Its claims are as yet untested, but the National Credit Regulator (NCR) has poured cold water on the allegations of widespread abuses, saying instead it’s concerned that debt counsellors are charging for reckless-lending assessments that aren’t being done.
In April, the NCR’s statistics showed that 9.7million of the country’s 25.5million credit-active consumers had impaired credit records. The regulator also released a new fee structure that month, incentivising debt counsellors to charge R1500 per debt counselling application for reckless lending reports, which would allow more “sustainability” in the industry. Debt counsellors are obliged to do such investigations, but the fee can be negotiated.
Matthys Potgieter, debt expert and spokesperson at DebtSafe, says ease of access to credit has become a big part of the over-indebtedness problem. Previously, consumers approached lenders for credit, but credit has become so readily available they are now able to qualify for loans at a few clicks of a button on their cellphones or other smart devices.
“Consumers are confronted with pre-approved loan applications via various mobile apps or other methods, such as SMS, email and telephone calls. Before consumers click ‘accept’ on such an application, I would like to ask them the following question: ‘If you withdraw or use all this money on the same day, would you be able to afford the loan’s instalments in future?’ and if they answer ‘no’, then they, with the click of the ‘accept’ button, will already be over-indebted.”
For its Reckless Lending Indicator, DebtSafe analysed 5591 credit agreements from April 1 to July 31, finding that at least 40%, or2 255 of them, appeared to be reckless, while 2878 did not appear to be so. The remainder of the agreements comprised ones signed before the National Credit Act came into being and other service agreements (7% and 2%, respectively). The wording is important here, because DebtSafe says most credit providers failed to comply with its investigation requests, so it says they “appear not be reckless” or “appear to be reckless”. Reckless lending can only be determined by a court or the National Credit Tribunal.
Potgieter says it’s still “very early in the process” to determine whether or not the 2255 agreements in question were, in fact, reckless, because they need to be tested in court. “These (reckless lending claims) only go to court on day 60. At the moment, none of them have gone to court.”
DebtSafe have had favourable responses from some of the credit providers, but not all.
“I’m happy to say that we did receive communication from some of the credit providers, namely Nedbank, African Bank, Capitec and RCS. For the credit providers that did not respond, I cannot, unfortunately, give reasons, as we do not know. We are in positive conversations with the NCR regarding the report, and they are busy with further investigations on their side.”
Sections 83 to 85 of the National Credit Amendment Act allow for a court to set aside parts of or all of a credit agreement, or it can suspend the agreement, if it is found that reckless lending occurred.
Debt counsellors are compelled to investigate credit agreements entered between their customers and credit providers. If they determine consumers are over-indebted, they need to establish whether or not the credit was granted recklessly. Debt counsellors may refer reckless credit matters to a court or to the NCR, which will refer the complaint to the Tribunal.
A credit agreement is reckless if a credit provider enters into a credit agreement with a consumer that would make them over-indebted.
Credit providers are required to take practical steps to assess whether or not the consumer has the financial means and prospects to service the proposed new debt.
Lesiba Mashapa, the NCR’s company secretary, didn’t discuss the reckless lending claims, but accused some debt counsellors of charging for reckless-lending reports that weren’t done.
“The NCR has received complaints that debt counsellors are issuing reports on reckless lending to justify charging consumers a R1500 reckless-lending assessment fee,” Mashapa says.
“According to the complaints, the fee is being charged by debt counsellors even where they have not done or completed the assessments or even in instances where such assessments are not justified. The NCR is investigating these complaints.”
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