DTI: Forcing clients to buy "Installment Only" violates consumer act
Know your rights as a consumer
It really is important to know the various rights you have, especially as a consumer.
One of the things to know is that the sticker price is the selling price; meaning a store can't mark up a product when you get to the checkout, even if they made a mistake. That's colloquially known as the “price tag law”, but it's really a portion (Article 81) under Republic Act 7394 or the Consumer Act of the Philippines.
Recently though, the Department of Trade and Industry (DTI) pointed out something very important: no seller is allowed to force a customer to buy on an “installment only” basis.
Last March 23, the DTI issued Department Administrative Order (DAO) 21-03 which makes it clear that consumers shall not be forced to purchase anything under any specific type of transaction. Consumers will be given the choice to purchase any item or acquire any service under a payment option be it cash, installment, or a combination of the two.
What the DTI is clarifying is that it is a violation for businesses to deny a customer the option to pay in cash for a product. They also reiterated that it is a prima facie violation (at first sight until proven otherwise) of the Consumer Act.
The DAO also mentioned that the vendor is not prevented from offering a discount with a cash purchase; they just can't prevent a customer from buying in cash or other acceptable transaction and be driven into financing if the buyer doesn't wish to do so.
Now the DTI's DAO did not elaborate as to what the actual order was in response to. We are unsure if there was a certain incident that triggered the issuance of the order, but what we can tell you is that it is very applicable in the automobile retail business.
Certain automobile dealers (not necessarily brand specific and not all dealerships) have been practicing a “financing priority” policy. What this means is that if a dealer has, say, 10 customers for a certain unit of a vehicle, the dealer will allocate that unit to the customer with the most favorable transaction and generates the most income for the vendor.
Automobile retailers have a certain markup for vehicles, but also earn incentives/commissions based on the transaction on financing plans (particularly “in-house” financing) from the bank. They can also earn commissions on “in-house” insurance plans (from the insurance provider) and even commissions on other ancillary purchases like car accessories.
Such a transaction is definitely more attractive from a business point of view because a cash purchase, on the other hand, only earns the dealer the vehicle markup.
This practice in the automotive retail business is more common when the vehicle sold is a popular model. Being a popular vehicle typically means that the supply cannot meet current demand. Most of the time, these are imported models, and the unit allocation tends to get spread out by the distributor amongst the dealers nationwide. That makes units fairly scarce at showrooms.
Can the DTI's DAO make automobile dealers think twice before implementing these kinds of sales tactics? Below is the full DTI DAO.
