Are you a victim of reckless lending?
Five things you need to know
Reckless lending is in the news again, with the launch of a “reckless lending indictor” by one debt counselling firm showing that 40% of all credit agreements entered into by the firm’s clients between April and July this year were reckless.
The National Credit Act (NCA) says that a credit provider must not enter into a reckless credit agreement with you, the consumer.
A credit agreement is reckless if, at the time it 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.
A credit agreement is also reckless if you didn’t understand the risks and costs of the credit to you or your obligations in terms of the agreement and, if by taking on the credit you became over-indebted or unable to pay your debt and living expenses, then the credit was granted recklessly.
Stephen Logan, an attorney and the founder of Fair Credit, says 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, he says.
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, Logan says.
If you think you’re a victim of reckless credit, here’s what you need to know:
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You have legal recourse.
If a court finds a credit agreement is “reckless”, it can “set aside” part or all of your rights and obligations, which means you are no longer obliged to continue paying. Alternatively, the court may “suspend the force and effect of the agreement”, meaning you are not required to make any payment for the duration of the suspension.
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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 that a credit agreement is reckless.
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Debt counsellors should investigate for reckless lending.
The onus is on you to ask the debt counsellor to check.
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A reckless lending application will cost you.
The National Credit Regulator, which regulates debt counsellors, has introduced a fee of R1 500 to cover the cost of applying to a court to declare your credit agreements to be reckless.
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If you were not truthful when you applied for credit, you have no recourse.