General

Reckless Lending

Reckless lending was introduced by the National Credit Act to assist Consumers against the abuse of Credit Providers providing credit to Consumers that weren’t in a position to afford the debt initially. When the Act was introduced, in the preamble one of its objectives was indeed to prohibit reckless credit granting.

This was to curb the fact that Consumers were receiving credit cards in the post and gaining access to utilise this credit without a proper financial assessment being done by the Credit Provider and whether the Consumer could, after paying all his/her expenses pay the instalment of the credit granted. There was also Credit Providers, which today still do so, provided multiple loans to the Consumer on the same day to eradicate the assessments in terms of affordability.

Reckless lending however has not been taken lightly in the courts and the courts have in specific cases granted reckless lending in favour of the Consumer. But what is the procedure to declare a credit agreement reckless?

Procedure:

 

  1. When a Consumer applies for a loan / credit agreement, the Credit Provider has to has to conduct a financial assessment
  2. The Credit Provider has to make sure that the Consumer understands the risks, costs and obligations under the Credit Agreement
  3. The Consumer must be in a position to afford the payment towards the Credit Agreement[1]
  4. The Consumer must at all times fully and truthfully answer all requests by the Credit Provider[2]
  5. The Credit Provider must draw a credit bureau report to observe the lending practice of the Consumer
  6. If there is any reason to believe that there is reckless lending, then such matter can be referred to court whereby the court may suspend the whole or parts of the agreement, whichever the court deems fit in terms of the circumstances placed before the Magistrate.

It is however imperative to understand that should a Consumer not have been truthful in his/her application that this is a complete defence from a Credit Provider in terms of the fact that the Credit Agreement cannot be declared reckless and that both parties were in error in first applying and second of all granting the said credit agreement.

 

What loans are not subject to reckless lending:

  1. A school Loan
  2. A pawn transaction
  3. An emergency loan
  4. A public interest credit agreement
  5. An incidental credit agreement
  6. A temporary increase in a credit limit under a credit facility

 

Best possible way to conduct an investigation into reckless lending is to obtain the following:

  1. A copy of the contract between the Consumer and the Credit Provider
  2. A copy of the financial assessment conducted at time of applying for the loan/credit agreement
  3. A copy of the Credit Bureau report showing all other loans at time of applying for the loan/credit agreement

 

By taking the above information into consideration, then one will be able to determine whether the credit granted was reckless or not, and same will be reported to the National Credit Regulator and addressed in court.

[1] Section 80 of the National Credit Act

[2] Section 81 of the National Credit Act

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