Does pawning your car and still being able to drive it, sound too good to be true?
According to the National Consumer Tribunal, it is.
The tribunal recently ruled that the “pawn your car and still drive it scheme” was "prohibited conduct" and interdicted company Allied Capital from continuing with it.
The company had maintained that it had entered into "sale and lease back agreements" with consumers which did not fall under the National Credit Act.
However the tribunal found that the transactions had been credit agreements that were regulated by the Act.
“(Allied Capital) had advertisements on billboards, trailers and on the internet with the following words written on them: ‘Need cash now? Pawn your car and still drive it! We pawn, we buy, we sell, we hire … cars. No credit checks! Instant decisions! That’s how … we do it,” the tribunal said in its ruling.
It said these adverts showed the company's intention.
“The conclusion is inescapable that (Allied Capital) used this form of transaction to enable it to escape the provisions of the Act and charge its customers more interest than it was entitled to."
Complaints from consumers prompted the National Credit Regulator (NRC) to investigate the company’s scheme in July 2015 and then in 2016, the DA also complained.
The NRC then took Allied Capital to the tribunal to determine whether or not the transactions that were being concluded constituted secured loans, subject to the provisions of the Act.
The NCR submitted that they did, whereas Allied Capital maintained that they were “sale and lease back agreements”.
The NCR’s investigation revealed that the scheme basically involved consumers taking six-month loans out against their cars.
Allied Capital became the title-holders of the cars but the consumers retained possession of them, while paying the company a monthly “rental fee”.
Allied Capital had submitted to the tribunal that its “honest and reasonable view” was that the transactions in question “fell beyond the purview of the NCA” and that they weren’t meant to deceive consumers, allow the company to avoid its obligations or override the provisions of Act.
But the tribunal agreed with the NCR that the transactions carried “every element of a credit transaction as defined in the NCA”.
“The phrasing and tilting of the various loan documents as purchase and rental agreements does not change the nature of the transaction in any way. There is no evidence that the consumers who entered into contracts had any direct or true intention of selling their vehicles and renting them back,” it said.
The company was directed to audit all its transactions and refund any excess fees it had charged as well as return any vehicles it had repossessed.
Its registration with the NCR was suspended for 18 months.
The DA welcomed the ruling, calling it “a major victory for thousands of consumers who have been targeted by Allied Capital”.
Manager of investigations and enforcement at the NCR, Jacqueline Peters cautioned consumers against using their cars as security for loans or pawning them.
Allied Capital’s directors could not be reached for comment on Tuesday.