2) Reckless Credit Flashcards
when does reckless lending occur?
- 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
which agreements are excluded from reckless lending tests?
- student loans
- pawn transactions
- incidental credit agreements
- agreements with JPs
what must the C assess before entering into agreement with D?
the D’s:
- understanding of risks, costs, rights and duties
- ability to afford credit now and future
- debt repayment history
- prospects of business success
what is consumer deceit?
- D lies in the reckless lending tests
- C can use this as a defense later if accused of reckless lending
what can the court order once a credit agreement is deemed to be reckless?
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
what happens when the obligations of D are suspended?
- 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
what do the National Credit Regulations do?
add further detail to NCA
who created the National Credit Regulations?
the Minister of Trade and Industry
what is used to check gross income for a salaried person?
latest:
- 3 payslips
- 3 bank statements which show salary deposits
what is used to check gross income for a self-employed person?
latest:
- 3 months BS
- latest business FS
what is discretionary income?
money available each month to pay new debt
how do we calculate discretionary income?
MONTHLY GROSS INCOME - statutory deductions (UIF, inc tax) - monthly living expenses - existing credit agreements pmts - maintenance obl. for dependents = discretionary income
what is debt review?
a period of assessment of the debts of a D by a debt counsellor which will determine if they are over-indebted
who can apply for debt review?
natural persons only
what are the two ways which an individual can start undergoing debt review?
- own accord
- by credit provider who is looking to get their money
is there a minimum amount of debt needed to be owed to apply for debt review?
no
what is the definition of over-indebted?
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
when is a consumer over-indebted?
when total monthly debt repayments exceed net inc less min monthly living expenses
what is the process of debt review?
- 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
how long should debt review last?
30 business days
what are the 3 outcomes for debt review?
1) not
2) not but may have difficulty paying
3) is over-indebted
what will happen if the D is not over-indebted?
application is rejected
what will happen if the D is not over-indebted, but will struggle to pay their debts?
counsellor should attempt to negotiate with C on D’s behalf for voluntary restructuring of debt pmts
what will happen if the D is over-indebted?
- matter is referred to MC for possible restructuring
- court may also make a finding of reckless lending
can D appeal the outcome of debt review process?
yes, if counsellor finds no over-indebtedness
what can be the outcome of restructuring?
extending repayment period or postponing due date for repayments
what is the effect of review on D?
during the process, D may not enter into new agreements or use a credit facility
what is the effect of review on C?
may not attempt to enforce the debt against the consumer
what does regulations 23(a)(4) say?
- C must do an affordability assessment with Ds discretionary income to see if they can pay the credit
- take reasonable steps
which section of the NCA gives the Minister the power to make regulations?
s82(2)
