Masego* and her husband desperately needed cash to get through the month, and decided to loan money from a pawn shop. They borrowed R20 000, which they had to pay back with R6 000 interest. The interest was to be paid in full by 14 August 2018. If they could not pay back the money by the agreed time, the pawn shop could sell their car.
When they realised that they could not honour their agreement, the pawn shop sold their car – for R70 000. Masego and her husband thought that the man from the pawn shop would sell their car, take what was owed to him and then give them the balance. When Masego contacted the pawn shop to find out when they would receive their money, the man told them he would not pay them out the balance for the car because that was what they had agreed to in their contract. He is now refusing to make contact with them, and says he owes them nothing. Is this legal? What can Masego and her husband do?
Scorpion Legal Protection’s advice
The contract that Masego and her husband signed is called a pawn transaction. Pawn transactions are regulated by the Consumer Protection Act, 68 of 2008.
With a pawn transaction, a consumer borrows money from the credit provider with a view of repaying the money borrowed within a specific time period. In turn, the consumer must provide an item of higher value against the money borrowed as a kind of safety deposit. In Masego’s case, this is their car.
Should the consumer fail to pay or not be able to repay the money on the date agreed, the credit provider is then entitled to sell the item and keep any proceeds of the sale. So Masego and her husband put their car up as a safety deposit, and as part of the pawn transaction, agreed to have their vehicle sold in the case that they could not repay the loan in time. Unfortunately, they do not have any recourse in terms of the law to force the credit provider to pay them out the balance of the money he got for selling their car.
Masego and her husband signed the agreement without understanding the terms, conditions and risks associated with the transaction.
Tips:
- Make sure you understand the terms and conditions of any contract you sign – once you’ve signed, it’s legally binding.
- Pawn transactions are high risk and high interest, and should be your very last resort when it comes to borrowing money.
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* Terms, conditions, limitations and exclusions apply (click here to view the Legal Membership Agreement). This is only basic advice and cannot be relied on solely. Names have been changed to protect identity.