Scratch and dent cover offered at the dealership: your rights to choose, cancel and complain

If a scratch and dent plan is offered when you buy or finance a car, the Consumer Protection Act gives you the right to choose whether to take it, and rules on cooling-off and cancellation apply depending on how the plan is classified. Complaints go to the provider first, then an ombud or the National Consumer Commission.

Can a dealership make you buy a scratch and dent plan?

Generally, no. Section 13(1) of the Consumer Protection Act 68 of 2008 is headed "Consumer's right to select suppliers". It says a supplier must not require, as a condition of offering to supply or supplying goods or services, or of entering into an agreement, that you must purchase other particular goods or services from that supplier, enter into an additional agreement with the same supplier or a designated third party, or agree to purchase particular goods or services from a designated third party.

There are three exceptions. The supplier may bundle if it can show that the convenience to you of having the items bundled outweighs the limitation of your right to choice, or that bundling results in economic benefit for consumers, or if it offers the bundled goods or services separately and at individual prices (s 13(1)(i) to (iii)).

In practice: if a plan is offered, you are entitled to ask whether it is optional, and to ask for the terms separately. This guide does not say whether any particular offer breaks the rule. That depends on the facts.

Is a scratch and dent plan insurance?

It depends on how the provider has set it up. Ask: "Is this an insurance policy, and who is the insurer?" The answer matters because:

• If it is insurance, the Policyholder Protection Rules (Short-term Insurance) apply, including the cooling-off right in Rule 4 and the claims rules in Rule 17. The National Financial Ombud Scheme can look at a complaint.
• If it is not insurance, the plan is a consumer agreement under the Consumer Protection Act, and its sections on fair terms, services and cancellation apply.

Either way, ask for the written terms before you sign anything.

Is there a cooling-off period?

It depends on which of the two applies.

If the plan is an insurance policy. Rule 4.2 says a policyholder may, where the policy has a term longer than 31 days and no benefit has yet been paid or claimed and no insured event has occurred, cancel within 14 days after the date of receipt of the policy contract, by way of a cancellation notice to the insurer. Under Rule 4.3, premiums paid up to the notice must be refunded, less the cost of any risk cover actually enjoyed. Under Rule 4.4, the insurer must comply no later than 31 days after it receives the notice.

If the plan is not insurance. Section 16(3) of the Consumer Protection Act lets you rescind a transaction resulting from direct marketing, without reason or penalty, by notice in writing or another recorded manner, within five business days after the later of the date the agreement was concluded or the goods were delivered. The supplier must return any payment within 15 business days (s 16(4)). Section 16 does not apply where section 44 of the Electronic Communications and Transactions Act applies (s 16(1)). It applies to direct marketing, and whether a sale made in a showroom counts as direct marketing is a legal question. Do not assume it does.

Can you cancel after the cooling-off period?

For a consumer agreement for a fixed term, section 14(2)(b)(i)(bb) lets you cancel at any other time by giving the supplier 20 business days' notice in writing or another recorded manner. Section 14(3) says you remain liable for amounts owed up to the date of cancellation, and the supplier may impose a reasonable cancellation penalty for goods supplied, services provided or discounts granted in contemplation of the agreement lasting its full term. It must credit you with anything that remains your property. Section 14 does not apply to transactions between juristic persons (s 14(1)).

At the end of a fixed term, the supplier must notify you between 80 and 40 business days before expiry (s 14(2)(c)). If you do nothing, the agreement continues month-to-month (s 14(2)(d)).

Insurance policies carry their own cancellation terms. Ask the provider for them, and for what you get back.

What if the plan was added to a finance deal?

Look at the paperwork. Ask for the plan, its terms and what it costs, shown separately, and ask whether you can take the car without it. A supplier that offers the items separately and at individual prices falls within the third exception in s 13(1). If the plan was presented as compulsory, say so in writing to the seller and ask for the basis in writing.

How do you complain?

1. Start with the provider, in writing. Say what happened, what you want and by when. Keep a copy. For an insurance policy, Rule 18.10.1 requires the insurer to tell you how to reach the relevant ombud at point of sale and when a claim is repudiated.
2. Insurance policy: the National Financial Ombud Scheme. The NFO's service is free to complainants, and it can look at a complaint only once you have lodged it with the insurer first.
3. Motor-industry supplier: the Motor Industry Ombudsman (MIOSA). MIOSA describes itself as the accredited ombud for the automotive industry, and says its service is free to consumers. Under the Automotive Industry Code of Conduct it cannot hear matters falling within another ombud's exclusive mandate.
4. The National Consumer Commission. Section 69 of the Consumer Protection Act lists the routes open to you, including referring the matter to an applicable ombud and filing a complaint with the Commission under section 71.
5. The FSCA. The Financial Sector Conduct Authority supervises how regulated financial institutions conduct themselves. It is a regulator, not an ombud: a dispute about a claim goes to the provider first and then to the relevant ombud.

What should you ask for in writing?

If a plan is offered as part of a car purchase or finance deal, ask for these in writing: the plan terms; whether the plan is optional; the plan's price and length shown separately from the rest of the deal; the cooling-off and cancellation terms; and who the provider is, with contact details. Read the document you are given, and take it away if you need time.

Do not sign anything you have not been able to read. You are entitled to an adequate opportunity to read and understand any limitation of liability, as the next section sets out.

Do exclusions and limits have to be pointed out to you?

Yes, where they limit the provider's liability. Section 49(1) of the Consumer Protection Act says a notice or a provision of a consumer agreement that purports to limit the risk or liability of the supplier, to make you assume a risk or liability, to make you indemnify the supplier, or to be an acknowledgement of a fact by you, must be drawn to your attention in the manner the section requires. Under section 49(3) it must be written in plain language. Under section 49(4) it must be drawn to your attention conspicuously, in a form likely to attract the attention of an ordinarily alert consumer, and before you enter into the agreement or are asked to pay. Under section 49(5) you must be given an adequate opportunity to receive and comprehend it.

Section 51(1)(b)(i) adds that a supplier must not make an agreement subject to a term that purports to waive or deprive you of a right under the Act.

In plain terms: an exclusion or limit that matters should not be buried. If the provider reads the limits to you on the call, ask for the same words in writing. If you cannot find an exclusion the provider relies on later in the documents you were given, say so when you complain.

Who answers the judgement questions?

Olvian does not sell scratch and dent plans, advise on them or endorse one. It is a lead-referral service: you ask once, and your request goes to licensed providers who pay Olvian a fee and call you back. Whether a plan suits your car is for the licensed provider to explain, and you are free to say no.

Sources

• Policyholder Protection Rules (Short-term Insurance), Government Notice 1433, Government Gazette 41329, 15 December 2017: https://lawlibrary.org.za/akn/za/act/gn/2017/1433/eng@2017-12-15
• Tranche 2 amendments to the Short-term Insurance Policyholder Protection Rules, September 2018 (National Treasury): https://www.treasury.gov.za/twinpeaks/Policyholder%20Protection%20Rules%20and%20Supporting%20Document/Tranche%202%20amendments%20to%20the%20Short-term%20Insurance%20PPRs%20Sept%202018%20(track).pdf
• Consumer Protection Act 68 of 2008, Government Gazette 32186: https://www.gov.za/sites/default/files/32186_467.pdf
• National Financial Ombud Scheme: https://www.nfosa.co.za
• Motor Industry Ombudsman of South Africa: https://www.miosa.co.za
• National Consumer Commission: https://www.thencc.org.za
• Financial Sector Conduct Authority, Financial Consumer page: https://www.fsca.co.za/Financial-Consumer/