Reckless Lending

Reckless Lending The Amendments of the NCA extend the power of the NCT to consider and pronounce reckless agreements. This amendment may result in an amendment of the reckless lending process in this annexure. A review will be conducted as soon as detailed process information is available. Debt Counsellors are obliged and encouraged, as part of the financial assessment, to identify reckless lending by Credit Providers and if such finding is made issue a proposal to the Magistrate Court to make an order, as per Section 86(7)(c)(i) of the NCA, that one or more of the consumer’s credit agreements be declared reckless. The criteria to determine whether a credit agreement is reckless or not is set out in Section 80 of the NCA. Section 80(2) provides that: “When a determination is to be made whether a credit agreement is reckless or not, the person making that determination must apply the criteria set out in subsection

a) Meet the obligations under the credit agreements; or Understand or appreciate the risks, costs and obligations under the proposed credit agreement, at the time that the determination is being made” This means that the time that the credit agreement was entered into is important and not when the determination is actually made. Debt Counsellors are encouraged to take the Affordability Assessment Regulations into account when implemented and use the process as set out in Annexure B to identify possible reckless lending. This process should be seen as an early indicator process to identify reckless lending. To make the determination the Debt Counsellor has to reconstruct the circumstances when the debt was entered into between the consumer and the Credit Provider. To do this a Debt Counsellor will need at least the following:

a) Copy of the pay slip(s) used in the applications;

b) Copy of bank statements 3 months prior and 3 months after the credit agreement has been entered into;

c) Copy of the application form and assessment form; and

d) Copy of the credit agreement The consumer should normally be able to supply items a) and b) Items c) and d) should be requested in writing from the Credit Provider who should make this information available within 20 business days. This information should be used to determine whether a proper assessment was conducted and if the consumer fully and truthfully answered all requests for information made by the Credit Provider as part of the assessment and/or if the consumer failed to understand the risks, costs or obligations under the credit agreement or became over-indebted the moment he or she entered into that specific credit agreement. Where Credit Providers fail to provide the information on request within 20 business days, the Debt Counsellor should use the available information and refer the matter to a Court for a hearing. The Debt Counsellor is advised to inform the Court of the attempts to obtain detailed information with a recommendation that the Magistrate review the available information to make a finding on the reckless lending recommendation from the Debt Counsellor. The abovementioned assessment should indicate if reckless lending was present Should the Debt Counsellor be unable to make a determination because of the Credit Provider being unwilling to provide the required information and where reckless lending is evident, the Debt Counsellor should submit his recommendation to a Magistrate Court. The identification and determination of reckless lending is important and consequently it is envisaged that this section be extended at a future point in time to include practical examples and case law once available.