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You may be in a debt trap due to reckless lending


									Date: May, 1 5 , 2 0 1 0 Publication: Saturday Star- Personal Finance Page Number: 3

                                                                                                                                                                                                                                                               r(       .ill

                               You may be in a debt trap                                                                                                                                                                                                                              How is reckless
                                                                                                                                                                                                                                                                                      lending defined?
                                                                                                                                                                                                                                                                                      According to the National Credit
                                                                                                                                                                                                                                                                                        Act, a credit agreement is

                               due to reckless lending
                                                                                                                                                                                                                                                                                            reckless rf, at the time that the
                                                                                                                                                                                                                                                                                             agreement is made, the credit
                                                                                                                                                                                                                                                                                              provider either:
                                                                                                                                                                                                                                                                                                   ♦ Failed to conduct a
                                                                                                                                                                                                                                                                                             financial assessment,
                                                                                                                                                                                                                                                                                          regardless of the outcome that
                                                                                                                                                                                                                                                                                      such an assessment might have
                               If you are one of the almost nine million South Africans                                                                                                                                                                                                had at the time; or
                               struggling with debt, you may be let off the hook if you can                      What to do if you are over-indebted                                                                                                                                          ♦ Having conducted a
                                                                                                                                                                                                                                                                                         financial assessment, entered
                               prove that your credit provider was reckless when lending                          If you feel your debt is unbearable,       disagree with the plan, the                                                                                                 into a credit agreement despite
                               you money, writes Neesa Moodley-lsaacs.                                           you should contact a debt counsellor        counsellor must ask a                                                                                                       information showing that the
                                                                                                                 who can then assess your finances to        magistrate's court to rule on                                                                                               consumer dtd not generally
                                                                                                                 determine whether or not you are            whether or not it is acceptable                                                                                             understand or appreciate their
                               Nearly half of the 18.07 million con­ regarded as reckless lending.               over-indebted, tf you are, the                  You can find a debt                                                                                                     risks, costs or obligations under
                               sumers with credit in South Africa         At the same time, creditors are        counsellor will notify all your creditors   counsellor in your area on the                                                                                             the agreement or that entering
                               are struggling to meet their debt expected to review your financial               that you are undergoing debt                National Credit Regulator's                                                                                                  into the agreement would make
                               obligations, Gabriel Davel, the chief history where possible and to check         counselling and will draw up a              website:                                                                                                         the consumer over-indebted.
                               executive of the National Credit your finance application against                 repayment plan for you. If you and          (Click on "Debt                                                                                                                       You are considered to be
                               Regulator, says.                       that history.                              your creditors agree to the repayment       Counselling'' on the left of                                                                                                       over-indebted if your living
                                   Davel says that, according to          The banking ombudsman, Clive           plan, your debt counsellor will present     the screen, then click on                                                                                                          expenses and your debt
                               credit statistics to the end of Decem­ Pillay, says his office receives about     the plan to the National Consumer           "Search for debt                                                                                                                  repayments together exceed
                               ber last year, 10.16 million credit 50 complaints related to reckless             Tribunal for approval. If any creditors     counsellors").                                                                                                                   your income. When credit
                               accounts had been in arrears for lending each month, mainly against                                                                                                                                                                                             providers assess your ability
                               more than three months.                the four big banks ­ Absa, First                                                                                                                                                                                         to repay a loan, they should
                                  Over­indebted consumers may be National Bank, Standard Bank                                                                                                                                                                                                  be deducting your living
                               able to have a credit agreement set and Nedbank.                                ensure that they are not granting             reckless lending.                                                                                                           expenses from your income first
                               aside if it is found that they have        He says a number of the cases        credit to you recklessly                         TheNCA obliges creditors                                                                                                   and then using the balance of
                               been granted credit recklessly in are related to loans taken out about                                                        to fulfil certain criteria                                                                                                    your income to make an
                               terms of the National Credit Act. If two years ago, before the recession        LOANS SET ASIDE                               before lending you money,                                                                                                   assessment.
                               you have been granted credit reck­ and retrenchments left many unable           In last year's case, the Johannesburg         and the ruling points out
                               lessly, it generally means you have to meet their repayments.                   magistrate's court ruled that                 where African Bank failed
                               been lent more than you can afford         Pillay says the overwhelming         African Bank was guilty of reckless           in its duty:
                               to repay.                              majority of the complaints are with­     lending and set aside a consumer's                ♦ Credit providers have to                                                                                                According to the ruling, this
                                   Earlier this month, a Port Eliza­ out substance ­ if you were able to       three loan agreements for a total             adequately assess the information             "In conducting an assessment,    should have prompted                          is supported by the fact that
                               beth magistrate's court ruled that afford the loan when it was granted          amount of R14 000.                            they are presented with. "A brief       [a[ credit provider should not         African Bank to caution.";              the applicant stated that "African
                               Absa was guilty of reckless lending and your circumstances have since               The consumer, an employee of              consideration of the applicant's        merely apply the principles and the       ♦ The importance of consumers        Bank call you all the time and give
                               (See box below).                       changed (for evample, you have been      Nampak, had five dependants ­ a               bank statement shows that he is         purpose of the NCA in a mechanical     being able to understand their          you money".
                                  To prove reckless lending you retrenched or interest rates have              wife and four children. His basic             every month left with a very small      fashion. A credit provider should      rights and obligations under a credit       The ruling says that this conduct
                               must be able to prove that you were rocketed) then it is not considered         salary was R6 790, but his salary             amount or nothing... it is reasonable   actively engage with the consumer      agreement. "The home language of        by African Bank had an adverse
                               not able to afford the loan when you reckless lending but simply over­          fluctuated depending on overtime              to assume that if the loan consult­     to do a proper assessment;             the applicant is Zulu, as is clear      effect on the applicant's financial
                               made the credit application, if a indebtedness. (See "What to do if             worked and, for example, in August            ants employed by African Bank con­          ♦ Discrepancies in the loan        from the fact that he requested the     circumstances and "as this practice
                               debt counsellor suspects a case of you are over­indebted").                     2008 his salary was R9 638.                   ducted a credit bureau inquiry, they    applications should have been glar­    service of a Zulu interpreter in        does not encourage responsible bor­
                               reckless lending, he or she will refer     "In the odd one or two cases, we         He had been granted loans from            would also access African Bank's        ingly obvious to the loan consult­     court. The contents of the agree­       rowing, the fair order would be to
                               you to an attorney who can take the refer complaints to the National            African Bank of R4 000 in July 2007,          own records to consider the appli­      ants. For example, the applicant's     ments are, however, drafted in Eng­     set aside all the applicant's rights
                               case to court. The attorney's costs Credit Regulator for further investi­       Rll 000 in January 2008, RI500 in             cant's previous accounts and appli­     expenses for food and groceries        lish. There are no indications that     and obligations under all the
                               could be for your account.             gation. Making a ruling on reckless      April 2008 and Rl 500 in May 2008.            cations for loans. Voluminous docu­     decreased between July 2007 and        the (legally complex) contents was      agreements entered since January
                                  However, reckless lending cases lending is not within our jurisdic­             He was also granted a loan of              ments attached ... attest to this       May 2008, although his dependants      translated or even interpreted into     30,2008".
                               are rare and, as a consumer, you also tion," he says.                           R21500 by Capitec Bank in Septem­             information being accessible and        remained the same.                     Zulu to the applicant."                     Tami Sokuto, an executive direc­
                               have a responsibility to truthfully        Pillay says there was a ruling of    ber 2007, but the ruling notes that           reasonably available to African            "Two of the children are in their      The ruling goes on to say that       tor of African Bank, says the bank
                               disclose yourfinanceswhen making reckless lending against a bank in             this loan was obtained to pay off             Bank's loan consultants";               early teens. The needs of children ­   "African Bank perhaps relied on the     believed the judgment was wrong
                               a credit application. If you lie to a April last year and this case sheds       debts with African Bank and, in                  ♦ Credit providers should not        especially teenagers ­ tend to         applicant's propensity to easily        but decided not to appeal or take the
                               creditor about your finances or light on what checks and assess­                fact, it was the three loans granted          simply go through the motions of        increase as they become older and a    accept loans and kept on enticing       matter further as this would be
                               expenses, your case may not be ments credit providers need to do to             by African Bank that amounted to              conducting a financial assessment.      decrease of the applicant's expenses   the applicant to take further loans".   unfair to the consumer.

