Reckless Lending in South Africa

Say bye-bye to the days when you could thumb suck an amount as your monthly living expenses when applying for credit. Thanks to amendments to the National Credit Act, credit providers are forced to link minimum monthly living expenses amounts to the applicant’s monthly income, reckless lending.

The credit act has been a reality since 2005, and one of its main intention was to prevent reckless lending, in other words the provision of credit to people who can’t afford to service the debt.

With about half of the credit-active consumers in South Africa in arrears for at least three months and one of the reasons for the high default rate and the alarming consequences is reckless credit agreements were part of normal business practice for many credit providers.

The NCA amendments, signed into law aimed to bring reckless lending to a sudden halt by placing many more demands on both lenders and consumers.

What You Need When Applying For Credit:

– Latest three months documents – prof of income or pay-slips;
– Latest three months bank statement;
– Copy of ID;
– Proof of residence.

Most people found themselves having to visit banks and joined queues to request those bank statements and then having to pay for them.

However despite the practice being outlawed, reckless lending continues unabated to this day. So much so that the National Consumer Tribunal (NCT) received huge amounts of complaints since 2015 and doubled at the end of 2016 financial year.

In the past reckless lending occurred mostly on home and car loans, unsecured loans and became a way lenders were targeting consumers. The NCA was amended to prevent reckless lending for those who cannot afford it and to give a loan to someone who cannot afford it is illegal. But unfortunately the people who apply for these loans are usually poor, uneducated and cannot afford legal representation.

Unfortunately that had led to many consumers who could not get a loan from reputable lenders to get desperate and resort to loan sharks.

These lenders charged more than the legal 60% interest they were allowed and because there not regulated, they got away with overcharging the very poor.

The Good News:

The fact that more people are complaining to the NCT is actually great news because it shows that people are becoming aware of their rights. They can get representation for free through the tribunal.
Are you a victim of reckless lending? Contact us now!