Reckless Lending

If you suspect that you have been a victim of reckless lending, our accredited debt counsellors and specialist attorneys can assist you. They will assess all of your credit agreements to see whether any of them could be classified as reckless lending, potentially freeing you from unfair credit agreements.

Book a free consultation to see how we can help.

What is Reckless Lending?

Reckless lending is when a creditor — such as a bank — fails to thoroughly check whether you have the ability to pay back a loan, doesn’t properly inform you of the implications of the credit agreement, and/or proceeds to lend you money when they know it will cause you to become over-indebted.

Your responsibility vs the creditor’s responsibility

Taking out credit is a serious decision with serious implications, and you should always do your best to familiarise yourself with the fine print. You must fully and truthfully answer the requests for information that creditors put to you when applying for a loan.

Having said that, creditors have a significant responsibility, too. Being experts in financial matters with access to sophisticated information about you, such as your bank statements, credit score, payslips, and more, they have a statutory obligation to actively prevent reckless credit in terms of Section 48A and 81 (3) of the National Credit Act (NCA).

As part of their obligations, a creditor must conduct a detailed credit assessment of your ability to pay back the loan and must inform you in clear terms what risks, costs, and obligations are created by the proposed credit agreement. If the credit provider conducts an assessment and concludes that entering into the proposed credit agreement would cause you to become over-indebted, but proceeds to offer you the credit, such a credit agreement would likely be deemed as reckless lending.

What are the Criteria for a Credit Agreement to be Deemed as Reckless Lending?

For a credit agreement to be deemed as reckless lending, the following must apply:

1. You as the consumer didn’t get a quotation of what the credit will cost you;
2. You as the consumer did not understand the documents shown to you about the credit;
3. You as the consumer could not read the language of the documents explaining the credit agreement;
4. The credit provider knew that you as the consumer couldn’t afford to repay the credit, and yet they still offered you the credit.

If you suspect that you’ve been the victim of reckless lending and bring the matter to court, a judge will assess the credit agreement and your situation to determine whether it qualifies as reckless lending. Read more about how to spot the signs of reckless lending.

Use our free Debt Solution Finder to see if you might have a case of reckless lending.

What Does It Mean If Your Credit Is Declared Reckless Lending?

Section 81(3) of the National Credit Act prohibits a credit provider from entering into a reckless credit agreement with a prospective consumer. Where a court determines that the criteria for reckless lending were met, they may declare that the credit agreement is reckless (Section 83(1)). In that case, they may make an order to:

(a) Set aside all or part of the consumer’s rights and obligations under that agreement, as the court determines just and reasonable in the circumstances; or

(b) Suspend the force and effect of that credit agreement until a date determined by the Court when making the order of suspension (Section 83(2)).

This can assist you by absolving you of all or part of your credit, as is determined to be reasonable by the judge. This can be of significant help to over-indebted consumers — and only fair, since the credit providers didn’t meet their legal obligations. For that reason, if you suspect that you’ve been the victim of reckless lending, it’s important to have an expert examine the matter for you and bring it to court. If you choose Debt Sage to help you, our specialist attorneys will approach the courts on your behalf.

How Do You Prove Reckless Lending?

Your Debt Sage counsellor will require the following information from you to determine whether there is a case to be made for reckless lending:

1. The date the credit agreement was finalised or entered into;
2. A copy of the credit agreement;
3. A copy of the pre-agreement statement and quotation;
4. Details concerning your financial means, prospects, and obligations as they existed at the time the credit was granted; and
5. The credit assessment that was conducted by the credit provider at the time.

If you don’t have this information, you can ask for it from your credit provider. Section 170 of the National Credit Act read with Regulation 56 obliges a credit provider to keep records of all applications for credit, credit agreements, and credit accounts for 3 years from the date of termination of the credit agreement.

If you’re not able to obtain the information at all, fear not! Speak to our consultants to see what your options are.

When Is an Agreement not Reckless Lending?

If you suspect that credit may have been granted to you recklessly, it is well within your rights to approach our counsellors so that we can examine the matter for you. However, if you are struggling to service your debt for one reason or another, it does not automatically mean that credit was given to you recklessly. To advise you on your options and to prove reckless lending, we will need to do an investigation and review the documentary evidence listed above. Finally, it’s important to note that credit providers take allegations of reckless lending seriously and will likely vigorously defend themselves, so looking for reckless lending is not an easy escape from debt.