More and more consumers are turning to loans and other forms of credit to deal with the spiralling cost of living, as many have not seen an increase in their pay cheques.
Even though the National Credit Act prohibits creditors from giving credit to consumers who can’t afford to pay it back, this does still happen – and this is referred to as “reckless credit”.
Here are some frequently asked questions on reckless credit:
Q What is reckless lending?
A A credit agreement is reckless if, at the time when granted the credit, the credit provider failed to assess whether you could afford to repay it – irrespective of what the outcome of the assessment would have been.
In other words, even if you would have passed the affordability assessment, a credit agreement is reckless if no assessment was done.
A credit agreement is also reckless if you didn’t understand the risks and costs to you of the credit or your obligations in terms of the agreement.
And, if by taking on the credit you become over-indebted or unable to pay your debt repayments and living expenses, then the credit is seen as being granted recklessly.
Also, if your creditors cannot produce a copy of the affordability assessment that they did before granting you credit, you can raise the defence of reckless lending.
An affordability assessment should include a copy of your credit report at the time you applied for credit.
If the creditor did not check your credit report before giving you credit, this is indicative of reckless lending.
If you had an adverse listing and/or had a judgment against you at the time that you were given more credit, this is prima facie reckless lending.
If you are a victim of reckless lending and a creditor takes legal action against you, you should give notice of your intention to defend yourself on the grounds of reckless lending.
Q Do you have legal recourse when it comes to reckless lending?
A Yes, you have legal recourse.
If a court finds a credit agreement is reckless, it can set aside in part, or all of your rights and obligations, which means you are no longer legally obliged to continue paying.
Alternatively, the court may suspend the agreement. This means you don’t have to repay the credit for the duration of the suspension – in effect, a payment holiday.
During that time, the credit provider may not charge you fees or interest. When the suspension is lifted, all of your and your credit providers’ rights and obligations are revived.
Q Where do you go if you suspect that you are a victim of reckless lending?
A You need to go to court or the National Consumer Tribunal.
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.
Q Should your debt counsellor investigate for reckless lending?
A Yes, debt counsellors should investigate for reckless lending.
If you apply to go into debt review, your debt counsellor should assess your financial situation to establish whether or not you are over-indebted.
Even if you are not over-indebted, you may still be a victim of reckless lending.
Q How much will a reckless lending application cost you?
A The National Credit Regulator, which regulates debt counsellors, has introduced a fee of R1500 to cover the cost of applying to a court to declare your credit agreements to be reckless.
Q How important is honesty when applying for credit?
A If you were not truthful, you have no recourse.
If you were not honest when you applied for credit, then you can’t claim to be a victim of reckless lending, even if you are one.
For example, if you overstated your income or understated your expenses or debt repayments and were granted a personal loan of R200 000, which you could not afford, you can’t ask for the credit agreement to be declared reckless.
Q Where do you contact the National Consumer Tribunal?
Tel: 012 683 8140 and 012 742 9900