IN YOUR CORNER
Deal with the dealers when they drive up ‘on-the-road’ fees
Car dealerships have been doing it for years, countering consumer protests with ‘it’s compulsory; an industry norm’
A lot has been said about the controversial “on-the-road” fee that dealerships across the country routinely add to their sale agreements.
It’s essentially a thumbsuck figure that serves to boost the advertised price of the car.
They’ve been doing it for years, countering consumer protests with “it’s compulsory; an industry norm”.
Then, some 18 months ago, the National Credit Regulator (NCR) announced that in terms of the National Credit Act (NCA), it would be illegal to add anything but the cost of licensing, registration, number plates and a tank of fuel to the credit agreement.
The regulator began by taking on BMW Financial Services and VW Financial Services about including the cost of valets, pre-sale checks and the like to their agreements, both of which predictably ignored orders to not only stop doing it, but to refund all those who’d been charged it, plus interest.
The VWFS case came before the tribunal recently, which agreed with the regulator and ordered the company to cut it out and refund.
They’ve appealed the order, so everyone’s just carrying on as usual.
But let’s take a look at what the act does allow for on a credit agreement such as car finance.
Interest, of course. Often buyers, especially first-timers, are happy to let the dealership’s F&I (finance and insurance person) handle the process of sourcing finance on their behalf, but often the “convenience” proves to be costly.
You may not get the lowest interest rate, but rather the finance deal that works best for the dealership. So it’s best to either phone around and source your own finance, or ask the F&I to show you ALL the offers so that you can choose the best deal for yourself.
And so to the initiation and service fees. The former is a once-off charge levied by the financing banks, and the NCA allows for the consumer to pay it separately, upfront to avoid paying interest on that amount.
What often happens in practice, though, is the dealership just adds the amount to the agreement without discussion.
The service fee is charged by the bank every month.
Here’s the thing – the financing banks and their reps on dealership floors – those F&Is – often tell consumers they are forced by law to add those set fees to the agreement when in fact the NCA says banks “may” charge the fees.
Not must – may. Big difference. And the specified amounts – R1,207.50 for the initiation fee, and a monthly service fee of R69 – are maximum amounts. The banks are free to charge less if they see fit.
But all the banks apply the maximum amounts across the board.
Standard Bank calls the fee “standard”, Nedbank’s Motor Finance Corporation (MFC) describes it as “compulsory”, and on the WesBank website, in the quote section, the maximum permissible initiation and service fees are pre-filled in.
Interestingly, in June 2007, when the NCA came into effect, then NCR legal adviser, now banking ombud, Reana Steyn told me: “We are hoping that these fees will become a competitive issue in the marketplace and that the finance houses will not see fit to simply make the maximum amounts mandatory.”
In fact, that’s just what happened, with the exception of MFC, which, as the smallest player in the vehicle finance market, initially decided to waive them as a competitive advantage.
But clearly that didn’t work, because it wasn’t long before that bank followed the lead of its competitors by charging the maximum permissible amounts on every contract.
When I investigated the issue 10 years ago, WesBank executive head of sales and marketing Chris de Kock (now CEO) denied the bank simply applied the maximum initiation and service fees across the board.
“The fees are open to negotiation,” he told me. “However, the interest rate remains the focal point of negotiation between the bank and the customer, as this makes up the majority of the cost to the customer.”
Well, that bank is apparently not open to negotiation on those fees any more (see below). I recently asked the car finance banks why consumers were led to believe the fees were both compulsory and set at the maximum amounts, and whether they were open to consumers negotiating the amounts.
Here’s how they responded:
The initiation and service fees are a standard across the industry, and they are nonnegotiable. These fees also can’t be waived by the customer.
The bank charges an initiation fee as well as a monthly service fee as allowed by the NCA. The customer is given an opportunity to discuss the quote with the bank. Absa also charges an interest rate that falls within the allowable range prescribed by the NCA. The interest rate charged is a risk-based rate driven primarily by each customer’s risk profile.
The cost of initiating the finance agreement far exceeds the initiation fee received. As such Standard Bank levies the fees as “standard”. This is also true for service fees.
Customers are able to negotiate the initiation and service fees, however, in relation to the customer’s instalments, these amounts have a small impact. The industry tends to negotiate interest rates more frequently.
MFC is entitled to make an initiation fee a compulsory cost of a credit agreement and does so due to operational costs. MFC charges every consumer the same fees, and consumers may negotiate these fees. These fees never exceed the maximum allowable and prescribed by the NCA.
If we consumers want to see those fees become “a competitive issue in the marketplace”, as envisaged by the NCR all those years ago, we’re going to have to learn to negotiate before we put pen to paper.