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The National Credit Regulator (NCR) and three of the country’s biggest vehicle financiers are headed for another legal showdown over “on-the-road” (OTR) fees that the regulator argues are unlawfully charged under the National Credit Act.The NCR has applied for leave to appeal against a Supreme Court of Appeal (SCA) ruling involving Mercedes-Benz Financial Services, BMW Financial Services and Volkswagen Financial Services in a case that could shape how fees and ancillary costs are treated in the credit market.At the heart of the dispute is whether OTR fees form part of the principal debt financed by vehicle finance companies or constitute additional charges that are prohibited unless they fall within categories permitted under the NCA.OTR fees generally cover costs associated with putting a vehicle on the road, including registration and licensing, number plates, fuel, predelivery inspections and vehicle preparation.The NCR argues that credit providers cannot simply incorporate these charges into the amount financed and treat them as part of the principal debt. It contends that the NCA regulates what credit providers may charge consumers under a credit agreement and that OTR fees fall outside the permitted additional charges.The three financiers reject that interpretation. They argue that OTR fees are agreed upon between dealers and consumers as part of the vehicle transaction before finance is arranged and that they merely finance the resulting debt.Mercedes-Benz Financial Services (MBFS) says the OTR fee forms part of the principal debt reflected on the dealer’s invoice and that it finances the total amount payable by the consumer. BMW has similarly argued that it merely finances an amount already agreed between the dealer and consumer, while Volkswagen maintains that it does not impose a separate OTR fee but finances the total purchase price agreed by the parties.The dispute has already gone through several legal forums.The National Consumer Tribunal initially found that Volkswagen had contravened the NCA by charging OTR fees. Volkswagen appealed, and a majority of the high court found in favour of the three financiers, holding that they were financing the principal debt, including the vehicle purchase price and agreed extras such as OTR fees.The SCA upheld that position, finding that dealers create the monetary liability for the vehicle and associated services at the point of sale, while the financiers merely finance the resulting principal debt.The NCR is now challenging that interpretation at the Constitutional Court.While the legal dispute centres on OTR fees, the regulator’s concerns extend more broadly to transparency in the credit market.Although the SCA found that OTR costs can form part of the principal debt, it also noted that credit providers remain subject to the NCA’s transparency and disclosure requirements.In response to questions from Business Times, the NCR said it receives complaints across the credit market about fees, charges and other costs associated with credit agreements, including personal loans, retail credit, mortgage finance, developmental credit and short-term lending.“Consumers frequently approach the NCR when they believe that charges have not been adequately disclosed, where the basis for a fee is unclear, or where they do not understand how the total cost of credit has been calculated,” it said.The regulator said a recurring theme is the need to ensure that the true cost of credit is properly disclosed and understood before consumers enter into credit agreements.“Transparency regarding fees, charges and ancillary costs is therefore an important component of consumer protection within the credit market,” the NCR said.It added that complaints can also relate to affordability assessments, debt collection practices, credit insurance, account administration charges and consumers’ understanding of their contractual obligations.Transparency regarding fees, charges and ancillary costs is therefore an important component of consumer protection within the credit market.— NCRThe NCR did not identify a single sector as generating the highest number of complaints about hidden or unexpected fees, saying such complaints arise across the credit market and vary over time.The regulator declined to confirm whether other investigations are under way into allegations similar to those in the vehicle finance case.It said it continually monitors compliance with the NCA and investigates complaints and information received from consumers, stakeholders and other sources. Such investigations can cover disclosure requirements, unlawful charges, affordability assessments and other prohibited conduct.However, it does not ordinarily comment on ongoing investigations or potential enforcement action where matters have not become public through formal regulatory or legal processes.The NCR declined to comment on the upcoming Constitutional Court hearing, saying it would be inappropriate to speculate on the outcome or precise effect of a future judgment.It said Constitutional Court judgments provide important guidance on the interpretation and application of legislation.“In matters involving consumer credit, certainty regarding the meaning and scope of statutory obligations assists both consumers and industry participants by promoting consistency, predictability and legal certainty,” it said.For the regulator, the case is ultimately about ensuring that the NCA is properly interpreted and applied. Its mandate is to promote a “fair, transparent, competitive, sustainable, responsible, efficient, effective and accessible credit market” for South Africans.“Where legal questions arise concerning the interpretation and application of the National Credit Act, it is important that those questions receive authoritative determination by the courts so as to provide certainty to consumers, credit providers and the broader market,” it said.Business Times
