Need cash fast? Have an asset, like a car perhaps? Well, why don’t you pawn while you drive?
It certainly sounds like a win-win - or too good to be true. You apply for a short-term loan, using your paid-up car as collateral and still get to drive it. The reality is far less appealing: consumers are losing their vehicles, having pawned them for relatively small amounts.
In 2017, the National Credit Regulator (NCR) warned consumers about the scheme, saying it was concerned about the rising number of consumers who pawn their vehicles in order to obtain loans.
“While pawning of assets for loans is allowed under the National Credit Act (NCA), the NCR would like to caution consumers against pawning their motor vehicles due to the high risk that they could lose them to pawn brokers if they are unable to repay the loans within the agreed time,” Nthupang Magolego, a senior legal advisor at the NCR said.
Magolego said the NCA does allow pawn brokers to keep assets as security and sell it if the loan is not repaid, to settle the debt.
But the regulator advised consumers to read the credit agreement carefully to avoid signing agreements that transfer ownership of their pawned assets to pawn brokers before they default.
Under the NCA, a pawn transaction is a short-term credit transaction, which means interest is limited to 5% a month on the first loan and 3% a month on subsequent loans in one calendar year. This is best used for small loans for assets such as cellphones or electronic devices. For bigger assets such as cars, where the loan amounts are greater, it becomes murkier.
Which is why the NCR referred Allied Capital to the National Consumer Tribunal. It was also investigating a few other such schemes, the regulator’s spokesperson Lebogang Selebi explained.
The tribunal ruled the “pawn while you drive scheme” was “prohibited conduct” (therefore illegal). It said Allied Capital had tried to mask the true nature of its business by calling these sales and lease-back agreements, when they were in fact credit agreements governed by the NCA.
The company was instructed to refund any excess fees it had charged and return any vehicles it had repossessed. If the vehicles had already been sold, it was to refund consumers’ market value, less lawful default charges and settlement amounts. Its NCR registration was suspended for 18 months, and it was fined 10% of its turnover plus a R50 000 administrative penalty.
Last year, another pawn scheme got in trouble with the tribunal for reckless lending. Sun Finance entered into an agreement that it would refund customers who were charged interest, default administration charges and collection costs more than the allowable amounts.
But complaints haven’t stopped. On Hello Peter, some clearly bogus entries praise Sun for their wonderful service while others call them “bogus, loan sharks and scammers”.
One said: “Stole my car worth R240 000 for a R65 000 loan. After two months, settlement amount was sitting at R126 000. They took my car and I was paid R 19 000. End of the story. NCR does not want to investigate and get these guys paying back my money.”
Another said: “These people are crooks. I took out a loan using my vehicle as security. They were only supposed to change title but they changed ownership also. I am 12 days late with their payment and they are threatening me that they are on their way to come fetch my vehicle. Phoning me and saying they have sold my debt and that a company (is) on their way to collect my vehicle. They just want your vehicle.”
There’s a twist to the story: apparent licensing department involvement. One complainant said: “I paid my loan settlement amount up and upon going to change the title holder back to my name, the licence department said I need to pay penalties as the ownership was changed and the licence discs were never paid for.”
Bruce Gordon, an accountant working for an SOE, has heard similar complaints. He was alerted to the issue on Twitter and wanted to do something about it.
Gordon and attorney Tracey Lomax are assisting some Gauteng victims but know of others across the country. “In February last year, Sun Finance entered into a settlement order with the National Credit Tribunal. They would refund all overcharges, return all vehicles they had taken possession of and have an audit performed to ensure all people affected were identified. From what we’ve seen, they have done none of this and in fact have continued with the process,” he said.
“The more publicity this matter gets, the more people will come forward to be assisted through the courts.”
Gordon said they approached the regulator, but were told it had already told Sun Finance to stop via the tribunal. Clearly that didn’t work and Sun isn’t taking the tribunal ruling seriously because it’s not being enforced and there are no consequences.
“They’ve (NCR) done nothing. They can register people but they don’t do anything,” he said.
Sun is still not asking for proof of income or affordability assessments, which is a violation of the NCA. It’s also managed to transfer cars without roadworthies, which reflects shady involvement by licensing officials because change of ownership can’t happen without roadworthy certificates being issued.
“It’s extortion. You give your car papers to them. They say you’re driving our car and if you don’t hand it in, we’re going to report it stolen. They’re not VAT registered. One consumer we’re helping in Witbank borrowed R40k but hasn’t paid anything back. Sun took the car but we managed to get it back. They make all sorts of promises, but their statements are not detailed.”
They also present their loans as short-term loans, which are meant to be valued at under R8 000, but these loans are all over that amount - significantly so.
“They put in a tracking device and charge for that. If you pay a day late they charge a huge penalty, which is illegal. The max they can charge for initiation fees is R1 100 - they’re charging way over legal limit. They make a person sign an agreement for more than they borrow - that is illegal. When you sign an agreement, it has to be specified upfront. They don’t do that - they say you borrowed R38 000 when you asked for R30 000. There’s no breakdown in fees.”
The regulator said it was aware Sun Finance was continuing with conduct contrary to the tribunal order and “appropriate steps are being taken”. It didn’t outline what those steps were.
* Georgina Crouth is a consumer watchdog with serious bite. Write to her at [email protected], tweet her @georginacrouth and follow her on Facebook.