The Ombudsman for Banking Services (OBS) has warned that the repossession of vehicles by banks is on the rise due to the prolonged heightened cost of living in South Africa, resulting in people falling behind with their vehicle finance repayments for an extended period of time.

Nedbank’s latest NedFinHealth Monitor shows that 76% of South Africans say their expenses increased in the past 12 months, while 62% say their spending equals or exceeds their income.

Additionally, 69% of South Africans cannot pay all their bills on time, with 33% who said they were homeowners having been late with their home loan repayment in the past 12 months.

Eighty20’s credit stress report highlighted similar concerns. According to the report, while total loan balances remained stable, the total and average instalments were up by 12% YoY.

Those with loans struggle to pay them off – with 51% and 30% increases in the rate of new defaults for home loans and Vehicle Asset Finance (VAF), respectively.

This turbulent environment has led to a rise in repossessions by banks in South Africa – especially cars – and the OBS Reana Steyn noted that her office has received an influx of complaints regarding the repossessions and said it’s necessary to clarify the rights of both consumers and banks in such circumstances.

She added, however, that it’s important to note 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 said.

This means, for example, that even 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 said 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 been prescribed, its right to repossess the asset had also been prescribed, and ownership somehow automatically passed to the customer.

“Unfortunately, this is not the case,” Steyn said. She added that what is prescribed is the customer’s obligation to repay the debt, together with the bank’s right to sue the customer for repayment.

Consequences of defaulting

Steyn acknowledges that many consumers are finding it increasingly difficult to make ends meet these days with the increase in cost of living, fuel, and interest rates, to name a few.

However, she encouraged consumers who find themselves unable to make their repayments 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 being taken against them for the recovery of the asset.

She said 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 at 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.

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