Trishika Veeragudu (Attorney) @ Lucid Living
Nearly half of the 18.07 million consumers with credit in South Africa are struggling to meet their debt obligations, says Gabriel Davel of the National Credit Regulator.
This maybe the result of:
• The crippling recession that led to almost a million job cuts;
• Consumers having over extended themselves and living beyond their means; and
• Reckless lending by credit providers.
In April this year, a Port Elizabeth Magistrate found Absa Bank guilty of reckless lending after the bank granted a pensioner a loan despite the monthly instalments being in excess of his monthly income.
The bank granted the consumer a home loan in the sum of R350 000-00. Accordingly the loan repayments were R4 200-00 per month, while the consumer’s monthly income amounted to just R3 700-00 per month. and his monthly expenditure R2 472-00, leaving him with only R1226-00 to service debt.
Invariably the pensioner defaulted on his repayment and the bank threatened repossession. The consumer approached a debt counsellor, who in turned referred the matter to an attorney to bring the application.
The court found in favour of the consumer, holding Absa Bank guilty of reckless lending and ordered that the loan agreement be set aside.
Last year, a Johannesburg Magistrate ruled that African Bank was guilty of reckless lending and set aside the consumer’s 3 loan agreements.
The court found that African Bank failed to adequately assess the information presented by the consumer prior to entering into the agreements. Tthe consumer’s bank statement reflected that the consumer was left with a negligible amount at the end of each month, to service debt.
Further they failed to ensure that the consumer understood the terms and conditions under the credit agreement. The consumer’s home language was Zulu but the complex agreement was drafted in English.
WHEN DOES RECKLESS LENDING APPLY?
In terms of the National Credit Act, a credit agreement is reckless if at the time the credit agreement was entered into the credit provider:
• Failed to conduct an assessment (an affordability assessment) regardless of the outcome that such assessment might have had at the time; or
• Having conducted the assessment entered into the agreement despite information indicating that the consumer generally did not understand or appreciate his/her risks, cost or obligations under the proposed credit agreement, or that entering into the credit agreement would make the consumer over indebted.
To prove reckless lending, you must show that:
• You were not able to afford the loan when you entered into the credit agreement; or
• You did not understand the terms and conditions of the credit agreement.
However be wary of the latter as credit providers normally escape liability by making you sign below the fine print acknowledging that you understand the terms and conditions.
IMPLICATIONS OF A FINDING OF RECKLESS LENDING
Over indebted consumers may have their credit agreements set aside, if they have been granted credit recklessly. This means that all obligations under the agreement will be set aside.
However reckless lending cases are rare and you have the responsibility to truthfully disclose your finances when applying for credit. If you misrepresented facts about your finances, at the time of entering into the agreement, your matter will not be regarded as reckless lending.
WHAT SHOULD YOU DO IF YOU SUSPECT RECKLESS CREDIT
Approach a debt counsellor who would be able to determine whether there was reckless lending in respect of any of your credit agreements The debt counsellor will refer the matter to court to have your agreements set aside.