‘Debt prescription does not prevent repossession’ - cautions banking ombuds
The office of the Ombudsman for Banking Services says it has noted an influx of complaints about the repossession of vehicles by banks when people fall behind with repayments.
The Ombuds said the first legal principle to understand is that under vehicle financing agreements, the vehicle remained the property of the bank until the loan is fully repaid.
“With financed vehicles, the bank as the title-holder remains the legal owner of the vehicle, and ownership only passes to the buyer on payment of the last instalment to the bank. 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 still legally entitled to repossess it,” said Reana Steyn from the Ombuds.
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.
“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,” said Steyn.
The Ombuds understands that many consumers are finding it more difficult to make ends meet these days with the increase in cost of living, fuel, interest rates to name a few. However, 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 renegotiate credit agreements with the bank to avoid legal action being taken against them for the recovery of the asset.
Results of defaulting
• 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 Ombuds 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 it is more important than ever that consumers know their rights and that banks are not a law unto themselves and cannot repossess a vehicle without after 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 bank’s calls or emails, that the bank will resort to litigation,” said Steyn.
She said in SA, a bank could 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 after:
• 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. Thus, it is vital that your contact details with your creditors are up to date,” says Steyn.
Consumers are advised to bring to the Ombuds 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.
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