Thousands of South African have experienced problems with the infamous installment sale agreement. The most common example is when a consumer buys a motor vehicle from a motor dealership. The consumer does not have the funds to purchase the vehicle cash as a result of which the all too eager motor dealership helps ensure that they sell a vehicle by assisting the consumer with getting finance from a financial institution. When a motor vehicle is financed, an installment sale agreement is concluded between the consumer and the financial institution. This seems easy enough right?
The problem comes in when the consumer starts to experiences problems with the vehicle within six months after the delivery of the vehicle. It soon becomes clear to the consumer that the vehicle is not of a good quality and the consumer cannot use the vehicle for the purpose that he initially purchased same for and he now wishes to return the vehicle and receive a refund. The question of to whom the vehicle is to be returned then comes up. The motor dealership will argue that it no longer owns the vehicle as it sold same to the bank while the bank will argue that it only financed the deal and will refer to the all too convenient ‘no warranty as to the condition of the vehicle’ clause in the installment sale agreement. So, what does the consumer do now?
The legislation that governs these types of agreements appears to be both The Consumer Protection Act 68 of 2008 (CPA) as well as the National Credit Act 34 of 2005 (NCA). The CPA was published in the Government Gazette on 29 April 2009 and came into full operation on 1 April 2011. The CPA replaced the disjointed and ineffective South African body of consumer law that was contained in several pieces of legislation prior to its enactment. The CPA is intended to serve as a comprehensive source of consumer law in South Africa together with the NCA.
Generally, in terms of section 5(2)(d), the CPA does not apply to credit agreements
falling within the ambit of the NCA. Section 5(2)(d) provides as follows:
“This Act does not apply to any transaction
. . .
(d) that constitutes a credit agreement under the National Credit Act, but the
goods or services that are the subject of the credit agreement are not excluded
from the ambit of this Act.”
Thus the CPA will govern the goods sold which in the example above is the vehicle sold as same qualifies as goods under the Act and the NCA will govern the instalment sale agreement. The question then is what remedies are available to the consumer in situations such as the one discussed above?
In terms of the CPA the remedies available to a consumer where the consumer has purchased defective goods can be found in Section 56(2) of Act. This section provides that:
“Within six months after the delivery of any goods to a consumer, the consumer
may return the goods to the supplier without penalty and at a supplier’s risk and expense, if the goods fail to satisfy the requirements and standards contemplated in
section 55, and the supplier must, at the direction of the consumer, either –
(a) repair or replace the failed, unsafe or defective goods; or
(b) refund to the consumer the price paid by the consumer, for the goods”.
On a first reading this section appears to be straightforward. However with examples such as the purchase of a motor vehicle through finance discussed above it is clear that this section is anything but straightforward. As stated above, both the dealership and the bank will deny liability and so the question of who the supplier is will be raised.
This issue has already been addressed in part by the court in MFC (a division of Nedbank Ltd) v Botha (unreported case no 6981/13) (ZAWCHC) (15 August 2013). The facts of the case are as follows:
In this matter the facts are the same as our example above. The consumer (being the respondent in this matter) purchased a vehicle from a dealership under an instalment sale agreement with the credit provider (the applicant). As is standard, the vehicle was purchased from the dealership and not the credit provider, however, the respondent after becoming dissatisfied with vehicle due to him experiencing numerous problems with the vehicle returned the vehicle to the credit provider. The respondent claimed to be returning the vehicle under section 56(2) of the CPA, however, the credit provider wished to deal with the return of the vehicle as a voluntary surrender in terms of section 127 of the NCA. Thus the court was placed in a tricky situation where it had to deal with the overlap between the CPA and NCA.
The court in paragraph 6 of the judgement held:
‘The term ‘supplier’ is defined in s 1 of the CPA. It means ‘a person who markets any goods or services’. The word ‘market’ is also defined in s 1 of the CPA. When used as a verb, it means ‘to promote or supply any goods or services’. In the current case it clear that the applicant did not market the vehicle; it merely financed it.’
The court further held in paragraphs 8 and 9:
‘The apparent object of s 5(2)(d) of the CPA is to distinguish the position of a credit provider from that of a supplier and to protect the contractual rights of a credit provider which has financed the supply of goods by a supplier to a consumer, while seeking at the same time to preserve the consumer’s statutory protection against the supplier. However, I have been unable to identify (and nor could counsel) any provision in the Act that facilitates the achievement of the second of the aforementioned apparent objectives in the readily conceivable context of the facts of the current case.
It is not plainly evident how a consumer in the position of the respondent would be able to avail of the protection offered to consumers in terms of s 56(2) of the CPA. He could not return the vehicle to the supplier against a refund of the purchase price because ownership of the car vested in the credit provider; and it was the credit provider, and not he, that had paid the purchase price.’
Thus it is clear that the court in this matter did not deem the credit provider to be the supplier as a result of which section 56(2) of the CPA was unable to provide the consumer with any relief in matters such as these.
The court suggested in paragraph 9 of the judgment, and with which Counsel in the matter agreed, that it appears that the only practical manner in which the consumer can enjoy the statutory protection provided by section 56(2) in instances such as these is by ceding the credit provider’s rights as consumer against the supplier in terms of the CPA to the consumer. The consumer will then be able to return the vehicle to the supplier against a refund of the purchase price. Alternatively, the credit provider should, when requested by the consumer, exercise its rights as consumer directly against the supplier to give the consumer the benefit of a refund of the purchase price in satisfaction or reduction of his or her liability under the installment agreement.
In this matter the court had the difficult task of determining how to deal with the overlap that exists between the CPA and the NCA in relation to instalment sale agreements. The court came to the conclusion that the dealership was the supplier and that the credit merely financed the vehicle and did not market it. This judgement has the unfortunate effect that a consumer will not be able to utilize section 56(2) as a remedy for defective goods purchased under an instalment sale agreement. The legislature is to be blamed for this situation that arises as a direct result of the confusion that exists where there is an overlap between the NCA and the CPA, and to clear up uncertainty, the legislature should amend the CPA.
- Otto JM, van Heerden CM & Barnard J “Redress in terms of the National Credit Act and the Consumer Protection Act for defective goods sold and financed in terms of an instalment agreement” 2014 (2) SA Merc LJ 247-281.
- Stoop, P “The overlap between the Consumer Protection Act 68 of 2008 and the National Credit Act 34 of 2005: a comparison with Australian law.” 2014 (77) THRHR 135-144.