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, said it was necessary to clarify the rights of consumers and banks in such circumstances.
Importantly, she said the first legal principle to understand was 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 said.
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 legally entitled to repossess it.
The Ombud said 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. What prescribes is the customer’s obligation to repay the debt together with the bank’s right to sue the customer for repayment”.
Consequences of defaulting
Steyn said many consumers were finding it more and more difficult to make ends meet these days, with the increase in cost of living, fuel, interest rates and so on.
“However, consumers who find themselves unable to make their repayments in full or on time should either return the vehicle to the bank or renegotiate their credit agreement with the bank to avoid legal action being taken against them for the recovery of the asset.”
She said a default on payments would have the following negative consequences:
• The adverse information would be listed on your credit report, limiting your ability to access further credit in future.
• Legal action could be taken against you, resulting in you being liable for the additional legal costs, and a judgment recorded against your name.
• The vehicle could 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 said she had 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.
Steyn said it was more important than ever that consumers know their rights. Banks were not a law unto themselves and could not 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. 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,” she said.
In South Africa, a bank could physically repossess a financed vehicle only with a court order or with the consumer’s consent. The court order would be issued only once the bank had complied with the following:
• Issued a section 129 notice (letter of demand). That could happen only after the account has been in arrears for 20 days or more.
• A summons had been served by a Sheriff of the Court to the consumer.
• A judgment had been granted against the consumer, declaring the vehicle executable.
• The Sheriff of the Court had delivered the original warrant of execution (original court order) to the consumer, stating that the vehicle coud be repossessed.
If the bank could not show that it sent you a section 129 notice, a court would not grant judgment against you. However, the bank’s only obligation was to send this letter to your chosen address by registered post; there was no legal requirement on banks to prove that you received it. Thus, it was vital that your contact details with your creditors were up to date.
The OBS cautioned against changing addresses or neglecting phone calls or emails from banks to evade paying your debts.
“Such an exercise is futile,” the ombud said.
Steyn said that in the event of a repossession, if the person taking your vehicle failed to provide you with proof that they were the Sheriff of the Court and proof of the original court order stating that the vehicle could be repossessed, you were not obliged to sign any documents they presented to you, nor were 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 would then be sold on auction to offset the debt owed. That afforded over-indebted consumers an opportunity to alleviate their financial pressures by voluntarily surrendering their vehicles 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 said.
She said banks might, to save you legal costs, try to obtain your consent to voluntarily surrender the vehicle by sending its representative, who could be a debt collector, to your home. It was important to know that the representatives were not allowed to use intimidation, threats or violence to force you to surrender the vehicle.
Further, you had the right to refuse entry to anyone who was not a Sheriff of the Court and who did not have an original court order. Should illegal techniques be used, consumers were advised to record them and report them to the OBS and the SAPS.
Steyn assured consumers that her office dealt with vehicle-related complaints daily and that it was more than equipped to assist complainants with any vehicle finance-related disputes they might have with their banks.
Consumers were 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.