In these difficult economic times it’s no surprise that repossessions are on the rise, making it more important than ever for vehicle owners to know their rights and responsibilities.
South Africa’s Ombudsman for Banking Services (OBS), Reana Steyn, has received an influx of complaints about the repossession of vehicles by banks after these consumers fell behind with their vehicle repayments.
Steyn stresses that the first legal principle to understand is that under vehicle financing agreements, the 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,” Steyn explains.
Consequences of defaulting
The Ombud urges 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 with the bank to avoid legal action being taken 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 on auction. You will remain liable for the shortfall, should the auctioned asset not sell for the full outstanding balance, meaning you will have to continue paying for a vehicle finance debt, without even having the vehicle to drive.
What the banks can and cannot do
The OBS 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 initiating legal action, a bank will normally first exhaust its internal debt collection processes to collect the arrears, Steyn says. A bank representative will try to 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. The 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; and
- The Sheriff of the Court has delivered the original warrant of execution (original court order) 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. 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. Thus, it is vital that your contact details with your creditors are 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,” the Ombud says.
Steyn says that, 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 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.
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.
Further, 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.
What if the debt prescribes?
This means for example, that 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 still legally entitled to repossess it.
The Ombud 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 prescribed, its right to repossess the asset had also prescribed, and ownership somehow automatically passed to the customer.
“Unfortunately, this is not the case,” Steyn says. She says that what prescribes is the customer's obligation to repay the debt together with the bank’s right to sue the customer for repayment.