The South African Competition Commission Investigates the Automotive Finance Industry following an Inquiry into the Banking and Financial Sector

The South African Competition Commission (“SACC” or “Commission“) had earmarked certain sectors of the South African economy as priority for purposes of developing and increasing a desired inclusivity. As part of this, the Commission identified, for intervention, “the banking and financial services sector.”

In addition, the SACC has attempted to address multiple allegations of anti-competitive conduct in the automotive aftermarket.  In this regard, the SACC initiated a substantial market inquiry into the automotive aftermarket.  This culminated in the formulation of comprehensive Guidelines governing the role of participants including automotive finance houses.

The recent announcement that the SACC has initiated and now referred a complaint against two motor vehicle finance houses comes as no surprise. On 3 February 2022, the SACC issued a press statement in which the SACC confirmed a referral to the Competition Tribunal (“Tribunal”), of FirstRand Bank Limited (“First Rand”), Wesbank, and Toyota Financial Services South Africa Limited (“TFS”) (jointly “Motor Vehicle Finance Institutions”)[1] for alleged violations of Section 4(1)(b)(ii) of the Competition Act 89 of 1998, as amended (“Act”).

(Section 4(1)(b)(ii) of the Act provides that an agreement or concerted practice between or by firms, or a decision by association of firms is prohibited in instances where parties to a horizontal relationship have divided markets through the allocation of customers, suppliers, territories or specific types of goods and services).

In particular, the SACC has alleged that:

• Wesbank (as a division of FirstRand) and TFS, firms in a horizontal relationship, allegedly prevented competition by entering into a shareholders agreement containing non-compete clauses.
• the Motor Vehicle Finance Institutions allocated markets because they are ‘supposed to compete’. 
• the shareholders agreement between the Motor Vehicle Finance Institutions included clauses ‘that prohibit[ed]WesBank from offering vehicle finance to customers seeking to purchase vehicles at authorised Toyota dealerships.’
• that, Wesbank was also prohibited from financing specific vehicles, being ‘the “new” TOYOTA, LEXUS and HINO vehicles and any “used” vehicles sold through any authorised Toyota dealership, except McCarthy Group’.

The matter will now be prosecuted before the adjudicative agency, the Competition Tribunal (“Tribunal”).  Should the Tribunal find that there in fact has been a violation by the Motor Vehicle Finance Institutions, the Tribunal may, in accordance with Section 59 of the Act, impose an administrative penalty. which may not exceed 10% of the firm’s annual turnover, however, if either party is a recidivist, the penalty may rise to up to 25% of the firm’s annual turnover.

Primerio Director John Oxenham added that cartel conduct in South Africa is considered a criminal offence which poses a risk to individuals within the the Motor Vehicle Finance Institutions.  Of equal concern is the risk of follow-on civil damages claims being nstituted against the Motor Vehicle Finance Institutions.

[1] FirstRand Bank Limited (“First Rand”), Wesbank, and Toyota Financial Services South Africa Limited (“TFS”) (jointly “Motor Vehicle Finance Institutions”).