The National Financial Ombud Scheme (NFO) urges consumers experiencing financial difficulty to seek assistance before creditors initiate repossession or foreclosure proceedings.
“Consumers have lawful options to address credit agreements before arrears escalate,” says Nerosha Maseti (pictured), the Lead Ombud of the NFO’s Banking and Credit Division. “Acting early can help limit costs and reduce the financial consequences that may arise if matters proceed to repossession or foreclosure.”
This March, as South Africa observes World Consumer Rights Month, the NFO urges consumers to familiarise themselves with the lawful options available to them in instances where they find themselves in dire financial difficulty. Consumer rights are rooted in the Constitution and enforced through specific consumer protection laws.
There are structured legal mechanisms that allow consumers to exit or manage credit agreements responsibly, including voluntary termination under section 127 of the National Credit Act (NCA), Sell Assist or Help U Sell programmes for mortgage holders, and private sale options where these are appropriate and properly structured.
Voluntary termination under section 127
Section 127 of the NCA allows a consumer to terminate certain credit agreements at any time by giving written notice and returning the goods. This right exists even if the consumer is not yet in default.
This option generally applies to instalment sale agreements such as vehicles, furniture, and appliances, secured loans, and lease agreements where the credit provider retains ownership of the goods. Section 127 does not apply to mortgage loans, unsecured loans, credit cards, or overdraft facilities.
Once the goods are returned, the credit provider must have them valuated and communicate the estimated value to the consumer. The goods must then be sold at auction. If a shortfall remains, the consumer remains liable for that amount. If there is a surplus, it must be refunded to the consumer.
A properly exercised voluntary termination can help a consumer to avoid court proceedings and legal costs, repossession fees, additional interest, and enforcement charges, as well as the risk of a forced auction that may realise a lower price.
Maseti cautions that voluntary termination must be genuinely voluntary. Consumers cannot be forced, pressed, or misled into surrendering their goods. Any intimidation, coercion, or misrepresentation is a violation of consumer rights and should be reported.
Private sale
A private sale occurs when a consumer finds a buyer for an asset, such as a vehicle or house, and uses the proceeds to settle the outstanding credit balance, with the credit provider’s written consent.
The agreed settlement amount must be paid, and any liens or bonds must be cleared prior to transfer.
For vehicles and other movable assets under instalment sale agreements, a private sale may achieve a higher price than an auction, thus reducing the extent of any shortfall. However, the consumer must secure a willing buyer, interest continues to accrue until settlement, and the credit provider must formally approve the settlement amount.
For mortgaged properties, a private sale often offers a better likelihood of achieving a market-related value compared with a forced sale in execution. It allows the homeowner to remain involved in the process and may create space to negotiate structured payment arrangements for any shortfall.
Private sales can be beneficial, but only if the credit provider’s security interests are properly addressed. If not, the validity of the transaction may be placed in question.
Sell Assist or Help U Sell programmes for homeowners
Many financial institutions offer structured solutions such as Sell Assist or Help U Sell programmes, which are often preferable to a forced sale in execution.
Typically, they include a professional valuation, broad marketing through established property platforms, support until transfer is registered, and structured repayment options where a shortfall arises.
Why acting early is important
Once a matter escalates to a section 129 notice, summons or repossession proceedings, a consumer’s options narrow considerably and the costs increase rapidly.
Consumers should also understand that repossession requires a court order and may only be carried out by a sheriff of the court. Debt collectors may not force entry or compel the surrender of goods.
Consumers are entitled to refuse unlawful actions and to report misconduct to the credit provider and, if necessary, to the NFO.
Concluding tips
Maseti encourages consumers to:
- Request settlement figures in writing at the earliest sign of financial difficulty.
- Ask specifically about section 127 voluntary termination, private sale, and Sell Assist options.
- Never sign documents under pressure or without understanding the consequences.
- Compare voluntary surrender options with debt restructuring and debt review.
- Keep written records of all interactions and agreements.
- Report intimidation, misrepresentation, or forced surrender attempts.
