Experts note growing trend of creditors lending to consumers despite affordability

Consumer rights experts have noted a growing trend of creditors lending to consumers despite their financial capacity to take on more debt.

This is noted as reckless lending on the part of the creditors as they neglect to check the consumer’s level of affordability before issuing them with credit.

Experts say reckless lending increases consumers’ financial burden and drives them deeper into debt.

According to the National Credit Act reckless lending is when a credit provider does not conduct an affordability assessment before entering into a credit agreement with a consumer.

In a case where the consumer does not understand or acknowledge the risk and cost of the credit agreement, it is also considered reckless lending.

A Financial Planner at Oracle Brokers Neo Mmatli says consumers can lodge a complaint with the National Credit Regulator (NCR) or seek the support of a debt counsellor if they suspect that they have fallen victim to reckless lending.

“So the National Regulator will investigate if you are indeed a victim of reckless lending, and lets say they find merit to your situation they have the right to cancel the agreement, and you have the right to seek damages as well from the credit provider who had given you either the loan or they’d given you the bond or vehicle finance without following the proper procedure of the National Credit Act.”

Debt Counselling

Over-indebted consumers are encouraged to seek debt counselling and to ask their debt counsellor to investigate a possible case of reckless lending.

This is because debt counsellors are not obligated to investigate reckless lending by creditors.

A legal associate at Richard Spoor Inc, Zanele Malindi says while creditors are obligated to conduct affordability assessments, consumers are equally obligated to be honest about their finances position during assessments.

“You can’t say that this is the financial position I’m in now, you have to show the financial position you were in then. You have to show your payslip, you have to show what your costs were at that time, what you’re spending money on, and magistrates can be fussy about asking where are your receipts for your groceries, how much money were you spending? And if you don’t have a bank card, and you pay primarily with cash, its very difficult to show that there was reckless lending and to be very clear about your financial position.”

Malindi says there are fewer reckless lending cases that conclude in favour of consumers as creditors usually have deep pockets to fight the charges lodged against them.

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