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Date: May, 1 5 , 2 0 1 0 Publication: Saturday Star- Personal Finance Page Number: 3

                             Absa found guilty of reckless lending
                             A magistrate's court ruling on        guarantor of the loan.                 to repossess the property, at which
                             reckless lending earlier this month       However, attorney Pierre           point he sought assistance from
                             resulted in a Port Elizabeth          Kitching, who represented the          debt counsellors Debt Smart.
                             pensioner having his mortgage         pensioner in the magistrate's court,       Barry Pinnock, the debt
                             bond with Absa set aside.             says there appears to have been        counsellor who referred the case to
                                 According to a Bloomberg          no assessment relating to his          Kitching, says the pensioner had
                             report, about 20 months ago Absa      daughter's finances, and there is      applications for similar loan
                             agreed to lend the 81 -year-dd        no mention of her income being         amounts turned down by Standard
                             pensioner R350 000 so he could        included in the assessment criteria    Bank and First National Bank.
                             help his daughter's business. He      on the loan application.                   Happy Ntshingila, the chief
                             applied for the loan against his          The loan repayments were           marketing and communications
                             unbonded property, which was          R4 200 a month. The pensioner's        executive of Absa, told Personal
                             worth R15 million.                    monthly income was R3 700 and          Finance that, after it has studied
                                 Louis von Zeuner, the deputy      his household expenditure was          the judgment, Absa might contest
                             chief executive of Absa, told         R2 472 a month.                        the ruing, because the bankank
                             Bloomberg that the daughter               When he defaulted on his           adheres to the lending criteria:
                                   I surety for and1                    yments, the bank th                                          I
                                                                                                               in the National Credit,Act

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