The practice of reckless lending was firmly put under the spotlight with the introduction of the National Credit Act 34 of 2005 (NCA) and subsequent amendments and affordability guidelines provided in the Act, in 2013.
Before this legislation was put in place, many credit providers were granting loans to consumers who simply could not afford it.
Section 80 of the NCA predominantly focuses on reckless lending, and says:
- A credit agreement is reckless if, at the time that the agreement was made, or at the time when the amount approved in terms of the agreement is increased, other than an increase in terms of section 119(4)-
(a) the credit provider failed to conduct an assessment as required by section 81(2), irrespective of what the outcome of such an assessment might have concluded at the time; or
(b) the credit provider, having conducted an assessment as required by section 81(2), entered into the credit agreement with the consumer despite the fact that the preponderance of information available to the credit provider indicated that-
(i) the consumer did not generally understand or appreciate the consumer’s risks, costs or obligations under the proposed credit agreement; or
(ii) entering into that credit agreement would make the consumer over-indebted.
This basically means that a consumer has the chance of having their obligations towards a credit agreement completely set-aside or suspended if:
- A credit provider did not conduct an affordability assessment before entering into a credit agreement with a consumer, irrespective of what the outcome would have been. This includes doing a credit check.
- A consumer did not understand and acknowledge the risks, costs for obligations of the credit agreement.
- A consumer becomes over-indebted as a result of entering into a credit agreement.
If consumers feel that their credit provider has not complied with the criteria and regulations, they have every right to take the necessary steps to have the court / National Credit Tribunal declare that the credit had been granted recklessly.
Though according to the Act, all of the above only applies if there was no dishonesty by the the consumer in their loan application, specifically with regards to the declaration of their income and expenditure
For if they were dishonest in applying for credit, it will be extremely difficult to prove themselves a victim of reckless lending – even if they are one.
Section 81 (4) of the NCA states that the credit provider has a complete and absolute defence to an allegation that an agreement is reckless – if can be established that the consumer was dishonest with the information supplied to the credit provider, as part of the required assessment.
If you are struggling to pay your monthly debt installments, you may be over-indebted, and consulting a registered debt counsellor should be a definite option. There is no doubt that large scale reckless lending has taken place in the past, and still continues to take place today. A good debt counsellor is able to conduct a thorough investigation into your accounts to establish whether you have been granted credit recklessly, and then take the matter further.
Only a court or the National Consumer Tribunal (NCT) has the power to declare a credit agreement “reckless”. If you don’t have a debt counsellor, you can approach the courts yourself, hire an attorney, approach legal aid, or refer the matter to the NCT.
Consumers should try and end the cycle of incurring more debt by constantly applying for loans they cannot afford, and rather look at options of consolidating their debt into one monthly lower installment, as done by the process of debt review.
National Debt Advisors was rated South Africa’s number one debt counselling company in the country. If you are struggling with your debt repayments and living expenses, contact us today.
Have you ever wondered about what the National Credit Regulator (NCR) does? Who does it serve? And what exactly does it regulate? Well, you’ve come to the right place. In this blog, we explore the ins and outs of the National Credit Regulator, demystifying the NCR...
Clothing accounts are a rapidly growing financial trend in South Africa. Amidst the backdrop of energy challenges, high unemployment, and fluctuating consumer confidence, understanding and managing these accounts is more important than ever. In this blog post, we...
A credit score check in South Africa is like having a trusty guardian for your money matters. It's not just about keeping tabs on your financial health; it's also about giving you the upper hand in different money situations. Keeping an eye on your credit score also...