Consumer Debt Support (CDS) are daily faced with consumers calling in a state of panic with the news that their vehicle was unexpectedly, being repossessed by a private creditor or used car dealer. There are numerous companies that offer loans, immediate cash on your vehicle’s value with the easy pawn your assets deal. Some of them will even allow you to keep and drive your vehicle during the agreed and signed payback period!
The sweet carrot to the horse!
More and more private capital investment companies, used car dealers and pawn shop owners, are luring the market with too good to resist advertised offers. Owners with paid up vehicles are targeted in false advertising, to pawn their paid-up car for cash.
The desperate consumers in financial trouble become the victims and what better deal could there be if you could refinance your paid-up car through a private creditor, to ease your immediate burden of debt or unforeseen emergencies?
The big burden
Consumers are caught in the already uncertain South African economy, with unemployment at a high and living costs on the increase. With little or no possible increase to budget on at year end, lower salaries advertised in the job industry, and the work force under pressure to provide jobs this time of the year for the school leavers and graduates. Bigger families and higher monthly expenses.
The sweet “PAWN your CAR and Drive” rotten deal
How do they convince you?
- Blacklisted consumers not qualifying for a loan at the bank.
- Consumers under debt review that are over-indebted and can’t apply for a new loan.
- In need of fast cash for emergencies
- Get your money straight away.
- Cash for a paid-up car, boat, car or motorbike which are assets.
- No questions asked
- No credit checks
For many desperate consumers it would seem like a safe option to take a loan against the value of your vehicle if the lender confirmed they complied with the terms and conditions of the National Credit Act after a relevant inquest.
What the consumer should know and be aware of was that most “pawn and drive” schemes require that the “borrower” has to sign over the ownership of the registered vehicle to the “lender” for the duration of the contract.
Part of the payback / buyback instalments will be for a monthly rental use, usually explained as part of the surety and the risk of the agreement, in order for the lender to allow the borrower to use the vehicle. (Always read the fine print of the terms and conditions)
The Inevitable Shock
Many consumers default in these kinds of rental agreements, where upon the “lender” has the contracted right to request the borrower to return the vehicle, or in some cases will they act without warning and repossess the vehicle in their own capacity.
It comes down to reckless lending. The borrower was already in a status of over-indebtedness, and the lender was aware that he or she could not obtain a bank loan to buy back or settle the outstanding, then the vehicle / asset could be sold to cover the costs.
Do you know the story about Allied Capital?
Company found guilty of illegal pawn schemes:
During 2016 the Democratic Alliance (DA) laid a complaint with the National Credit Regulator (NCR) against Allied Capital for granting illegal loan agreements and unlawful misleading advertising. Thousands of consumers applied for loans with Allied Capital and they were charged exorbitant high interest rates and fees, that was not regulated by the NCR or as per the NCA guidelines.
Consumers was not aware that the lending scheme was illegal when they signed their agreements, and forfeited ownership of their vehicles over to Allied Capital as part of the conditions of the loan. Allied capital took advantage of the vulnerable consumers in the market and unlawfully collected rental fees for the full use of the vehicles.
During 2017 the National Consumer Tribunal (NCT) ruled that Allied Capital’s scheme was unlawful and in breach of the National Credit Act (NCA). The Tribunal ordered Allied Capital the following in their judgement:
•to return all of the vehicles they “bought” under the illegal agreements
• to refund all fees and interest to consumers
• to change their business model or shut down their operations
• to withdraw all advertising that was identified illegal in terms of the NCA Act.
This judgement was a major victory for thousands of who were targeted by Allied Capital, entrapped in contracts that lead to repossessions, and excessive high interest rates and fees.
When is it a fraudulent deal to the NCR?
- When the lender includes a rental fee as part of the payback instalment.
- No contract with full disclosure or storage of the asset at the borrower’s own risk.
- The terms and risks of the agreement were not explained to the borrower
- When the borrower must forfeit ownership of the vehicle for the term of the payback agreement.
- When the company are not registered with the National Credit Regulator
- When the interest rate charged are higher than lawfully permitted.
When is the it an acceptable deal to the NCR?
- If the lender is registered with the NCR with proof.
- A lender that will keep your asset in a storage facility until the loan is fully repaid.
- When the ownership and insurance of the asset remain in the name of the borrower.
- When the interest rate is fair.
- When the owner was allowed to inspect the storage of the vehicle at any time to ensure the asset was kept in a good condition while retained.
The CDS Solution
It became a big concern for the National Credit regulator (NCR) and registered debt counsellors of how consumers got caught in these kinds of reckless schemes.
CDS and counselling partners offer an initiative project to collaborate with human recourses departments of companies interested, to start with workshop groups on site.
To educate the legal aspects of money lending, the relevance to reckless lenders and loan sharks, and the laws of the National Credit Act.
Consumers put themselves at risk by not making sure if they are dealing with unregistered companies. Any credit provider entity, whether in lending money, pawning assets, must be registered by the NCR. They have a code of conduct to follow to do an affordability assessment to determine whether the consumer can repay the loan during the full duration of the loan term.
Always ask questions to the lender, if you are uncertain of the terms of any contract, it must be explained to you in your language of choice. Take the time to read all the fine print before you sign on the dotted line.
Debt councillors are there to assist in situations where you cannot understand the legality and also the ones that could protect you from fraudulent deals.
Message from the author Annienne Nel
As a registered debt councillor, I am passionate in my work and adamant to help people who do not know the laws of the Credit Act. I involve myself and will always go the extra mile to help others where God allows me to.
There’s nothing worse than people exploiting and undermine the needs of others and I advocate myself personally to stand up for those who cannot.
I wish all my readers God’s blessings and prosperity in their lives, and the knowledge to avoid the sharks out there.