Last week we reported that the National Credit Regulator (NCR) is calling for a R300 million fine to be imposed on African Bank for reckless lending. The NCR has referred the matter to the National Consumer Tribunal. Other lenders could also face the wrath of the NCR for recklessly lending money but details of who will be targeted next remain sketchy.
However, since our report on African Bank, we’ve had several emails from Justmoney readers saying they believe they are victims of reckless lending and are unsure of how to proceed further. We spoke to the head of legal at the Credit Ombud, Reana Steyn and debt experts to find out more:
What is reckless lending?
Steyn says the National Credit Act defines reckless lending in three pages. However, she narrows down the definition by explaining that a consumer is a victim of reckless lending if they enter into a credit agreement without understanding their rights and obligations. “Consumers are also victims of reckless lending if they can’t afford the loan and if the loan results in them becoming over-indebted,” she added.
A credit provider is also obligated to conduct an affordability assessment to gauge whether the applicant can afford to lend the money. However, the problem is that not all agents working for banks do all the proper checks and balances. If the agents work on a commission basis, they may have financial reasons for pushing through loans. “Agents are incentivised to lend people money,” points out Ian Wason, chief executive of debt management company Intelligent Debt Management (IDM).
Wason adds that some lenders conduct full credit checks while others just look at credit scores. “But if someone has a good credit score it just means they have been good payers. Good payers could still have too many loans,” he explains.
Unfortunately, the Act doesn’t clearly define what kind of affordability assessment the lender must undertake. “My view is that the credit provider must take reasonable steps to evaluate whether a consumer can afford the loan. Reasonable steps warrant explanations and notes should be made. For example, a bank could note that: ‘the customer doesn’t pay for groceries because her husband pays for them’,” explains Steyn.
What is the responsibility of the consumer?
The Act clearly states that the consumer has the responsibility to be truthful in their application. This means that the consumer must fill in all the information on the forms provided in an honest and truthful manner and should come clean on their expenses.
However, Steyn admits that some consumers lie on the lender’s application forms about their expenses so that they can secure more credit. “Consumers sometimes put really low figures for their expenses and credit providers don’t feel like accusing their customers of lying,” says Steyn. “Bank statements don’t always reveal much about consumers’ spending habits either as many withdraw cash and there’s no telling whether a consumer uses that cash to pay for bills or entertainment.”
“Some banks use it as a defence [for lending the consumer the money] if customers lie. But it’s not an ultimate defence. The onus is on the bank to check statements from people as responsible lenders,” added Wason.
Consumers can lie but Steyn points out that the law is generally on their side. “The law has been changed and it’s shifted the responsibilities onto the credit providers as consumers don’t tend to protect themselves and just put themselves even further into debt,” she said.
What can I do if I am a victim of reckless lending?
If you believe you are a victim of reckless lending you can speak to your debt counsellor who will conduct an investigation on your behalf. If you have loans with micro lenders (excluding banks) you can lodge a complaint with the Credit Ombudsman. If your loans are all with banks you will have to lodge a complaint through the Ombudsman for Banking Services.
However, Wason warns consumers to be careful about opening up reckless lending charges, particularly if they know they’ve lied during the application process. “By opening up a reckless lending charge you could in turn open up fraud charges against you if you lied.”