Feel Like You’ve Been “Duped” Into Signing A Credit Agreement?
“Just sign here and here and remember to initial on each page” mutters the salesman who clearly seems unimpressed that he couldn’t switch out his Saturday morning shift. The personal loan application dumped in front of you looks daunting, and full of the type of fine print you know is designed to work for the lender and not so much for the borrower. The truth is you wouldn’t be sitting in front of Mr Enthusiastic on a Saturday morning, trying to arrange a quick loan if you didn’t need the money. Your gut tells you to walk out, but the thought of the unpaid bills piling up on your kitchen table keeps your firmly anchored to the chair, which seems to be buckling under the weight of the situation.
You put pen to paper without getting any real clarity about the 60-month contract you’ve just signed off on. “The money will be in your account in 48-hours, but remember your first payment is due at the end of the month,” are the last words you hear as you walk out.
Are you aware that, as a consumer, you are protected against reckless lending?
Prior to the amendment of the National Credit Act, the assessment that credit providers had to do when considering a credit application like a personal loan, was an “objective test”. The person who assessed a debtor’s ability to repay a credit agreement didn’t have to be convinced beyond a reasonable doubt that the consumer would be able to pay all his debts in a timely manner.
To cut a long story short, anyone handing out credit just needed to satisfy themselves that the person applying could repay the money.
As a result, too many people looking for credit, who didn’t know what they where signing up for, or even worse, weren’t able to repay the loan, got “duped” into credit agreements.
The National Credit Act (which is in place to protect you the consumer) is now very specific about reckless lending.
What is reckless lending?
To summarise, reckless lending includes:
- Failure to conduct a credit assessment.
- Entering into an agreement with a consumer, who does not understand or appreciate the risks, costs or obligations of the agreement.
- Entering into an agreement with a consumer, when that agreement would cause the consumer to become over-indebted.
Let’s get into each one of these requirements in a little more detail.
Conducting a credit assessment
The lender has an obligation to make sure that anyone applying for credit doesn’t have any adverse credit ratings and has enough money to pay back the loan. Adverse credit ratings and payment history information can be picked up by doing a check with credit bureaus. When it comes to affordability, the lender has a duty to check the applicants “discretionary income” to make sure there is affordability. In a nutshell, a credit agreement is deemed to be reckless if a lender has granted a line of credit without doing a proper credit assessment.
Entering into an agreement with a consumer who doesn’t fully understand what they are signing up for?
How often have you signed something without taking the time to fully understand the repercussions of your decision? Is it your duty or the lenders obligation to make sure you understand the terms and conditions of your credit agreement?
In fact, it’s the credit provider’s duty to make sure the borrower:
- Understands and appreciates the risks of the contract
- Understands and appreciates the costs of the contract
- Understands and appreciates his or her rights and obligations in the agreement
If you’ve signed a credit agreement and everything presented to you was vague, you might have a case of reckless lending, which you can take up with the National Credit Regulator.
Entering into a credit agreement which could cause over-indebtedness
A huge portion of credit active South Africans are currently over-indebted. Over-indebtedness is when you don’t have enough money left over at the end of each month to service all your debt repayments. The National Credit Act is strict when it comes to creditors handing out more credit to people who are battling to service their existing debt obligations. The legislation makes it very clear that the creditor will be found to have acted recklessly if they hand out credit that places someone into a state of over-indebtedness.
The consequences of reckless lending
Now that you have a clearer idea of the credit providers obligations, what are the consequences if your credit agreement is deemed to be reckless?
A magistrate or Tribunal member may:
- Set aside all or some of the obligations of the consumer in the agreement
- Suspend the force and effect of the agreement
What this means is that some of the terms and conditions (that obviously weren’t explained to you) could be removed from your credit agreement or the entire agreement could be considered invalid and terminated.
What steps can you take?
If you feel like you are a victim of reckless lending, you can get in contact with the National Credit Regulator and submit a complaint concerning an alleged contravention of the Act.
We hope that you have found this article useful.
Until next time.
The MoneyShop Team