A critical examination of reckless and predatory lending and how the National Credit Act 34 of 2005 seeks to prevent these practices.

Abstract

The credit industry has evolved overtime in South Africa. In March 2006, the National Credit Act (hereafter NCA or the Act) was promulgated after repealing and replacing the Usury Act, Exemption Notices and the Credit Agreements Act as it was acknowledged that a single new credit act will regulate the credit industry. The purpose of the NCA as stated in Section 3 of the Act is to promote and advance the welfare of South Africans and to ensure that the credit industry is fair, transparent, effective and efficient. The Act seeks to promote responsible borrowing and discourage reckless credit granting.

This dissertation analyses the practices of reckless lending and predatory lending which are prevalent in the credit market. The aim is to discuss the NCA and see how it imposes strict laws and regulations in relation to the prohibition of these practices. These include adverse consequences for credit providers who are engaging in reckless lending and predatory lending.

Reckless credit lending is new to South Africa and was only introduced when the NCA came into effect. The Act clearly identifies this practice. Although there is no primary definition provided for predatory lending in the NCA, the Act prohibits practices that clearly constitute predatory lending. The Act ensures that consumers would not be disadvantaged in the credit industry and also provides protection for credit providers if they properly follow the rules and regulations stated in the Act.

The NCA has been amended overtime and is in the process of being amended again. This dissertation will also consider the amendments that deal with the issues of reckless credit lending and predatory lending.

The practices of reckless lending and predatory lending are concepts that have caused difficulties in many economies which is why this dissertation will also provide a comparative analysis on laws in some of these jurisdictions in order to see how they deal with the practices of reckless lending and predatory lending.