Three major vehicle financiers are locked in a legal battle with the National Credit Regulator (NCR) in a case that could shape how vehicle finance fees are handled in the future.
The case has been ongoing for years, and now the NCR has applied for leave to appeal against a Supreme Court of Appeal (SCA) ruling that will take the matter to the Constitutional Court, according to TimesLive.
The NCR is arguing that Volkswagen Financial Services, BMW Financial Services, and Mercedes-Benz Financial Services are unlawfully charging On-The-Road (OTR) fees, contravening the National Credit Act (NCA).
These fees cover additional costs associated with putting a financed vehicle on the road, including licensing and registration, number plate costs, a pre-delivery inspection and vehicle preparation.
According to the NCR, these fees should not form part of the principal debt financed by vehicle financiers, and instead constitute an additional charge.
This would be prohibited under the NCA, unless the OTR fees fall within certain permitted categories.
In its argument, the NCR said that credit providers cannot incorporate and treat OTR fees as part of the principal vehicle debt.
It added that the NCA regulates what credit providers may charge consumers, and that these additional fees fall outside the permitted charges.
All three credit providers reject the regulator’s interpretation and argue that consumers and dealers agree to OTR fees as part of the initial vehicle transaction.
According to Mercedes-Benz Financial Services, OTR fees form part of the principal debt on the dealer’s invoice, which it then finances as a total, combined amount.
Similarly, BMW Financial Services argued that it also simply finances the amount agreed to between the dealer and customer.
VW Financial Services added that it does not impose a separate OTR fee and instead finances the total purchase price agreed to by all parties.
However, the National Consumer Tribunal initially found that VW had contravened the Consumer Act.
Following the initial finding, the company appealed, and the High Court ruled in favour of the three vehicle financiers, and the SCA upheld the decision.
It is this interpretation that the NCR has decided to challenge in the Constitutional Court, despite the matter already having gone through multiple legal forums.
An ongoing legal dispute
In September last year, when the Supreme Court of Appeal dismissed the NCR’s appeals, it concluded that while the three vehicle financiers did not contravene the Act, they needed to work on transparency.
The court concluded that while Section 102(1) of the NCA is a closed list of specific fees that a credit provider can independently add to the principal debt, the “principal debt” also includes the core purchase price.
It ruled that this price can legitimately encompass accessories and services reasonably related to the vehicle, such as custom wheels, sunroofs, or OTR services negotiated with the dealer.
Consequently, when a credit provider finances a total purchase price pre-negotiated between a dealer and a consumer, it is not directly charging a prohibited fee or violating Section 102(1) of the Act.
Despite ruling in favour of the credit providers, it heavily criticised their lack of transparency and clarity surrounding OTR fees.
The SCA noted that financing minor fees over a 60-to-72-month period can quietly generate substantial interest and profit for credit providers at the consumer’s expense.
As a result, to protect consumers moving forward, the court’s judgment outlines three mandatory requirements for future vehicle finance agreements.
This includes itemising any OTR fees added to the purchase price clearly and detailing the exact nature and cost of each item.
Credit providers must also clearly show consumers the difference between the cash price of the OTR fees and the total cost, including accumulated interest, if they choose to finance them.
Finally, the SCA ruled that vehicle financiers must give consumers the explicit choice to pay OTR fees in cash upfront or have them financed.
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