Vehicle repossession: What banks can and cannot legally do

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JEREMY MAGGS: Now, as household budgets come under increasing pressure, more South Africans are falling behind on vehicle repayments. But missing payments does not give a bank the right to simply take or repossess your car. The National Financial Ombud Scheme (NFO) independently resolves complaints between consumers and financial institutions, including disputes involving banks, vehicle finance, repossessions and debt recovery.

Now, two recent cases show that even where a customer is in arrears, the banks have still got to follow the law. So I want to talk about this in a little more detail, and I’m joined now by Johan Brouwer, who is manager of adjudication in the banking section of the NFO. Johan, welcome to the programme. Let’s get straight to the heart of it then, when can a bank legally take a financed vehicle from a consumer?

JOHAN BROUWER: Hi, Jeremy, thanks for having me on. I think this is a very important discussion. To answer your question, there are only two instances where a bank can legally retake possession of a vehicle from its customer. One would be by following the formal legal process and obtaining judgment against the customer, authorising them to repossess that vehicle.

Alternatively, if the customer voluntarily terminates the contract and returns the vehicle to the bank.

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JEREMY MAGGS: What should a consumer ask for then if someone arrives at the door saying they are there to collect it? Because, Johan, let’s be honest, if that were to happen to someone immediately, you could be overwhelmed and even intimidated.

JOHAN BROUWER: I think customers must keep in mind that there are only those two instances when the vehicle can be taken. So if the bank has obtained judgment, then a warrant of execution would need to be issued, and the sheriff of the court would have to come and get that vehicle from the customer. They would first establish, is this the sheriff, get the person to provide proper documentation to show that they are the sheriff of the court, and then show them the judgment and the warrant of execution authorising the sheriff to repossess that vehicle.

Alternatively, if the bank hasn’t obtained judgment and it’s just a representative or an external debt collection agent that is coming to the customer. Again, make sure you get some sort of proof from that person that they’re acting on behalf of the bank.

Then you don’t have to give them the vehicle, no matter what that person tells you, if there’s no judgment and no warrant of execution, you don’t have to give the vehicle to that person.

So I would recommend that if the customer is uncomfortable, that they phone the bank to verify that this person is indeed coming from the bank. If they do want to hand over the vehicle and they don’t feel comfortable, rather arrange with the bank that I will come to your premises or your trade centre and hand over the vehicle there to make sure that I’m actually dealing with the bank and not someone who’s misrepresenting that they are acting on behalf of the bank.

JEREMY MAGGS: You’re making a very clear distinction, then, between what is voluntary surrender and repossession. That distinction is very important, as you’ve just outlined.

JOHAN BROUWER: Yes, very important. The one is initiated by the bank. It’s a formal legal process where there is the court involved, a summons, other legal notices needing to have been served. And the other is a voluntary process that’s initiated by the customer if they feel they can’t continue, paying their monthly instalments, they can decide to let the bank know, I rather want to return this vehicle to the bank.

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JEREMY MAGGS: I want to come back to voluntary surrender in just a moment. But is it incumbent on the bank to let the client know about the judgment that has been given? Or can the sheriff simply arrive at the door with the warrant and the judgment?

JOHAN BROUWER: No. In terms of the National Credit Act, in order for the bank to obtain judgment against a customer, there are a number of steps that they have to follow before doing that. It starts off with a letter of demand sent to the customer, which outlines that the account is in arrears, and giving the customer the options to try and settle the arrears or enter into a payment arrangement, refer the account to debt counselling, or if they’re disputing their arrears, they can refer it to a body such as the NFO to have a look at.

If the customer doesn’t take those steps within 10 days or a set period in terms of that letter, then the bank must issue a summons.

That summons will be served on the customer, and the customer will then be given an opportunity to defend that summons. If they don’t defend it, the bank can take a default judgment, but the customer again will be notified of the application by the bank to obtain default judgment against them.

Then once they’ve obtained that judgment, then yes, they can only then instruct the sheriff to go and collect the vehicle. So there are a number of steps where they need to notify the customer of the action that’s being taken before judgment is obtained.

JEREMY MAGGS: Now, let me ask you about voluntary surrender. Is it valid if the consumer has not signed something, clearly agreeing to it?

JOHAN BROUWER: No. The National Credit Act is quite clear, that it must be a written instruction from the customer saying that I’m cancelling the agreement between myself and the bank, and I’m voluntarily returning this vehicle back to the bank. That must be signed by the customer. If that isn’t there, then it isn’t a valid voluntary surrender in terms of the National Credit Act.

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JEREMY MAGGS: Many people assume once they hand the vehicle back, the debt simply disappears. That is not the case, though, is it?

JOHAN BROUWER: No, definitely not, Jeremy. Once the vehicle is returned in both instances, either in repossession or voluntary surrender, the bank will then have to have the vehicle valued by a proper valuation company. They’ll notify the customer of the valuation, and then thereafter they will sell it. Normally they sell it at public auction to the highest bidder. If your outstanding balance, at the time that the vehicle is sold, is higher than the amount that the bank obtained for the vehicle at that sale, you’re still going to be liable for that shortfall amount.

After the vehicle is sold, the bank then informs you this is the amount that the vehicle was sold for, this is the amount that’s still outstanding on your vehicle finance account, and you need to then pay that or make arrangements with the bank to pay that outstanding balance.

JEREMY MAGGS: So you have very little control, if none at all, over the actual sale price once it’s back in the hands of the bank.

JOHAN BROUWER: Yeah, not much. There are provisions within the Act, and in terms of the process, you can dispute the valuation if you think the valuation is too low. Alternatively, you can dispute the sales price at auction if you think it was too low. But generally, there’s little control or involvement by the consumer in that process.

JEREMY MAGGS: Johan Brouwer, thank you very much indeed. You are the manager of adjudication in the banking section of the National Financial Ombud. Some really good advice there. Thank you indeed.

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