The Ombudsman for Banking Services (OBS) has warned of a rise in car repossessions by banks due to cash-strapped South Africans defaulting on their finance payments more frequently as living costs in the country continue to skyrocket.
This comes after the OBS received an influx of complaints from bank customers whose vehicles were taken after they missed their monthly instalments for an extended period of time.
OBS Reana Steyn said many of these individuals appeared to believe that since a bank’s right to claim repayment of the debt had prescribed, its right to repossess the car had, too, and that ownership was automatically transferred to them.
“Unfortunately, this is not the case,” said Steyn. “What prescribes is the customer’s obligation to repay the debt together with the bank’s right to sue the customer for repayment.”
In financing a vehicle, the OBS notes that a crucial legal principle that car buyers should understand is that a vehicle remains the property of the bank until the loan is fully repaid.
“With financed vehicles, the bank, as the titleholder, remains the legal owner of the vehicle, and ownership only passes to the buyer on payment of the last instalment to the bank,” said Steyn.
When defaulting on a loan repayment, it will have the following consequences:
- The adverse information will be listed on your credit report, limiting your ability to access further credit in the future
- Legal action may be taken against you, resulting in you being liable for additional legal costs, and a judgment recorded against your name
- The vehicle may be repossessed and sold on auction, and you will remain liable for the shortfall should the auctioned asset not sell for the full outstanding balance
Steyn therefore encourages consumers who find themselves unable to make their repayments in full or on time to either return the vehicle to the bank or to renegotiate their credit agreement to avoid these negative outcomes.
What banks can and cannot do when repossessing a car
The OBS has received numerous complaints from consumers alleging that banks tricked, forced, or unduly influenced them into signing a document terminating the vehicle finance agreement and giving the bank or its representatives permission to repossess the vehicle.
As such, it is more important than ever that consumers know their rights.
“Banks are not a law unto themselves and cannot repossess a vehicle without following the procedure set out in the National Credit Act 34 of 2005 (NCA),” said Steyn.
Before instituting legal action, a bank will normally first exhaust its internal debt collection processes to collect the arrears, which may include a bank representative who will try to contact the client with the aim of settling their debts.
It is only if this process is unsuccessful that the finance house will resort to litigation.
“In South Africa, a bank can only physically repossess a financed vehicle with a court order or with the consumer’s consent,” said Steyn.
The court order will only be issued once the bank has complied with the following:
- Issued a section 129 notice (letter of demand) which can only happen after the account has been in arrears for over 20 days
- A summons has been served by a Sheriff of the Court to the consumer
- A judgment has been granted against the consumer declaring the vehicle executable
- The Sheriff of the Court has delivered the original warrant of execution to the consumer stating that the vehicle can be repossessed
“If the bank cannot show that it sent you a section 129 notice, a court will not grant judgment against you,” she said.
“However, the bank’s only obligation is to send this letter to your chosen address by registered post; there is no legal requirement on banks to prove that you received it.”
This is one of the more important reasons to keep your contact details with your creditors up to date, and to avoid changing addresses and neglecting phone calls or emails from banks in an effort to evade paying debts.
“In the event of a repossession, if the person intent on taking your vehicle fails to provide you with proof that they are the Sheriff of the Court as well as the original court order stating that the vehicle can be repossessed, you are not obliged to sign any documents they present to you, nor are you obliged to hand over the vehicle,” said Steyn.
Voluntary surrender
It is important to note that there is such a thing as a “voluntary surrender” as well.
Section 127(1) of the NCA gives consumers the right to terminate a vehicle finance agreement by giving the bank written notice. The vehicle will then be sold on auction to offset the debt owed.
“This affords over-indebted consumers an opportunity to alleviate their financial pressures by voluntarily surrendering the vehicle to the bank,” said Steyn.
“Voluntary surrender should be a consumer-initiated exercise, free of any undue pressure or threats from the bank or its representatives.”
To save on legal costs, banks may try to obtain a client’s consent to voluntarily surrender their vehicle by sending its representative, who may be a debt collector, to their home.
“It is important to know that these representatives are not allowed to use intimidation, threats, or violence to force you to surrender the vehicle,” said the OBS. You also have the right to refuse entry to anyone who is not a Sheriff of the Court and who does not have an original court order.
“Should unlawful techniques be used, consumers are advised to record them and report them to the OBS and the SAPS,” said Steyn.
Keyword: Car repossessions on the rise in South Africa – What banks can and cannot do