Beware the provider of reckless credit

Vessio, Monica

Abstract

Reckless lending is, conceptually, new to the South African legal system. Credit providers in South Africa must now be aware of what will turn them into reckless lenders and avoid practices which may lead them to suffer the legislative consequences. This is not an easy task, as the concept has never before been dealt with by South African legislation and providers cannot therefore rely on precedent to guide their actions. The concept “reckless lending” has been introduced by the National Credit Act and many provisions of the act have been devoted to the practice of lending to consumers who, quite simply, cannot afford it. A last-entered credit agreement may have the effect of precipitating a credit consumer into overindebtedness. The concept of “reckless lending”, to a large extent, works in tandem with that of “over-indebtedness”, both of which are discussed in this article. In terms of section 3 of the National Credit Act the purposes of the act include, inter alia, the promotion of responsibility in the credit market by encouraging responsible borrowing; the avoidance of over-indebtedness; the fulfilment of financial obligations by consumers; discouragement of reckless credit-granting by credit providers and contractual default by consumers; addressing and preventing overindebtedness of consumers and providing mechanisms for resolving over-indebtedness based on the principle of satisfaction by the consumer of all responsible financial obligations. Guidance as to the application of the reckless credit sections of the act for both practitioners and the courts will have to come from the act itself. No local precedent exists. Many of these provisions will have to be interpreted by the courts to give meaning and practical import to their content. While at first blush the test for a consumer’s creditworthiness, to the consumer, may appear overly stringent and is calculated to prevent him or her from accessing credit at that point, it is submitted that in the long run a subdued credit market may have a beneficial effect on both consumers as well as price inflation caused by credit. In writer’s view, the act introduces new parameters for the granting of credit in South Africa which will in the long term ensure that consumers will be in a position to relieve over-indebtedness and avoid the granting of reckless credit, however, whilst affordability checks should be a priority, further checks could be costly for lenders and could lead to a decline in the number of accepted applications, however these may be a small price to pay if it helps to curb bad debt write-offs and personal indebtedness.

Citation

Vessio, M. (2009). Beware the provider of reckless credit. Journal of South African Law / Tydskrif vir die Suid-Afrikaanse Reg, 2009(2), 274 - 289

• Journal Article Type: Article
• Publication Date: Jan 1, 2009
• Deposit Date: Oct 28, 2020
• Journal: Tydskrif Vir Die Suid-Afrikaanse Reg (TSAR)
• Publisher: Juta Law
• Peer Reviewed: Peer Reviewed
• Volume: 2009
• Issue: 2
• Pages: 274 - 289
• Series ISSN: 0257 – 7747
• Public URL: https://uwe-repository.worktribe.com/output/6820728
• Publisher URL: https://hdl.handle.net/10520/EJC55245
• Related Public URLs: https://repository.up.ac.za/handle/2263/13249