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Industry

Reckless Lending Guideline Under Consideration

The CIF are trying to make a proposal to the NCR in order to release a guideline about dealing with reckless lending. Many Debt Counsellors are not happy.

The National Credit Regulator (NCR) orgainses a group discussion about industry topics at the Credit Industry Forum (CIF) and calls for comments on known issues in the industry.

What is Reckless Credit?

One such area that has recently been under discussion is called reckless lending. This is where a consumer is granted credit even though they:

    • did not understand the language of the contract
    • did not understand the obligations they were agreeing to
    • did not get a quote of the costs (a pre-agreement)
    • did not get a contact document setting out the costs and their obligations

It can also be reckless when a credit provider:

    • fails to check if the consumer can actually afford the debt 
    • finds the consumer can’t afford the debt but still give them the credit anyway.

The final one is seen by most people to be the sole reason why a credit agreement is reckless but all the other points are not to be forgotten. If any of the above is true the account is reckless and some interesting things can happen.

Why It Matters

A court can say the debt only has to be paid after all other debts are paid up first. A court can decide to write off some or all of the debt. A court can even tell the credit provider to pay the consumer back for all the payments they already did up to that point.

The NCR can also decide to ask the National Consumer Tribunal to fine the credit provider (up to 1 Million rand even). So, this is serious stuff.  In the past when 1 branch of African Bank in KZN was found to have granted some credit recklessly to 12 clients the whole bank ended up crashing (in the confusion and chaos that followed).

At present the NCR are trying to see if Debt Counsellors and credit providers like the proposal they are thinking of using to make a non binding guideline to send out to the industry.

‘the current proposal may mean they will never get paid for the many many hours it takes to do a reckless credit investigation’

In several discussions and groups across the country, the response to the proposal has not been favourable. For many Debt Counsellors, one area of concern is that the current proposal may mean they will never get paid for the many many hours it takes to do a reckless credit investigation. This has not been popular.

Other Debt Counsellors have raised concerns about timelines and other technicalities that may arise as a result.

The NCR has made a call for comment and various Debt Counsellor groups are submitting replies highlighting their concerns.