Many consumers approach credit providers to open accounts which include store cards and credit card accounts in order to meet different essentials of life. They also purchase houses and vehicles with the intention to repay the loans in monthly instalments. Due to inflation and ever changing economic conditions which affect interest rates, food and petrol prices etc, some consumers end up defaulting on their credit agreements. Some will catch up on their monthly repayments at a later stage and others will not.
In order to recover the monies owed by a defaulting consumer, credit providers will then commence with the collection procedure. Credit providers may start calling the defaulting consumer to bring his/her payment up to date. Unfortunately, some consumers don’t answer phone calls from credit providers, which is not advisable.
According to the National Credit Act, a credit provider may approach a court of law for an order to enforce a credit agreement only if, the account is in arrears for at least 20 business days, and at least 10 business days have elapsed since the credit provider has delivered a written default notice informing a defaulting consumer to consult a debt counsellor, consumer court or alternative dispute resolution. The notice is aimed at drawing the consumer’s attention to bring the payments up to date. The credit provider can commence with the litigation process to recover monies owed if the consumer fails to respond positively to the notice. The defaulting consumer will be served with summons by the sheriff of the court at their place of work or place of residence.
On the other hand, a defaulting consumer may return assets such as vehicles and furniture bought under an instalment sale agreement to the credit provider because he/she is unable to continue with payment. This is called voluntary surrender. The credit provider is then expected to sell those goods to the highest possible bidder for the best price reasonably obtainable. The sale normally takes place in a public auction. If the net proceeds from the sale after deducting all the permitted arrear charges exceed the settlement value, which is unlikely, the credit provider must refund any surplus to the defaulter. For example, if Mr X returns his vehicle that has an outstanding balance of R150 000, 00 to a credit provider, and subsequently the credit provider sells the vehicle in an auction for R200 000, 00 and the permitted default charges together with the outstanding balance are R170 000, 00, the credit provider must refund Mr X surplus of R30 000, 00.
However, if the net proceeds of the sale are less than the settlement value, the defaulting consumer is obliged to pay the outstanding balance to the credit provider within 10 business days or make further arrangements to pay the shortfall amount. For example, if Mr X’s vehicle is sold for R150 000, 00 and the permitted default charges together with the outstanding balance are R170 000, 00, Mr X will be liable to pay the credit provider the shortfall of R20 000, 00.
The defaulting consumer can reclaim the goods by paying the full outstanding amount owed together with all arrear amounts.
The National Credit Regulator would like to urge defaulting consumers to hand over the vehicle or repay the arrears rather than hiding the vehicle at a friend’s house, for example. Hiding the vehicle after a credit provider has cancelled a credit agreement and has obtained a court order for the repossession of the vehicle is a criminal offence and the culprit may be prosecuted. Consumers are further advised not to damage any assets bought under an instalment sale agreement, for example by intentionally scratching the vehicle or cause any damage to the vehicle, as this behaviour can negatively affect the value of the said asset and lead to a higher shortfall when the vehicle is ultimately sold on auction.
Finally, it is important to note that both voluntary surrender and repossessions can negatively affect a consumer’s credit bureau record.