Car repossession increasing – these are your rights

Car repossessions are increasing due to the difficult economic times we are in, but it’s important to know you have certain rights when a bank wants to repossess your car, the Banking Ombud says.

Many consumers took advantage of the low interest rates during 2020 and 2021 before the Reserve Bank started increasing the repo rate, to buy vehicles that they could afford at what was then the current interest rate.

However, they later struggled to repay the banks when interest rates started to increase in November 2021. The repo rate has increased by 4.75 basis points since November 2021 when it stood at 3.5%. It is now 8.25%.

Reana Steyn, the Ombudsman for Banking Services (OBS), says it is necessary to clarify the rights of consumers and banks after an influx of complaints about the repossession of vehicles.

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Legal principle of car repossession

She notes it is important to understand the legal principle that under vehicle financing agreements, the vehicle remains the property of the bank until the loan is repaid in full.

“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.

This means, for example, that if the debt prescribes – which typically happens if the consumer stops paying and the bank does not act to reclaim the debt within three years – the ownership of the vehicle remains with the bank and the bank is still legally entitled to repossess it.

Steyn says her office received several complaints from bank customers who believed that since a bank’s right to claim repayment of the debt had prescribed, its right to repossess the vehicle also prescribed, with ownership somehow automatically passing to the consumer.

“Unfortunately, this is not the case. The consumer’s obligation to repay the debt together with the bank’s right to sue the customer for repayment prescribes.”

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Consequences of defaulting

As interest rates remain high, many consumers find it more and more difficult to make ends meet with increases in the cost of living and fuel, Steyn says.

However, she encourages consumers who find themselves unable to pay their instalments in full or on time to either return the vehicle to the bank or renegotiate their credit agreement with the bank to avoid legal action to recover the vehicle.

 She says consumers must know that failing to pay their instalments could have these negative consequences:

• Adverse information listed on your credit report, limiting your ability to access further credit in the future
• The bank can take legal action against you and you will also have to pay the legal costs, while a judgment can be recorded against your name and
• The vehicle may be repossessed and sold at auction and you will remain liable for the shortfall, should the auctioned asset not sell for the full outstanding balance. This means you will have to continue paying of the vehicle finance debt, without even having the vehicle to drive.

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This is what the banks can and cannot do with car reposession

Steyn says she 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 and therefore it is so important for consumers to know their rights in this regard.

“Banks are not a law unto themselves and cannot do a car repossession without following the procedure set out in the National Credit Act that provides that before instituting legal action, a bank must first exhaust its internal debt collection processes to collect the arrears.”

A bank representative must try to contact you with the aim of settling the arrears. It is only if this process is unsuccessful, for example if you avoid the bank’s calls or emails, that the bank can resort to litigation.

 Steyn says in South Africa a bank can only physically repossess a financed vehicle with a court order or with your consent. The court order will only be issued when:

• The bank has issued a section 129 notice (letter of demand) and this can only happen after the account has been in arrears for 20 days or more
• A summons has been served by a Sheriff of the Court to you
• A judgment has been granted against you, declaring the vehicle executable and
• The Sheriff of the Court has delivered the original warrant of execution (original court order) to you, 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 and therefore, it is vital that your contact details with your creditors are up to date,” she says.

In addition, she cautions consumers against changing addresses or neglecting phone calls or emails from banks to evade paying your debts.

“If someone wants to take your vehicle but cannot provide proof that he or she is the Sheriff of the Court and show the original court order stating that the vehicle can be repossessed, you are not obliged to sign any documents and you are not obliged to hand over the vehicle,” Steyn says.

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What is a “Voluntary surrender”?

Section 127(1) of the National Credit Act 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 you owe.

Steyn says this givers over-indebted consumers an opportunity to alleviate their financial pressure by voluntarily surrendering the vehicle to the bank and she emphasises that voluntary surrender should be a consumer-initiated exercise, free of any undue pressure or threats from the bank or its representatives.

“Banks can, 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,” she warns..

It also important to remember that 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 must record them and report them to the ombud’s office and the police.

“My office deals with vehicle finance related complaints daily and is more than equipped to assist consumers with any vehicle finance related disputes they may have with their banks.” 

The National Credit Regulator also noted earlier this month that the interest rate cycle has been on an upward swing that places their payment obligations under severe financial pressure due to increased debt repayment instalments.

“We urge consumers to plan and monitor their spending by drawing up a monthly budget and making shopping lists to manage their expenses and we encourage consumers battling with debt repayments to contact their credit providers for assistance with payment re-arrangements. Consumers must not avoid credit providers when in distress.”