National Credit Regulator v National Consumer Tribunal and Others (BMW Financial Services, Volkswagen Financial Services, Mercedes-Benz Financial Services matters)

The National Credit Regulator (NCR) conducted investigations in 2017 into the motor finance industry's practice of charging 'on the road fees' (OTR fees) to consumers purchasing vehicles on credit. OTR fees are composite charges for various services including pre-delivery inspections, roadworthy certificates, vehicle licensing, license plates, delivery, fuel, and regulatory fees. The NCR issued compliance notices to three credit providers - Volkswagen, BMW, and Mercedes-Benz Financial Services - alleging they contravened sections 100, 101, and 102 of the National Credit Act 34 of 2005 by charging OTR fees. The typical transaction structure involved: (1) a consumer agreeing with a dealer on a vehicle purchase price plus OTR fees; (2) the credit provider purchasing the vehicle from the dealer; and (3) the credit provider selling the vehicle to the consumer under an instalment agreement that financed the total amount including OTR fees. The credit providers applied to the National Consumer Tribunal to review and set aside the compliance notices. Different Tribunal panels reached different conclusions. The Volkswagen panel found the OTR fees contravened the Act, while the BMW and Mercedes-Benz panels found no contravention. These matters were appealed to the Full Court of the Gauteng High Court, which heard them together. The majority found the credit providers merely financed the purchase price negotiated between dealers and consumers, and did not themselves charge the OTR fees.

• Whether 'on the road fees' charged in motor vehicle financing transactions are permissible fees or charges that credit providers may levy on consumers under the National Credit Act
• Whether charging OTR fees contravenes section 102 of the National Credit Act
• The proper interpretation of sections 100, 101, and 102 of the National Credit Act regarding prohibited charges, cost of credit, and permissible fees
• Whether section 102(1) contains a closed list of fees and charges that may be included in the principal debt
• What constitutes the 'principal debt' and 'amount deferred' under a credit agreement
• The extent to which credit providers are responsible for ensuring compliance with the Act when financing agreements negotiated between dealers and consumers
• Whether costs should be awarded against a statutory body acting in public interest litigation

The appeals by the National Credit Regulator were dismissed in all three matters (Volkswagen, BMW, and Mercedes-Benz). The cross-appeal in the Volkswagen matter was also dismissed. The compliance notices issued by the NCR against the three credit providers were set aside. No costs were awarded in the Supreme Court of Appeal. The costs orders made by the Full Court against the NCR were set aside and replaced with orders that each party pay its own costs.

Section 102(1) of the National Credit Act contains a closed list of fees and charges that credit providers may include in the principal debt deferred under a credit agreement. The principal debt under sections 101(1)(a) and 102 must be interpreted broadly to include not only the purchase price but also accessories and services reasonably related to the subject matter of the sale that the consumer wishes to finance as the 'amount deferred'. These accessories and services are not 'charges or fees' envisaged in section 102(1) and their inclusion does not breach that provision. Credit providers cannot close their eyes to the contents of agreements they are requested to finance - they have a responsibility to ensure their credit agreements comply with the Act and do not import unlawful provisions, regardless of whether the dealer and credit provider are separate entities. To the extent credit providers have not imposed additional charges similar to those listed in section 102(1), they have not breached section 102. The nature of the charge is determinative, not the label given to it in the credit agreement. Organs of state pursuing legitimate public interest litigation should not be mulcted in costs even when unsuccessful, provided they have acted bona fide in fulfilling their statutory mandate.

The Court noted that the National Credit Act suffers from drafting flaws that have been pointed out by courts previously, particularly regarding the definition of 'principal debt' and its components. The Court observed that the lack of clarity stems from inconsistencies between sections 101 and 102 regarding what comprises principal debt. While section 101(1)(a) defines it as the amount deferred 'plus' section 102 items, section 102 suggests those items are 'included in' the principal debt. The Court commented that OTR fees occurred during a period of uncertainty in the motor finance industry and declined to scrutinize individual credit agreements to determine breaches, stating its interpretation affects only future cases. The Court emphasized that although the Act's primary aim is consumer protection, the interests of creditors must also be safeguarded and a balance maintained. The Court noted the potential for seemingly small OTR fees to generate substantial profits for credit providers when financed with interest over typical 60-72 month terms, using an example where a R100 car valet would cost the consumer R676 at 8% interest over 72 months. The Court observed there was a lack of clarity and transparency regarding OTR fees in the credit agreements examined, with inconsistencies between dealer invoices and credit agreements. The Court commented that credit providers should not ignore the Act's objectives, particularly transparency, given they earn interest income from financing deferred amounts. Going forward, the Court prescribed specific transparency requirements: OTR fees must be specified with clear nature and cost of each item; consumers must be asked whether they prefer to pay cash or finance the fees; and consumers must be informed of the difference between cash price and total financed cost including interest and charges.

This judgment provides authoritative guidance on the interpretation of key provisions of the National Credit Act governing permissible charges in motor vehicle financing. It clarifies that section 102(1) contains a closed list of fees and charges that credit providers may impose, protecting consumers from arbitrary or hidden charges. However, it also recognizes commercial reality by allowing consumers to agree with dealers on accessories and services that form part of the principal debt, provided these are transparently disclosed. The judgment balances consumer protection with the practicalities of the motor finance industry. It imposes important transparency requirements on credit providers going forward, requiring clear specification of OTR fees, disclosure of financing costs, and informed consumer choice. The judgment also reaffirms the principle that statutory bodies should not be ordered to pay costs when pursuing legitimate public interest litigation in good faith, even if unsuccessful. This encourages organs of state to fulfill their statutory mandates without fear of adverse costs consequences. The case demonstrates the difficulty of interpreting the National Credit Act due to drafting flaws, an issue previously noted by the Constitutional Court and Supreme Court of Appeal.