Did you know that two out of five South African borrowers cannot pay back their loans?
South Africa’s unsecured lending boom has left 40% of borrowers in default, and millions of people in a debt trap, according to fund manager Differential Capital. About 7.8 million of the country’s 60 million residents have taken out a combined R225 billion worth of loans without collateral, mostly for short-term needs such as furniture and urgent family care.
In 2006, the National Credit Act was signed into law to ensure that all South Africans have fair and non-discriminatory access to credit. This Act advances the social and economic welfare of South Africans by promoting responsible borrowing and putting measures in place to ensure that consumers do not become over-indebted when granted new credit. The Act protects consumers from becoming over-indebted when applying for new credit by prohibiting credit providers from entering into a new credit agreement if they do not first take steps to determine whether a consumer can afford to take on the new credit – if they fail to take these steps, the credit agreement may be classified as reckless if certain factors are proven to be true.
An account is considered reckless if:
- The credit provider didn’t do an assessment
- You did not understand the risks of the credit
- The credit caused you to be over-indebted or you were already over-indebted at the time the agreement was made
Reckless lending can be identified by the following:
- After an assessment, the debt counsellor concluded that you were over-indebted at the time the agreement was made or the agreement resulted in your being over indebted
- Being over-indebted means that the client is not actually able to cover living expenses and obligations toward debt in a timely manner
- Your net income is less than their debt obligations per credit report
- No recent change of circumstance or accounts taken out afterwards
- No fraudulent activity by you
Reckless lending does not apply to agreements before June 2007 or any of the following:
- A school loan or student loan
- An emergency loan
- A public interest credit agreement
- A pawn transaction
- An incidental credit agreement
Debt Counsellors such as Debtline have an important role to play in detecting and dealing with reckless agreements. Section 86(6) expressly states that a consumer can apply to a Debt Counsellor for a declaration of reckless lending. Section 85 allows a Magistrate to refer a matter to a Debt Counsellor for investigation regarding reckless lending.
Alternatively, the court may suspend the agreement. This means you don’t have to repay the credit for the duration of the suspension – essentially, a payment holiday. During that time, the credit provider may not charge you fees or interest. When the suspension is lifted, all of your and your credit providers’ rights and obligations are revived.
At Debtline, our expert counsellors will do the investigation for reckless lending on your behalf. If you feel that you have fallen victim to reckless lending, contact us today so we can help you assess whether you qualify to apply for a declaration of reckless lending and can help you secure a more financially friendly future.