NCR refers client to debt advisor

FAIR: NEDBANK DID NOT ENGAGE IN RECKLESS LENDING

Balancing responsible lending and client protection through law is tough.

The National Credit Regulator (NCR) has advised a financially vulnerable client to seek debt counselling to “assist her with possible over-indebtedness”, but has not found Nedbank guilty of reckless lending practices.

Moneyweb previously reported that Myrlene Pieterse approached the banking services ombudsman on behalf of an indebted employee. She argued that Nedbank engaged in reckless lending by not adequately explaining the implications of credit granted.

The employee had received two credit cards and a personal loan.

According to the National Credit Act (NCA), a credit agreement is considered reckless if the credit provider didn’t do an affordability assessment; if it became clear the client didn’t understand the credit risks; or if the debt pushed the client into a situation where they became over-indebted.

The NCR investigated the matter after it appeared in the press.

The findings

On the first credit card issued in October 2015, the NCR found Nedbank conducted an affordability assessment as required, and the client’s rights and obligations were explained to her.

The NCR’s own assessment, which considered her net income, minimum living expenses, credit obligations and the new monthly instalment, suggested she’d have about R520 left each month.

As such, it found the agreement wouldn’t have caused her to become over-indebted.

Regarding the personal loan issued on April 2016, the employee applied for an amount of R30 182 at a 35.4% interest rate.

The NCR found the credit risks and costs appeared to have been explained to her and an affordability assessment was done. Its own evaluation suggests she would have had R1 771 left at month end. The assessment reflects an increase in her net income.

It found the agreement would not have resulted in her becoming over-indebted.

And on the second credit card issued in October 2016, the NCR found that she appeared to have been aware of the credit risks.

Nedbank conducted an assessment and the NCR’s own assessment showed she had about R800 available at month end.

The NCR found she wouldn’t have become over-indebted. It also noted that Nedbank has since written off this second credit card, but it may still refer the complaint to a debt counsellor “if the matter appears to concern possible over indebtedness of the consumer”.

Tough balancing act

The case shows how difficult it is to balance responsible lending and consumer protection through legislative means, particularly regarding vulnerable persons with limited financial knowledge.

Regulators rely on information presented by parties involved. A signature is needed to approve the loan and the individual would only become aware of the risks when they couldn’t repay the loan.

Affordability assessments only deal with generally foreseen income and expenses. This has limitations – debt counsellors admit that in almost all cases where people become over-indebted, it was triggered by an unforeseen event requiring funds they didn’t have.