Rek Your Cheque: Don’t lie on your loan application

Before legislation tackling reckless lending was put in place, there were many instances of consumers being granted loans that they simply could not afford to repay.

The practice of reckless lending was firmly put under the spotlight with the introduction of the National Credit Act 34 of 2005 (NCA) and its subsequent amendments along with affordability guidelines provided in the Act in 2013.

The Act brought attention to the responsibility of the lender (who gives the loan) and the commonly overlooked borrower (who gets the loan).

As a consumer, you have the chance of having your 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 you, irrespective of what the outcome would have been. This includes doing a credit check.

• You did not understand and acknowledge the risks and costs for obligations of the credit agreement.

• You became over-indebted as a result of entering into a credit agreement.

“If consumers reasonably suspect 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 or National Credit Tribunal (NCT) declare that the credit had been granted recklessly,” says Sebastien Alexanderson, CEO of National Debt Advisers.

Courts have already ruled in favour of the consumer when it comes to reckless lending.

In 2015, Judge Louw in the matter of Absa Bank Limited vs De Beer and Others (26749/2011) handed down a judgement in which the court found that Absa Bank recklessly granted a mortgage loan recklessly and failed to comply with the NCA – and found that the consumer’s obligation in respect of the mortgage agreement was to be set aside.

“Whilst this judgement was seen as a victory for consumers, it is of utmost importance that consumers be truthful when they apply for credit. 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,” explains Alexanderson.

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 it can be established that the consumer was dishonest with the information supplied to the credit provider, as part of the required assessment.

Alexanderson says that National Debt Advisors (through intensive investigations on client credit agreements suspected of being reckless) are finding more and more instances of desperate consumers tweaking the truth (especially with their expenditure) on loan applications, and then unsuccessfully trying to prove that they were a victim of reckless lending.

“Consumers need to borrow money, and creditors need to lend money. It is vitally important that these two parties work within the parameters of the NCA, to avoid issues down the line.

“Consumers who borrow money have the responsibility to declare their correct income and expenditure – and creditors should act diligently and responsibly in their verification of all information and subsequent granting of loans.”

This is easier to achieve with a consumer’s stated income which can be verified by payslips, contracts and bank statements. Expenditure is far more difficult to verify or dispute.

So if you lie, for example, by declaring that you spend R200 instead of R1500 a month on eating out and entertaining but state and sign that the amounts that you have declared on the loan application are correct and true, chances are that you will subsequently pass the scoring test and the credit provider will lend you the money.

However, you would not necessarily be able to afford the repayments and you could run into trouble in the future. You could find yourself skipping repayments, taking money intended for necessities to service the debt and see your credit record negatively affected.

While a good debt counsellor is able to conduct a thorough investigation into your accounts to establish whether you have been granted credit recklessly, only a court or the National Consumer Tribunal 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 be honest, responsible and vigilant when filling out or assisting consultants to fill out applications for credit.

You should take particular care when signing declarations relating to your income and expenditure.

These are valid legal documents which can be used by you, or against you, when it comes to a reckless lending matter before a court or the NCT.

Most importantly though, if you are over-indebted, you need to get out of denial about your financial situation.

You need to stop getting yourself deeper into debt because of desperation and become fully committed to paying off your existing debt before seeking new lines of credit.

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