What You Should Know Before Taking Out Credit: Understanding Reckless Credit and Your Rights Under the National Credit Act

What is Reckless Credit?

Under the National Credit Act, reckless credit refers to a situation where a credit provider grants you a loan or credit without following the proper procedures, which include conducting a thorough assessment of your financial situation. The NCA aims to protect consumers from over-indebtedness and to encourage responsible lending by placing certain obligations on credit providers.

Before Taking Out Credit: Key Things to Consider

Affordability Assessment

Credit providers must assess whether you can afford to repay the credit. This involves looking at your income, expenses, debt obligations, and credit history. They are required by law to ensure that you will be able to meet your financial obligations without falling into financial distress.

Transparency in Credit Agreements

The terms and conditions of any credit agreement should be clear and transparent. As a consumer, make sure you fully understand the interest rates, repayment terms, fees, and any potential penalties for late or missed payments. The credit provider must also explain the risks associated with the credit and your rights under the NCA.

Understanding the Costs

Know the total cost of credit before signing any agreement. This includes not just the principal loan amount but also interest, service fees, credit life insurance (if applicable), and any additional charges. Make sure that you’re comfortable with the monthly repayments and the full repayment amount.

Your Financial Situation

Before applying for credit, review your own financial situation. Can you comfortably manage the repayments? Are you already over-indebted? Taking out additional credit when you are struggling to meet existing obligations can lead to more severe financial issues down the road.

When Can You Allege Reckless Credit?

You may allege reckless credit if your credit provider fails to meet their obligations under the NCA. Here are the instances when you could potentially make such a claim:

Failure to Conduct an Affordability Assessment

If the credit provider did not conduct a proper affordability assessment before granting you the loan or credit, this could be considered reckless. This means that they did not adequately check whether you had the ability to repay the loan based on your income and expenses.

Granting Credit Despite the Outcome of the Assessment

Even if an affordability assessment was done, if the provider knowingly granted you credit despite evidence showing you could not afford the repayments, it could also be seen as reckless.

Failure to Provide Adequate Information

If the credit provider did not explain the terms of the agreement or provide you with the necessary information to make an informed decision, you might have grounds to allege reckless credit.

When is Credit Not Considered Reckless?

Affordability Confirmed by Assessment

If a credit provider conducted a thorough affordability assessment and you were found capable of managing the credit repayments, you likely won’t have grounds to claim reckless credit. It is the consumer’s responsibility to provide accurate and truthful information during the assessment process.

If You Misrepresented Your Financial Situation

Providing false or incomplete information during the application process can void any claims of reckless credit. If you misrepresented your income, expenses, or other debts, the responsibility for the unaffordable loan lies with you.

Debt Arising From Changes in Circumstances

If you were able to afford the credit at the time it was granted, but your financial situation changed afterward due to loss of income, unforeseen expenses, or other personal circumstances, this is not considered reckless credit.

What to Do If You Suspect Reckless Credit

Request a Copy of the Affordability Assessment

Ask your credit provider for the documentation related to your affordability assessment. Review it to see if the correct processes were followed.

Seek Legal Advice from a Debt Counsellor or Attorney or Contact the National Credit Regulator (NCR)

You can approach the NCR to file a complaint or consult a lawyer who specializes in consumer rights. They can help you determine if your claim has merit.

Approach the Courts

If reckless credit is proven, a court can make orders to either suspend or set aside the credit agreement. This may mean that part or all of the credit is written off, or the agreement is altered in a way that protects your financial well-being.

Conclusion

Credit can be a helpful tool when used responsibly, but it’s crucial to ensure that both you and your credit provider follow the proper procedures. The National Credit Act is designed to protect consumers from reckless lending, but it also places the responsibility on you to be honest about your financial situation and to understand the terms of your credit agreements. By being informed, you can avoid the pitfalls of reckless credit and manage your financial health effectively. If you would like to speak to a professional and registered Debt Counsellor have a look at our “Debt Counsellor Search area and/or Service Providers area