Credit Assessments: Know Your Rights and Responsibilities

When you apply for credit from a registered provider such as a bank, you are required by law to go through an assessment process before a credit agreement can be drawn up. If the statutory requirements governing this process are not followed by both parties, the legality of any resulting agreement may be challenged.

Credit agreements between consumers and credit providers are governed by the National Credit Act (NCA), which came into effect in June 2007. A credit agreement is defined as involving a deferral or delay of payment, with a fee or interest charged on the deferred payment. It covers, among others, mortgage bonds, vehicle finance, personal loans, retail agreements on consumer goods such as household appliances, in-store credit accounts, bank overdrafts and credit cards.

Assessing you for credit

The credit provider assesses you to determine the level of risk you pose as a borrower and to ensure that, even if you can make the repayments, the additional debt will not make you over-indebted.

The Code of Banking Practice, a voluntary code that governs the conduct of members of the Banking Association of South Africa, outlines what such an assessment should entail. It needs to consider a range of factors, such as:

• Your income and expenses or a statement of assets and liabilities or both;

• How you handled your financial affairs in the past;

• How you conducted your previous and existing accounts with the lender;

• Information obtained from credit risk management services and other parties, such as credit bureaus, employers, other lenders, and landlords, and

• Any security or collateral you provide.

Responsibilities of the consumer

The NCA places an obligation on you as a consumer to fully and truthfully answer any requests for information made by the credit provider as part of the assessment.

Until the Affordability Assessment Regulations were implemented in 2015, credit providers were able to defend claims of reckless lending (see below) brought by consumers if they could show that the consumer had not fully and truthfully disclosed relevant financial information, such as income and expenses, at the assessment stage.

Affordability regulations

The Affordability Assessment Regulations place a heavier duty on the credit provider to determine whether a consumer can afford the credit applied for by prescribing standard requirements for assessments. These include:

• Verifying a consumer’s income, ensuring it is accurate and reliable, by requesting bank statements and/or payslips;

• Considering minimum living expenses according income level; and

• Assessing a consumer’s discretionary income – income remaining after necessary expenses and debt obligations are accounted for.

Reckless lending

According to the NCA, a credit agreement is reckless if, at the time the agreement was made, or at the time when an approved amount was increased, the credit provider:

• Failed to conduct the required assessment or 

• Having conducted an assessment, entered into the agreement despite a preponderance of information indicating that (i) the consumer did not generally understand or appreciate his or her risks, costs or obligations under the agreement; or (ii) it would make the consumer over-indebted.

Challenging an agreement

If you believe you are a victim of reckless lending, one way to seek redress is through a debt counsellor, who, if the evidence warrants it, can seek a settlement with the credit provider or approach a magistrate’s court or the National Consumer Tribunal.

On its website, Campbell Attorneys notes that reckless lending is not by itself a reason for a consumer to approach a court to challenge an agreement. It says: “Reckless credit is an ancillary consideration. A court is only entitled to consider whether a credit agreement is reckless when that agreement is already before the court for some other reason, such as a credit provider attempting to enforce that agreement or a consumer attempting to obtain a debt restructuring order.”

If a court determines that credit was granted recklessly at the time the agreement was signed, it has, according to the NCA, three options, depending on the circumstances: the partial or full setting aside of your obligations under the agreement; the temporary suspension of the agreement; or the restructuring of your repayments.

The Bank and Credit Division of the National Financial Ombud Scheme deals with complaints against credit providers. Kwanda Vabaza, the division’s Manager: Adjudication, told Honest Money: “The NFO does investigate reckless lending complaints against banks and non-bank participants and, depending on the outcome of the complaint, makes appropriate recommendations aimed at resolving such disputes.”