Reckless credit lending: the credit provider’s duty to ascertain the true financial position of the consumer.

Abstract

The National Credit Act 34 of 2005 (hereinafter referred to as ‘the NCA’) was promulgated with one of its primary aims: that consumers are treated fairly and, by extension, not subjected to over-indebtedness by eager credit providers. When the NCA was introduced, credit providers were given latitude to devise their own pre-agreement assessments that would be used to ascertain whether credit should be granted to prospective consumers. Several inherent flaws in the credit-lending legislation were brought to light over the years, with judicial bodies having to determine whether reckless credit lending had occurred. Numerous National Consumer Tribunal (hereinafter referred to as ‘Tribunal’ or ‘NCT’) judgments pointed out instances where credit providers such as banks and retailers had taken advantage of consumers by granting credit, which led to their over-indebtedness. This is when the Department of Trade and Industry (hereinafter referred to as ‘the DTI’) realised that there was a need for a regulatory addition to the NCA to curb reckless credit lending further. As a result, the Affordability Assessment under Regulation 23A came into operation. The Regulation called for all pre-lending assessments to follow a set of compulsory practices. The objective of the Affordability Assessment Regulation was to create strict parameters for credit providers to fall within so as to avoid granting credit to consumers who could not afford another debt. Credit providers are also given the discretion to grant credit when consumers fall below the threshold in the minimum expenses table when exceptional circumstances justify such deviation. No indication has been given as to what constitutes exceptional circumstances in relation to the Affordability Assessment. Recent case law dealing with the Affordability Assessment Regulation has concluded that an investigation needs to be conducted by credit providers if consumers make a disclosure relating to their financial status. However, these decisions have yet to set out the parameters of such investigation and when the investigation should be prompted. This leaves the question of whether it is at the discretion of credit providers based on what information consumers have disclosed. Alternatively, should there be a list of categories that will determine which disclosures should be investigated? Currently, the Affordability Assessment Regulation and literature remain silent on these issues, and recent case law needs to be analysed in order to answer these questions. The purpose of this mini-dissertation is, therefore, to investigate the credit provider’s duty to ascertain the consumer’s true financial position.