What consumers should know about vehicle repossessions

The Ombudsman for Banking Services (OBS), Reana Steyn, has issued a statement clarifying the legal position relating to the repossession of financed vehicles.

Under vehicle-financing agreements, the vehicle remains the property of the bank until the loan is fully repaid. The bank, as the titleholder, remains the legal owner of the vehicle, and ownership passes to the buyer only once the final instalment has been paid, Steyn says.

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 bank remains the owner of the vehicle, and the bank is legally entitled to repossess it.

The Ombud says her office has received several complaints from consumers who seemed to believe that because a bank’s right to claim repayment of the debt had prescribed, its right to repossess the asset had also prescribed, and ownership of the vehicle had automatically passed to them. This is not the case, Steyn says.

What prescribes is the customer’s obligation to repay the debt and the bank’s right to sue the customer for repayment.

Consequences of defaulting

Steyn says consumers who cannot 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 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 credit in the future.
• Legal action may be taken against you, resulting in your being liable for the additional legal costs, and a judgment will be recorded against your name.
• The vehicle may be repossessed and sold on auction. You will remain liable for the shortfall if the vehicle does not sell for the full outstanding balance. You will have to continue paying for a vehicle finance debt even though you do not have the vehicle.

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.

Steyn says banks cannot repossess a vehicle without following the procedure set out in the National Credit Act (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 try to contact you with the aim of settling the arrears. It is only if this process is unsuccessful – for example, if the consumer fails to respond to the bank’s emails – that the bank will resort to litigation.

A bank can only physically repossess a financed vehicle with a court order or with the consumer’s consent. The court order will be issued only once the bank has complied with the following:

• Issued a section 129 notice (letter of demand), which can happen only after the account has been in arrears for 20 days or more.
• A summons has been served on the consumer by a Sheriff of the Court.
• 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 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. Note that the bank is only obliged 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 when a vehicle is repossessed, 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 says.

She says banks may, to save you legal costs, try to obtain your consent to surrender the vehicle voluntarily 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. If unlawful techniques be used, consumers are advised to record them and report them to the OBS and the South African Police Service.

Steyn says her office is equipped to assist complainants with any vehicle finance-related disputes they may have with their banks.

Click here to visit the OBS website.