Difficult economic times result in the rise of repossession of vehicles

The Ombudsman for Banking Services (OBS) saw an influx of complaints about the repossession of vehicles by banks when people fall behind with their vehicle finance repayments.

Reana Steyn from the OBS said it is necessary to clarify the rights of both consumers and banks in such circumstances.

The first legal principle to understand is that under vehicle financing agreements, the vehicle remains the property of the bank until the loan is fully repaid.

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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 still legally entitled to repossess it.

Consumers are finding it difficult to make ends meet these days with the increase in living costs.

Steyn encourages consumers who find themselves unable to make their repayments in full or on time to either return the vehicle to the bank or to renegotiate their credit agreement with the bank to avoid legal action.

Default on payments will have the following negative consequences:

• The adverse information will be listed on your credit report, limiting your ability to access further credit in the future.

• Legal action may be taken against you, resulting in you being liable for the additional legal costs, and a judgment recorded against your name.

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• The vehicle may be repossessed and sold on auction. You will remain liable for the shortfall, should the auctioned asset not sell for the full outstanding balance.

What banks can and cannot do

“Banks are not a law unto themselves and cannot 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 exhaust its internal debt collection processes to collect the arrears,” said Steyn.

A bank representative will contact the consumer with the aim of settling the arrears. “It is only if this process is unsuccessful that the banks will resort to litigation.”

In South Africa, a bank can only physically repossess a financed vehicle with a court order or with the consumer’s consent.

Steyn said 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 the consumer’s chosen address by registered post. There is no legal requirement on banks to prove that you received it.

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.

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“In the event of a repossession, 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,” said Steyn.

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,” said Steyn.