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, says it is necessary to clarify the rights of both consumers and banks in such circumstances.
She notes that 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.
“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 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 still legally entitled to repossess it.
The Ombud says 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 prescribed, its right to repossess the asset had also prescribed, and ownership somehow automatically passed to the customer.
Consequences of defaulting
Steyn acknowledges that many consumers are finding it more and more difficult to make ends meet these days with the increase in cost of living, fuel, interest rates to name a few. However, she 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 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 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; and
- 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, 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 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.
She says it is more important than ever that consumers know their rights. 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 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 avoids the banks or emails, 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. The court order will only be issued once the bank has complied with the following:
- Issued a section 129 notice (letter of demand) – this can happen only after the account has been in arrears for 20 days or more;
- A summons has been served by a Sheriff of the Court to the consumer;
- A judgment has been granted against the consumer declaring the vehicle executable; and
- 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. 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, Steyn says. Thus, it is vital that your contact details with your creditors are up to date.
