For many years ‘pawn-while-you-drive’ schemes have come into conflict with the National Credit Regulator (NCR) who say that these are not proper pawn transactions but are actually just cleverly hidden credit agreements. Most may even be totally illegal.
A ‘pawn-while-you-drive’ scheme is a type of loan where a lender (who is probably not registered as a credit provider) takes ownership of a customer’s vehicle for the duration of the loan period. The lender and customer then enter into a formal sale agreement. The agreement will say that the lender is buying the customer’s vehicle. The customer then leases the car until the loan amount is repaid.
The customer is required to pay a monthly “rental fee” towards their car and they get to still drive around in their car, as long as they pay the monthly instalment/fee. The repayment amount very much depends on whether the arrangement is done over a short or long time period but can be very high if it is done over a short term.
‘they get to still drive around in their car, as long as they pay the monthly instalment’
The lender will often install a tracking device to the vehicle to keep an eye on its location especially if the costumer misses a payment. Then they will be swift to come and get the car, wherever it is. This is where things get tricky. If the customer fails to repay the loan, the lender gets to keep the car and the customer loses their asset.
Pawn Or Credit Transactions?
The National Credit Act (NCA) says that a pawn transaction as an agreement where one party advances money (or grants credit) to another, and at the time of doing so, takes possession of goods as security for the money advanced or credit granted.
The party that advanced the money or granted the credit is entitled, on expiry of a defined period, to sell the goods and retain all the proceeds of the sale in settlement of the consumer’s obligations under the agreement.
This is what those who offer these ‘pawn while you drive’ deals say they are doing. They say it is a regular pawn arrangement. This is how they have been doing business for years.
‘the NCR say that all these schemes are not actually pawn transactions’
But the NCR say that all these schemes are not actually pawn transactions. Instead, they say that these deals are actually hidden credit agreements. Which, in turn, means they fall subject to the NCA.
They say that these agreements are unlawful and so they are void because when offering credit, the NCA says you have to conduct affordability assessments, have to give pre-agreement statements and quotations, and limits what interest, charges, and fees can be charged. Also, those who offer credit need to be registered.
Desperate People
With the high risk of losing your car, you might wonder why people are using these arrangements to access funds. Well, these schemes offer consumers who might not meet the banks’ requirements (under the NCA) the ability to get a loan by using their car as security. This is true of most pawn arrangements. It opens access to quick cash but comes at significant risk.
The NCR has decided to try turn the screws on these transactions and protect consumers by making it harder for those offering this type of loan (or scam).
The NCR are asking consumers who have been approached by these schemes to report them to the NCR, and that those who have already fallen prey to them should lodge a complaint with the credit ombud. By doing so, maybe these consumers can help prevent other consumers from falling into the same trap.
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