The National Credit Act requires that a credit provider must carry out a financial assessment to determine the extent or amount of credit that a credit applicant can afford before entering into a credit agreement with the applicant. In performing an affordability assessment, a credit provider must determine and take into account the following:
- whether the applicant has a general understanding and appreciation of the risks and costs of the proposed credit, and of the rights and obligations of a consumer under a credit agreement;
- the applicant’s debt repayment history;
- the applicant’s existing financial means, prospects and obligations; and
- whether the new credit agreement will cause the customer to become over-indebted.
If a credit provider fails to do an affordability assessment before advancing credit to someone, the credit provider could be guilty of entering into a reckless credit agreement.
If an agreement is declared reckless it may be fully or partially unenforceable, and the credit provider may lose all or part of the money advanced. The Courts may set aside all or some of the consumer’s obligations to repay the debt under the reckless agreement.
According to the National Credit Act, the regulations about reckless lending go as follows:
80. (1) 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.
The credit agreement will have to have been entered into after the 1st June 2007, and the information on the agreement would have to be correct at the time of application, so that the information you have given to the credit provider is truthful. If the credit agreement is reckless then it is recommended taking this to court and the magistrate would be able to make a judgement on the matter.
Reckless lending does not apply to agreements before June 2007 or any of the following:
• A school loan or student loan
• An emergency loan
• A public interest credit agreement
• A pawn transaction
• An incidental credit agreement