees are. Any dispute by the consumer in this regard would have to be pursued with the dealer in accordance with the CPA.

91.      As explained by the Tribunal in the BMW matter, there is nothing inherently wrong with the dealer charging these fees, which are then added to the vehicle's cash price and any extras that the consumer may have requested.  All these amounts together make up the “principal debt” which is then paid by the credit provider.  The credit provider will add its finance charges which constitute the “cost of credit” to the debt as compensation for allowing the consumer an extended time in which to repay the loan.

92.      Even in the Volkswagen matter which did find that “on the road fees” formed part of the cost of credit, the Tribunal held that the credit provider does not have to police the amounts levied by dealers.  Here the Tribunal held that the NCA does not “impose an obligation on credit providers to veto what consumers may or may not buy and may or may not finance in terms of a credit agreement”.[29]

93.      As argued by Van Heerden and Renke:[30]

Given the fact that these fees represent expenses and fees actually incurred by the dealer on behalf of the consumer in order to facilitate delivery of the vehicle concerned and that it is not dependent on the transaction being cash or credit, coupled with the fact that the legislature’s intention was it regulate the cost of credit, it is submitted that any attempts by the Act to regulate such fees would be ultra vires”.

94.      What should be enforced is that any extra fees and charges that are added to the deferred amount as part of the principal debt must be properly disclosed to consumers so that consumers can see exactly what the “principal debt” is on which they have to pay the “cost of credit” as set out in section 101 (1) (b) (g).[31]

CONCLUSION

95.      The compliance notice issued by the NCR to the MBFS alleges that the NCA prohibits the charging of an "on the road fee” in the credit agreements.

96.      We find that the "on the road fee” does not constitute a “cost of credit” which is prohibited for the reasons dealt with above.

97.      The compliance notice must therefore be cancelled and set aside.

ORDER

98.      The Tribunal accordingly makes the following order –

98.1.  The application to cancel the compliance notice is granted. The compliance notice issued by the National Credit Regulator to Mercedes Benz Financial Services (SA) (Pty) Ltd dated 28 March 2018 is set aside; and

98.2.  No order is made as to costs. 

Dated at Centurion this 31st day of May 2021.

Professor T Woker

Tribunal member

Adv F Manamela (Presiding Tribunal member) and Mr F Sibanda (Tribunal member) concurring.

[1] See pages 31 to 35 of the documents before the Tribunal.  See also MB1 of the Applicant’s founding affidavit.

[2] See para 16 of the Applicant’s supplementary affidavit where the various aspects of the “on the road fee” are broken down. 

[3] See MB8, MB9, MB10 and MB11 and MB12 of the founding affidavit.

[4] See MB9 of the founding affidavit.

[5] It must be noted that the Act provides a specific definition of an instalment agreement which is an agreement in terms of which moveable goods such as motor vehicles are sold on credit.  Therefore, an instalment agreement is a specific type of credit agreement. 

[6] MB8, MB9, MB10 and MB11

[7] See para 9.11 of the Respondent’s Heads of Argument.

[8] Section 3(e) of the NCA

[9] ‘Cost of Credit in terms of the National Credit Act: “on the road fees”, administrative fees and/or handling fees’ 79 at 80.

[10] Ibid at 81.

[11] MIOSA is the accredited ombudsman in terms of section 82 of the Consumer Protection Act, 2008 for the motor industry in South Africa.  See https://www.miosa.co.za/about.php.

[12] See Van Heerden and Renke at 81 for a list of items which may be included.  They also quote Pretorius “On the road fee: what does it really mean” https://www.autotrader.co.za/cars/news-and-advice/-/on-the-road-fees-what-does-it-really-mean/3040.  Pretorius explains what the various charges are for.  For example, the FSCA fee refers to fees that are payable in relation to inhouse finance and insurance service licenses.  There are fees for obtaining roadworthy certificates if the vehicle is second hand.  Pretorius points out that where a second-hand vehicle is sold through a dealer the dealership is obliged to take care of the registration to ensure that the vehicle is removed from its system.

[13] These fees are all inclusive of VAT.

[14] Van Heerden and Renke at 81.

[15] See Pretorius “On the road fee: what does it really mean” https://www.autotrader.co.za/cars/news-and-advice/-/on-the-road-fees-what-does-it-really-mean/3040.

[16] Van Heerden and Renke at 95.

[17] Van Heerden and Renke at 89.

[18] Van Heerden and Renke at 106

[19] See Otto, Van Heerden and Barnard “Redress in terms of the National Credit Act and the Consumer Protection Act for defective goods sold and financed in terms of instalment agreements” (2014) 26 SA Merc LJ 247

[20] Otto et al at 249.  See also Nagel et al Commercial Law 6 ed (2019) and Bradfield and Lehmann Principles of the Law of Sale and Lease (3ed) 2013 at 64.

[21] Otto et al at 249

[22] See Roshcon v Anchor Auto Body Builders 2014 (4) SA 319 (SCA) where the Court held that “commercial arrangements directed at finance houses securing their interests by taking ownership of the property that is the subject of a financing agreement, serve an entirely legitimate commercial purpose” (at 334 E). 

[23] (6981/13) [2013] ZAWCHC 107 (15 August 2013).

[24] MFC (A division of Nedbank Ltd) v Botha para 2.

[25] Otto, Van Heerden and Barnard at 271.  In this article the learned authors were considering a credit provider’s responsibility for latent defects in a motor vehicle sold in terms of an instalment agreement.

[26] Van Heerden and Renke at 106

[27] Ibid.

[28] BMW at para 54.

[29] Para 50.

[30] Van Heerden and Renke 108

[31] Ibid.