2) Reckless Credit

Question 1

when does reckless lending occur?

Answer 1

• C fails to conduct assessment to check if D can afford the debt
• C fails to make sure D understands the risks, costs, obl
• C contracts with the consumer despite evidence that this will cause over-indebtedness

Question 2

which agreements are excluded from reckless lending tests?

Answer 2

• student loans
• pawn transactions
• incidental credit agreements
• agreements with JPs

Question 3

what must the C assess before entering into agreement with D?

Answer 3

the D’s:

• understanding of risks, costs, rights and duties
• ability to afford credit now and future
• debt repayment history
• prospects of business success

Question 4

what is consumer deceit?

Answer 4

• D lies in the reckless lending tests

- C can use this as a defense later if accused of reckless lending

Question 5

what can the court order once a credit agreement is deemed to be reckless?

Answer 5

1) court can decide that obligations of D should be set aside if they believe it is just and equitable (and return the asset if relevant)
2) obligations of D may be suspended
3) court may rule that D is over-indebt and make restructuring order

Question 6

what happens when the obligations of D are suspended?

Answer 6

• no interest/fees/pmts can be charged and C cannot enforce the debt
• C can still try to claim it later but court may limit this

Question 7

what do the National Credit Regulations do?

Answer 7

add further detail to NCA

Question 8

who created the National Credit Regulations?

Answer 8

the Minister of Trade and Industry

Question 9

what is used to check gross income for a salaried person?

Answer 9

latest:

• 3 payslips
• 3 bank statements which show salary deposits

Question 10

what is used to check gross income for a self-employed person?

Answer 10

latest:

• 3 months BS
• latest business FS

Question 11

what is discretionary income?

Answer 11

money available each month to pay new debt

Question 12

how do we calculate discretionary income?

Answer 12

MONTHLY GROSS INCOME
- statutory deductions (UIF, inc tax)
- monthly living expenses
- existing credit agreements pmts
- maintenance obl. for dependents
= discretionary income

Question 13

what is debt review?

Answer 13

a period of assessment of the debts of a D by a debt counsellor which will determine if they are over-indebted

Question 14

who can apply for debt review?

Answer 14

natural persons only

Question 15

what are the two ways which an individual can start undergoing debt review?

Answer 15

• own accord

- by credit provider who is looking to get their money

Question 16

is there a minimum amount of debt needed to be owed to apply for debt review?

Answer 16

no

Question 17

what is the definition of over-indebted?

Answer 17

the consumer is, or will be, unable to satisfy all obls under agreements he is party to on time, by looking at his financial means and history of repayment

Question 18

when is a consumer over-indebted?

Answer 18

when total monthly debt repayments exceed net inc less min monthly living expenses

Question 19

what is the process of debt review?

Answer 19

• D initiates by seeing a debt counsellor
• all Cs are then notified by counsellor that review commenced, who must comply (in good faith) and provide docs if necessary
• counsellor must then intermediate between C and D to assess full extent over-indebtedness

Question 20

how long should debt review last?

Answer 20

30 business days

Question 21

what are the 3 outcomes for debt review?

Answer 21

1) not
2) not but may have difficulty paying
3) is over-indebted

Question 22

what will happen if the D is not over-indebted?

Answer 22

application is rejected

Question 23

what will happen if the D is not over-indebted, but will struggle to pay their debts?

Answer 23

counsellor should attempt to negotiate with C on D’s behalf for voluntary restructuring of debt pmts

Question 24

what will happen if the D is over-indebted?

Answer 24

• matter is referred to MC for possible restructuring

- court may also make a finding of reckless lending

Question 25

can D appeal the outcome of debt review process?

Answer 25

yes, if counsellor finds no over-indebtedness

Question 26

what can be the outcome of restructuring?

Answer 26

extending repayment period or postponing due date for repayments

Question 27

what is the effect of review on D?

Answer 27

during the process, D may not enter into new agreements or use a credit facility

Question 28

what is the effect of review on C?

Answer 28

may not attempt to enforce the debt against the consumer

Question 29

what does regulations 23(a)(4) say?

Answer 29

• C must do an affordability assessment with Ds discretionary income to see if they can pay the credit
• take reasonable steps

Question 30

which section of the NCA gives the Minister the power to make regulations?

Answer 30

s82(2)