Car repossessed? You may still owe the bank. Know your rights first

Losing your car to the bank does not end your car loan. If the vehicle sells for less than you owe, you can be held liable for the difference, the National Financial Ombud Scheme (NFO) warns (NFO).

The ombud has also shown what happens when a bank skips the legal steps. In one recent complaint, it recommended that a bank write off a shortfall of about R300,000 because the bank could not prove the owner had agreed to hand the car over (NFO).

More than 22,600 vehicles were repossessed in the first six months of 2023, about 3,770 a month, according to National Credit Regulator figures cited by the NFO (NFO).

What is a shortfall after repossession?

When a financed car is sold after you hand it back or it is taken, the sale money goes against what you owe. If it does not cover the full balance, the gap is the shortfall, and the bank can demand it from you. If the sale brings in more than you owe, the extra must be paid to you (NFO; National Credit Act, s127).

After the sale, the bank must send you a written notice showing:

• what you owed just before the sale
• the gross amount the car sold for
• the net proceeds after permitted charges and reasonable sale costs
• the amount credited or debited to your account

(National Credit Act, s127(5))

A balloon payment can make the shortfall bigger. It lowers your monthly instalment by pushing part of the loan to the end, but that amount is still owed (IOL).

Is voluntary surrender the same as repossession?

No. They are separate legal processes, and the ombud says they are the only two lawful ways a bank can take your car (NFO).

Voluntary surrender is started by you, in writing, under section 127 of the National Credit Act. The bank then has 10 business days to give you a written estimate of the car's value. If your account is not in arrears, you have 10 business days after that notice to withdraw and take the car back. Otherwise the bank must sell it as soon as practicable for the best price it can reasonably get (National Credit Act, s127; NCR FAQ).

Repossession is started by the bank. It must send a default notice first and then get a court judgment authorising it to take and sell the vehicle (National Credit Act, s129; NFO).

"A voluntary surrender cannot be forced on a consumer, and a bank cannot simply treat possession of a vehicle as proof that it was voluntarily surrendered," said Nerosha Maseti, lead ombud of the NFO's banking and credit division (NFO).

What did the ombud rule in the R300,000 case?

A bank took a car from the owner's employed driver, then sold it. The owner said he never surrendered it and that there was no court order. The bank could not produce a signed surrender form or a court order. Even though the owner was far behind on payments, the NFO recommended the whole shortfall of about R300,000 be written off, and the bank agreed (NFO).

In a second case, a minibus taxi impounded at the Zimbabwe border was released to the bank, which kept it without following proper legal process. The NFO found the owner had also breached her finance agreement, but still recommended R30,000 for distress and inconvenience plus a write-off of legal and storage costs. The bank accepted (NFO).

Can you stop the car being sold if you catch up?

Often, yes. Until the bank cancels the agreement, the law lets you fix the default by paying all overdue amounts plus permitted default charges and reasonable enforcement costs (National Credit Act, s129(3)). The Constitutional Court has held that this means the arrears, not the full accelerated balance (Nkata v FirstRand Bank). This is no longer possible once the car has been sold after a surrender or under a court order (National Credit Act, s129(4)).

What should you do if you're struggling with car payments?

The NFO's advice (NFO):

• Contact your bank as soon as you see trouble coming, before legal action starts.
• Read every letter, SMS and legal notice, and keep your contact details up to date.
• Don't sign a surrender or consent form you don't understand. Ask how the car will be valued and sold, and whether you will still owe a shortfall.
• If someone arrives to collect the car, ask who they are, who they represent and on what legal basis.
• Keep copies of notices, settlement figures, payment arrangements and proof of payment.

Where can you complain about a repossession?

Complain to your bank first. If that fails, the NFO handles banking and credit disputes free of charge. Call 0860 800 900 or email [email protected] (NFO). If you surrendered the car and dispute the price it sold for, you can also ask the National Consumer Tribunal to review the sale under section 128 of the Act (NCR FAQ).