Car repossessions are on the rise in a difficult economy

After an influx of complaints about the repossession of vehicles by banks when people fall behind with their vehicle finance repayments, the Ombudsman for Banking Services (OBS), Reana Steyn, says it is necessary to clarify the rights of both consumers and banks in such circumstances.

She notes the first legal principle to understand is that under vehicle financing agreements, the vehicle remains the bank’s property until the loan is repaid fully.

This means, for example, if the debt prescribes – which typically occurs if the debtor withholds repayments and the creditor does not act on reclaiming the debt within three years – the ownership of the vehicle remains with the bank and the bank is legally entitled to repossess it.

Steyn says her office received several complaints from bank customers who appeared to believe that since a bank’s right to claim repayment of the debt had been prescribed its right to repossess the asset had also been prescribed, and ownership somehow automatically passed to the customer.

“Unfortunately, this is not the case,” Steyn says. She says it prescribes the customer’s obligation to repay the debt, together with the bank’s right to sue the customer for repayment.

Consequences of defaulting:

Steyn acknowledges that many consumers are finding it more and more difficult to make ends meet these days with the increase in the cost of living and fuel.

However, she encourages consumers who find themselves unable to make their repayments in full or on time to either return the vehicle to the bank or renegotiate their credit agreement with the bank to avoid legal action against them for the recovery of the asset.

She says a default on payments will have the following negative 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 the additional legal costs and a judgment recorded against your name.

• The vehicle may be repossessed and sold at an auction. You will remain liable for the shortfall, should the auctioned asset not sell for the outstanding balance. This means you will have to continue paying for a vehicle finance debt, without having the vehicle to drive.

What the banks can and cannot do:

Steyn says she has received 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.

She says 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).

Before instituting legal action, a bank will normally first exhaust its internal debt collection processes to collect the arrears, Steyn says. A bank representative will contact you with the aim of settling the arrears. It is only if this process is unsuccessful, for example, if the consumer avoids the banks or emails, that the banks 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.

A court order will only be issued once the bank has complied with the following:

• Issued a section 129 notice (letter of demand) – this can happen only after the account has been in arrears for 20 days or more.

• 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 (original court order) to the consumer, stating 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.

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. Steyn says your contact details with your creditors must be up to date.

The OBS cautions against changing addresses or neglecting phone calls or emails from banks to evade paying your debts.

“Such an exercise is futile,” Steyn says.

She says 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.

What is a ‘voluntary surrender’?

Section 127(1) of the NCA gives consumers the right to terminate a vehicle finance agreement by providing the bank with written notice. The vehicle will then be sold on auction to offset the debt owed.

This allows over-indebted consumers to alleviate their financial pressures by voluntarily surrendering their vehicle to the bank.

“Voluntary surrender should be a consumer-initiated exercise, free of any undue pressure or threats from the bank or its representatives,” Steyn explains.

She says banks may, to save you legal costs, try to obtain your consent to voluntarily surrender the vehicle by sending its representative, who may be a debt collector, to your 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.

You 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.

Steyn assured consumers that her office deals with vehicle-related complaints daily and they are equipped to assist complainants with any vehicle finance-related disputes they may have with their banks.

Consumers are advised to bring to the Ombudsman for Banking Services disputes relating to:

• Outstanding balances on the vehicle finance account.

• Unfair treatment by banks and their debt collectors or tracers.

• Unilateral changes of the contractual terms and conditions.

• Prescription related disputes.