A consumer is over-indebted when he/she does not have the means to meet all his/her debt payments at the end of a month. The Act also states that if the Debt Counsellor has completed an assessment and has reached a conclusion that a consumer will not be able to meet his/her debt commitments at the end of a month, that consumer is over-indebted.
What is a reckless credit agreement?
The Act requires a credit provider to ensure that a consumer can afford the credit he/she applies for before granting him/her the loan or selling the goods on credit. If the credit provider fails to ensure this then the agreement can be regarded as reckless. An agreement is reckless if:
- The credit provider does not carry out a proper credit risk assessment to ensure that the consumer can afford the loan,
- The credit provider proceeds to grant the consumer the loan despite the consumer not being able to afford the loan based on the assessment conducted
- The consumer does not understand his/her rights and obligations in an agreement as well as the costs involved in taking the loan.
Only a court can declare an agreement reckless on the request of
either the Debt Counsellor or the consumer.
- The court can suspend an agreement that has been declared reckless.
- It can also change the terms and conditions of the agreement, i.e. how the monies must be repaid by the consumer to the credit provider.
- The credit provider cannot charge the consumer any interest or fees on an agreement that has been suspended.
Affordably Assessment
Existing financial means and prospects
- · A credit provider must take practicable steps to assess the consumer or joint consumer's discretionary income to determine whether the consumer has the financial means and prospects to pay the proposed credit instalments.
- · A credit provider must take practicable steps to validate gross income, in relation to:- (a) consumers that receive a salary from an employer:
o
latest three(3) payslips; or
o
latest bank statements showing latest three(3)
salary deposits;
- · consumers that do not receive a salary as contemplated in (a) above by requiring:
o
latest three(3) documented proof of income; or
o
latest three(3) months bank statements;
- · consumers that are self-employed, informally employed or employed in a way through which they do not receive a payslip or proof of income as contemplated in (a) or (b) above by requiring:
o
(1) latest three (3) months bank statements; or
o
latest financial statements.
- · Where the consumer's monthly gross income shows material variance, the average gross income over the period of not less than three (3)pay periods preceding the credit application must be utilised.
- · The consumer must accurately disclose to the credit provider all financial obligations to enable the credit provider to conduct the affordability assessment.
- · The consumer must provide authentic documentation to the credit provider to enable the credit provider to conduct the affordability assessment. Existing financial obligations
- · A credit provider must make a calculation of the consumer's existing financial means, prospects and obligations as envisaged in sections 78(3) and 81(2)(a)(iii) of the Act.
- · The credit provider must utilise the minimum expense norms table below, broken down by monthly gross income when calculating the existing financial obligations of consumers.
- · The methodology in the table requires for:
o
credit providers to ascertain gross income;
o
statutory deductions and minimum living expenses
to be deducted to arrive at a net income, which must be allocated for payment
of debt instalments; and
o
when existing debt obligations are taken into
account, the credit provider must calculate discretionary income to enable the
consumer to satisfy any new debt.
- · The credit provider may however on an exceptional basis, where justified, accept the consumer's declared minimum expenses which are lower than those set out in table 1 provided the questionnaire set out in the Schedule, as issued from time to time, is completed by the consumer or joint consumers.
- · When conducting the affordability assessment, the credit provider must: -
o
calculate the consumer's discretionary income;
o
take into account all monthly debt repayment
obligations in terms of credit agreements as reflected on the consumer's credit
profile held by a registered credit bureau; and
o
take into account maintenance obligations and
other necessary expenses. Debt re-payment history as a Consumer under Credit
Agreements
- · A credit provider must take into account the consumer's debt repayment history as a consumer under credit agreements, as envisaged in section 81(2)(a) and must ensure that this requirement is performed: -
o
within seven(7)business days immediately prior
to the initial approval of credit or the increasing of an existing credit
limit; and
o
within fourteen business days with regards to mortgages.
Avoiding double counting in calculating the Discretionary Income
- · Where a credit agreement is entered into on a substitutionary basis in order to settle off one or more existing credit agreement, a credit provider must: -
o
record that the credit being applied for is to
replace other existing credit agreement/s; and
o
take practicable steps to ensure that such
credit is properly used for such purposes.
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