Reckless Credit Process for Debt Counsellors

How to Compile a Comprehensive Reckless Lending Investigation Report

A Guide for Debt Counsellors

Reckless lending remains a critical issue in South Africa’s credit market, with many consumers burdened by unaffordable debt due to credit providers failing to conduct proper affordability assessments. As debt counsellors, it is our responsibility to identify these cases and compile detailed, legally sound reports that can withstand scrutiny in court.

In this article, we outline how to construct a comprehensive reckless lending assessment report, using case law, the National Credit Act (NCA), and industry best practices. This guide is based on actual case assessments and structured on a professional Reckless Lending Assessment Report Template.

1.Understanding Reckless Lending

What is Reckless Credit?

According to Section 80 of the NCA, credit is reckless when:

• The credit provider failed to conduct an affordability assessment (Section 81).
• The consumer did not fully understand the risks, costs, or obligations of the credit agreement.
• The credit provider granted credit despite the consumer being over-indebted at the time of granting the loan.

When reckless credit is proven, courts can set aside, suspend, or restructure the debt.

2.Key Steps in Conducting a Reckless Lending Investigation

A properly compiled Reckless Lending Assessment Report should follow these structured steps:

Step 1: Gather Consumer and Credit Agreement Details

Collect the following:

• Consumer Information: Employment status, income, and existing financial obligations.
• Credit Agreement Details: Date, amount, interest rate, repayment terms, and affordability checks.

Example: A consumer earning R37,750 per month had total debt obligations exceeding R1,1 million across various credit providers, including credit cards, personal loans, and vehicle finance.

Step 2: Request Information from Credit Providers

Under Regulation 23A of the NCA, debt counsellors must request the following documents from credit providers:

• Copy of credit application
• Credit report at the time of granting the loan
• Salary advice/proof of income
• Signed pre-agreement and quotation
• Full affordability assessment
• Credit agreement
• Full transactional statement

If a credit provider fails to supply these, it strengthens the reckless lending claim.

Example: In a recent assessment, several major credit providers failed to provide affordability assessments or proof that the consumer’s full obligations were considered.

Step 3: Conduct an Affordability Analysis

Using Regulation 23A(3) & (4):

• Ensure the credit provider included all the consumer’s obligations (including maintenance and spousal income).
• Verify if they applied the Minimum Expense Norms

 

Case Reference: ABSA v Goolam confirmed that failure to apply correct living expense norms is grounds for reckless lending.

Example: A bank granted credit without including the consumer’s spousal income contribution. This is a violation of affordability rules, as affordability should have been assessed based on household income and expenses.

Step 4: Identify Credit Providers That Failed to Comply

Use a Reckless Lending Audit Checklist to ensure compliance with:

• NCA Sections 80-83 (reckless lending definitions)
• Case law interpretations (Nedbank v Tshoga, ABSA v Goolam)
• Regulation 23A Compliance

Example: One credit provider granted a loan without verifying income or expenses, while another failed to obtain a declaration of financial obligations.

3.Findings & Conclusion

After reviewing the findings, classify agreements into:

• – Not Reckless

Agreements that met affordability criteria and compliance requirements.

• – Potentially Reckless

Agreements that lacked full compliance but require further scrutiny.

• – Reckless Lending Confirmed

Credit agreements that clearly violated affordability rules, were granted without assessments, or ignored the consumer’s over-indebtedness.

Example: The assessment found that multiple agreements failed affordability checks, leading to a court application under Section 83 to have the debts restructured.

4.Using the Report in Legal Applications

Once completed, the Reckless Lending Report should be attached to a court affidavit to support:

• A declaration of reckless lending.
• A debt restructuring or suspension order under Section 83 of the NCA.
• A request for condonation in case of late submissions.

Example: A recent court ruling upheld a reckless lending claim where a credit provider failed to consider a consumer’s full financial obligations.

Final Thoughts

As debt counsellors, our role is not only to assist over-indebted consumers but also to hold credit providers accountable for compliance with the National Credit Act. A well-structured reckless lending report ensures credibility and legal strength, preventing challenges from creditors and legal professionals.

For a sample Reckless Lending Report Template, Reckless Lending Investigation Checklist

 

• Article written by Martin Snyman from DebtAbility https://debtability.co.za/#debtreview

 

DCASA Advisory: Responsible Handling of Reckless Credit Investigations

Debt Counsellors must exercise the highest level of professionalism when handling reckless credit matters. A reckless credit investigation should never be pursued without the consumer’s explicit declaration that they are seeking such an assessment.

We have observed an increase in cost orders being granted against Debt Counsellors who fail to substantiate their claims in court. It is crucial to remember that proving reckless credit requires clear and compelling evidence.

A key principle to keep in mind: If a consumer has under-declared their household expenses—despite their bank statements indicating otherwise—this alone does not prove that the credit provider failed to conduct a proper affordability assessment. Furthermore, if a consumer has been dishonest in their financial disclosures, it serves as a complete defense for the credit provider against reckless credit allegations.

Debt Counsellors must approach reckless credit claims with diligence, ensuring that cases are well-founded and supported by substantial evidence before proceeding. Check out DCASA Guidelines from 2016 on Reckless Credit DCASA Reckless Credit Practical Guideline for Debt Counsellors