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WHAT DOES THE NATIONAL CREDIT ACT SAY ABOUT RECKLESS LENDING?

National Credit Act

What is Reckless Credit?

Reckless Credit is any credit granted to a consumer in terms of a credit agreement where the credit provider (e.g., a bank, or a retail store), at the time the credit agreement is to be concluded, has not conducted a proper assessment.

What is the credit assessment?

When a consumer applies to credit, the credit provider must conduct a proper assessment of the consumer. As part of this assessment, the credit provider must take reasonable steps to evaluate the prospective consumer’s (i) understanding and appreciation of the proposed credit agreement (the risks, and costs to be incurred, as well as the consumer’s rights, under the credit agreement) and (ii) the prospective consumer’s ability to meet his or her obligations timeously (e.g., the ability to pay instalments in full and on time).

The credit provider is also obliged to assess the debt repayment history (credit rating) of the consumer under other credit agreements, the consumer’s existing financial means, income and expenditure and the prospects of success of any commercial purpose, if this is the reason for application for credit.

The prospective consumer, during the assessment, must fully and truthfully answer any requests for information made by the credit provider.

When is a credit agreement reckless?

A credit agreement may be reckless if:

  • If the credit assessment is not done at all
  • Where a credit assessment is conducted, but it is apparent to the credit provider that the consumer does not fully understand and appreciate the implications, costs, risks and obligations of entering the credit agreement
  • Where, even if the assessment were properly conducted, and even if the consumer did fully understand and appreciate the implications of the credit agreement, by entering into the credit agreement, the consumer would become over-indebted.

When can a credit provider defend an allegation that a credit agreement is reckless?

If the credit provider shows that a consumer did not fully and truthfully answer any requests for information made by the credit provider when doing its assessment, and that such failure had a material impact on the credit provider’s ability to make a proper assessment, then this is a complete defense to an allegation of reckless credit. This means that a court would not set aside or suspend a credit agreement and the consumer will be bound by it.

What happens if the credit is reckless?

The consequences are drastic. The credit agreement may be set aside, which means that the credit provider cannot claim payment of any amounts due by the consumer, nor for the return of any goods bought on credit. The credit agreement may be suspended, which means the consumer’s obligations to perform (e.g. to make payment), and the credit provider’s right to enforce its rights (e.g. to enforce payment) are suspended for a time, where after they revive. During suspension, no interest or charges may be levied by the credit provider.

Contact Brevity Law Here.

Author: Shelley Mackay-Davidson

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WHAT DOES THE NCA SAY ABOUT LEASING MOVABLES?

National Credit Act

Introduction

The National Credit Act, 2005 (“National Credit Act“) has widely been criticized as being one of the most confusing pieces of legislation in our law. In fact, in Absa Technology Finance Solutions (Pty) Ltd v Michael’s Bid A House CC and Another 2013 (3) SA 426 (SCA), in referring to the decision made by the court of first instance, Lewis JA stated “the [H]igh [C]ourt … held that the particular lease was not a lease. This may sound like a fragment of Alice in Wonderland.  If that is so, it is because the [National Credit] Act itself could have been written by Lewis Carroll, so peculiar are some of its provisions“. So what is it about the way the National Credit Act deals with leases that is so peculiar?

What is a lease?

Most would agree that a lease can accurately be described as an agreement in terms of which one person (the lessor) gives another person (the lessee) temporary possession of property in exchange for the payment of rent. The word “temporary” assumes that the property must be returned by the lessee to the lessor at the end of the agreement.

The National Credit Act’s definition of a lease

The National Credit Act also defines a lease as an agreement in terms of which “temporary possession” of movable property is given to a lessee. However, the definition then goes on to specify that at the end of the agreement, ownership of the property in question passes to the lessee (rather than requiring possession to be returned by the lessee to the lessor). 

This definition is clearly problematic. Not only does it run counter to the essential elements of a lease, but the reference to “temporary possession”, followed by the requirement for ownership of the property to pass to the lessee at the end of the lease, is illogical.

Conclusion

While the National Credit Act is commendable in its aim to protect consumers by promoting fair and responsible lending practices, it can be an intimidating piece of legislation, rife with obscurity. If you are in the business of leasing moveable property, be sure to investigate whether the National Credit Act applies to you.

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Author: Candice Dayton