Car prices: what you see is not what you pay
PERSONAL FINANCE / 3 JULY 2018, 12:08PM / GEORGINA CROUTH
Last year, the National Credit Regulator (NCR) launched an investigation into on-the-road fees charged when you buy a car through a dealership’s finance house, and found the charges contravened the National Credit Act (NCA).
In October, the regulator acted, issuing a compliance notice against Volkswagen’s finance house, VWFS, for on-the-road fees, three weeks after it had issued a similar notice against BMW Financial Services for padding the costs of its vehicles, and ordered it to refund customers.
VW had charged between R3 000 and R4 000 extra per vehicle, while BMW was hiking costs by between R3 000 and R6 000.
In announcing the compliance notice, the regulator said it was taking action against VWFS for charging consumers an on-the-road fee, administration fee and handling fee on credit agreements.
“These fees are not permitted to be charged on credit agreements by the NCA. The Act allows consumers to be given a quotation which sets out the cost of credit, before signing credit agreements. Consumers should request this quotation from their credit providers so that they can properly check the cost of credit that is being offered,” said Nomsa Motshegare, the chief executive of the NCR.
“The NCR will continue to conduct industry-wide investigations on the cost of credit, to root out illegal charges and fees that consumers are charged. Credit providers are reminded that it is a criminal offence to charge consumers fees and charges that are prohibited by the National Credit Amendment Act of March 2014.”
Both manufacturers plan to take up the matter with the National Consumer Tribunal.
Mark Hunt, the head of brand and marketing at VWFS, said: “[We hold] a different view on the legal interpretation of the applicable provisions of the NCA. VWFS is in the process of lodging its objection and will request that the tribunal review the compliance notice.”
BMW Group’s communications manager, Edward Makwana, said: “(BMW Financial Services) disagreed with and disputed the contents of the notice issued by the NCR in 2017, and filed an objection to the notice. BMW Financial Services is awaiting a date for the matter to be heard at a tribunal.”
Despite these compliance notices and the fact the fees are illegal, dealerships are still routinely adding them onto sales, according to a new book, Eff You Very Much – how you are screwed by dealerships and banks when buying a car. It’s an unsavoury title for a sordid tale.
The authors, Crystal Slabbert and John Titmus say they were alerted to the illegality of most on-the-road fees when listening to a radio show while on holiday. When they returned to their respective homes in Port Elizabeth and Jeffreys Bay, the citizen journalists started conducting their own research and realised the practice was rife in the industry.
Under the NCA, allowable “extras” include initiation fees, fuel, delivery costs, extended warranties, and licence and registration fees, but dealerships were boosting credit agreements with additional commissions and costs for “gifts”, such as flowers and key tags, and cleaning, which are prohibited.
Slabbert and Titmus say that, conservatively, dealerships are raking in over R6 billion a year from these fees (calculated at an average of R2 900 per vehicle multiplied by 1.9 million cars sold).
Veteran arbitrator Duon Odendaal of SA Consumer Complaints has thrown his weight behind the book, saying it details the issues his clients have raised over many years.
The book outlines how the motor dealerships are charging “illegal” costs and claims they are in collusion with the banking industry.
According to the NCA and the Consumer Protection Act, the only fees that dealerships are allowed to charge for are registration, licensing, number plates and fuel. They are not allowed to make any profit on third-party add-ons, such as vehicle protection products.
“These illegal fees they are charging range from R2 500 to R9 000. Included in these fees you will find pre-delivery inspection (which the factory is billed for), key rings, your bottle of champagne, backing plates (which they advertise on), removing the vehicle from the truck, on-the-floor parking, creating an invoice, among other things. These are all running costs that the dealership should carry, but are simply passed on to the consumer,” Slabbert says.
They found instances where the dealership charged R4 200 for smash-and-grab window protection, whereas the actual price is R1 400.
“When you go to Pick n Pay or Woollies, you see a price tag and that is what you pay. All operating costs have been added into that. You don’t get to the till and all of a sudden you are charged for the use of the trolley/basket or the till slip,” Slabbert says. “This does not happen at the dealerships. The price on the tag is not what you pay due to all of these illegal costs. This needs to stop, and the customers need to get their money back.
“We are busy working on a class-action lawsuit, where we will fight to get customers their ‘illegal’ costs back. It’s on a no-win, no-pay basis, so anyone interested in joining the suit has nothing to lose.”
Costs ‘can be paid upfront’
Avitha Nofal, the senior legal adviser at the Credit Ombud, says: “On-the-road fees generally include costs such as registration and licence fees, petrol, pre-delivery checks, the certificate of road-worthiness and valet costs. These are costs that consumers may elect to pay for upfront.
“The NCA sets out that credit providers must disclose and explain the total cost of credit to consumers and prohibits credit providers from charging credit fees or charges that are prohibited by the Act.
“The total cost of credit includes the principal debt, interest, initiation fee, service fee, credit insurance, default administration charges and collection costs.
“The Act makes provision for credit providers to furnish consumers with pre-agreement statements and quotations. Consumers should take advantage of this by checking the cost of credit before signing the credit agreement.
“The Credit Ombud investigates complaints from consumers who are negatively impacted by credit bureau information and/or issues relating to non-bank credit agreements. Should a consumer find that their credit agreement with a non-bank motor vehicle credit provider reflects on-the-road fees within the total cost of the credit, or any other amounts that they wish to dispute, the consumer may approach the Credit Ombud.
“The office would look at the credit agreement to determine whether the contract was valid. If valid, we would look at the interest and fees charged to ascertain whether they were compliant with the Act. The credit provider would be contacted, and further investigations would ensue.”
The NCR failed to respond to repeated requests for comment about the fees, the book, why dealerships are still flouting the law, and the status of its investigation.
Johan van Vreden, the Motoring Ombudsman, says: “We have studied the contents of the book and found a number of discrepancies … We further… are of the opinion that the contents will only lead to confuse consumers … The Motoring Ombudsman cannot comment on on-the-road fees, as this falls within the mandate of the Credit Ombud, Banking Ombud and the NCR.”
Gary McCraw, the company secretary of the Retail Motor Industry (RMI) who also heads the National Automobile Dealers’ Association, says: “The RMI has received a copy of the book referred to in your email and is in the process of reviewing the content thereof. We are therefore not at this stage in a position to respond.”
The Banking Association of South Africa’s Cas Coovadia requested more time to look into the allegations before responding.