OPINION: Reckless lenders are formidable adversaries even when they're caught out
The Draft National Credit Amendment Bill was published this week for public comment. Among other things, it seeks to compel debt counsellors and the National Credit Regulator to tackle reckless lending.
As the law stands, the regulator "may" refer complaints to a debt counsellor, ombudsman with jurisdiction, consumer court or alternative dispute resolution agent - or it "may" investigate. The bill proposes that the regulator "must" investigate allegations of reckless lending, and "must" suspend the agreement and refer it to the National Consumer Tribunal.
As for debt counsellors, they currently need only check for reckless lending when you, the consumer, ask them to. Most consumers don't know to ask this of a debt counsellor, so most debt counsellors don't do it. The bill seeks to change this.
It proposes that if a debt counsellor has a "reasonable suspicion" that a credit agreement is reckless, he or she must report it either to the NCR or to a court, and failure to do so will result in a fine. What's interesting is that this refers only to consumers who are not over-indebted. In other words, only if you're in financial difficulty can you expect a debt counsellor to check whether you've been a victim of reckless lending. This is absurd. One can only conclude (or hope) that the lawmakers assume there is already an obligation on debt counsellors to report all cases of suspected reckless credit to the regulator or the courts in the case of consumers who are over-indebted.
This is the view of debt counsellor Michelle Barnardt. Barnardt, unlike most debt counsellors, routinely checks for reckless credit and reports her findings to the regulator and the courts.
Over the past eight years, she has obtained reckless lending orders on behalf of 20 consumers - comprising 43 credit agreements that were granted recklessly and amounting to more than R1.5-million worth of debt written off.
This doesn't include the cases in which Barnardt has managed to get creditors to write off debt to avoid court orders against them of reckless lending.
Barnardt has also told the regulator about 173 credit agreements that she suspects were reckless - including from African Bank, Absa, Capitec, First National Bank, Nedbank and Standard Bank.
I'm not trying to deify Barnardt. I'm making a point: reckless lending is rampant and it's going largely unpunished. And when magistrates declare credit agreements reckless, these cases are usually taken on appeal.
A few weeks ago, in a case Barnardt dealt with, a magistrate in Mpumalanga found that Wesbank "paid lip-service" to the responsibilities placed on a credit provider to prevent reckless lending, and set aside all of a consumer's obligations in terms of his credit agreement with the vehicle financier.
Magistrate Ricardo Cloete's judgment deals extensively with Wesbank's failure to produce the bank statements which it claimed to have used to determine whether the consumer could afford credit.
Not only did Wesbank ignore requests by Barnardt for copies of these bank statements, it also ignored two requests by the court, the judgment says.
"This behaviour by Wesbank proves its reluctance to assist the debt counsellor as well as the court to investigate the possibility of reckless credit, and not without reason," the judgment said.
"It is evident that Wesbank did not use any bank statements of the consumer when conducting the affordability assessment."
During Barnardt's investigation of her client's over-indebtedness, she asked his two creditors for documentation pertaining to their credit agreements with him. Direct Axis obliged but Wesbank did not.
When the debt counsellor recommended re-arranging the consumer's debts, Wesbank made a counter-offer that Barnardt did not accept. Wesbank then opposed the consumer's application to go under debt review.
The judgment says the main reason for Wesbank's opposition was that the matter alleged reckless credit.
Soon after the reckless lending order against Wesbank was delivered, Wesbank's attorney contacted Barnardt to make the following offer: either the consumer agrees to paying instalments of R5,643 over 84 months or it will lodge an appeal.
In terms of the original agreement, the consumer agreed to pay instalments of R5,696 over 71 months, Barnardt says.
Call me jaded, but I don't see how the proposed changes to the act will help consumers and their debt counsellors when up against litigious creditors with deep pockets.