Determination of Reckless Credit
What is Reckless Credit?
The granting of reckless credit does not by itself entitle a consumer to approach a court to obtain a declaration that the credit agreement is reckless. Reckless credit is an ancillary consideration. A court is only entitled to consider whether a credit agreement is reckless when that credit agreement is already before court for some other reason, such as a credit provider attempting to enforce that credit agreement or a consumer attempting to obtain a Debt Restructuring Order.
If a debt counsellor is of the opinion, that a credit agreement constitutes reckless credit and wishes to have that credit agreement suspended or set aside, the debt counsellor must make a second application to the magistrate’s court under the same case number as the actual debt review application. In that second Application, the Debt Counsellor must detail the basis on which the credit agreement is alleged to be “reckless” and ask for the desired relief. If the Court makes an order of suspension or sets aside the credit agreement the Debt Counsellor must then issue a new proposal reflecting the court’s ruling.
FAQ’s – Reckless Credit Determination
Q: What is a reckless credit agreement?
A: In terms of Section 80(1) of the National Credit Act, a credit agreement is reckless if, at the time that the agreement was made …
(a) the credit provider failed to conduct an assessment as required by section 81(2), irrespective of what the outcome of such an assessment might have concluded at the time; or
(b) the credit provider, having conducted such an assessment as required by section 81(2), entered into the credit agreement with the consumer despite the fact, that the preponderance of information available to the credit provider indicated that –
(i) The consumer did not generally understand the or appreciate the consumer’s risks, costs or obligations under the proposed credit agreement; or
(ii) Entering into that credit agreement would make the consumer over-indebted.
Section 80(2) When a determination is to be made whether a credit agreement is reckless or not, the person making that determination must apply the criteria set out in subsection (1) as they existed at the time the agreement was made, and without regard for the ability of the consumer to –
(a) meet the obligations under that credit agreement; or
(b) understand or appreciate the risks, costs and obligations under the proposed credit agreement, at the time the determination is being made.
Q: What happens if a credit provider enters into a reckless credit agreement?
A: Section 81(3) of the National Credit Act specifically prohibits a credit provider from entering into a reckless credit agreement with a prospective consumer. Where a reckless credit agreement is concluded, a court may declare that the credit agreement is reckless (Section 83(1)). If a court declares that a credit agreement is reckless, the court may make an order –
(a) Setting aside all or part of the consumer’s rights and obligations under that agreement, as the court determines just and reasonable in the circumstances; or
(b) Suspending the force and effect of that credit agreement until a date determined by the Court when making the order of suspension (Section 83(2))
Q: What information do you require to assess whether my credit agreement constitutes reckless credit?
A: The information we require to determination whether there is a case to be made out for reckless credit includes the following:
- The date the credit agreement was concluded
- A copy of the credit agreement
- A copy of the pre-agreement statement and quotation • Details concerning your financial means, prospects and obligations as they existed at the time the credit was granted
- Information concerning the credit assessment that was conducted by the credit provider
Section 170 of the National Credit Act read with Regulation 56 obliges a credit provider to keep records of all applications for credit, credit agreements and credit accounts for a period of 3 years from the date of termination of the credit agreement.