IOL reported on the 11th International Conference on Consumer Law which was held in Cape Town and in which the obvious emphasis was on the up coming introduction of the third and final phase of the National Credit Act on the 1st June 2007.The conference is hosted by the International Association of Consumer Law, the Centre for Business Law at Unisa, and the National Credit Regulator.

Reporter Maureen Marud said:

Andre Boraine, University of Pretoria professor of law, said more stringent lending practices being introduced as part of the new National Credit Act “will most definitely put low-income people in a weaker position to obtain credit”.

‘Only time would tell if this aspect of the new act was “a step backwards”‘

Boraine said the National Credit Act was meant to prevent over-indebtedness, and to bring equality into lending practices.

“All people should be treated the same, but of course people who need to borrow money to buy food and clothes are probably the ones who are going to be excluded from obtaining credit.”

Only time would tell if this aspect of the new act was “a step backwards”, Boraine said.

“Will this new regulatory framework with its more stringent requirements for obtaining credit leave a gap in the market for people operating outside the act, who are said to lend money at exorbitant interest rates?

‘The need for credit will remain, and where will people go if they cannot get it?’
“The need for credit will remain, and where will people go if they cannot get it?”

Eric Levenstein, director of Werksmans Attorneys, said the act set out provisions that would impact on the way in which credit was given to consumers. The main focus was to prevent the granting of reckless credit, and new standards of assessing applications for credit were part of that aim.

The ultimate objective of the act was to protect indigent, illiterate consumers who did not understand the implications of signing on the dotted line when they applied for credit, Levenstein said.

Credit providers would have to train assessors to do financial means tests to ensure that applicants for credit were not already over-indebted, and the training would be costly.

Joe van Blerk, a financial services consultant, said the fear of falling foul of the new regulations was making risk managers “tighten up on procedures to the extent that a lot of people who would previously have qualified for credit will not qualify after June”. Van Blerk said penalties could be as high as 10 percent of a company’s annual turnover.

“In other words, a risk manager could bankrupt the company if he made a mistake when assessing the risk of granting credit to someone.”

Although the regulator was not likely to apply penalties to that extent, “nobody knows to what degree he will enforce those powers”, Van Blerk said.

Stefan Renke, senior lecturer in the department of mercantile law at the University of Pretoria, said the act required credit providers to make sure consumers applying for credit understood the risks and costs involved, as well as their rights and obligations.

“The consumer’s repayment history needs to be considered and his existing financial means, prospects and obligations.”

An agreement would be seen as reckless if the credit provider did not do an assessment, or if it was found after the assessment that the consumer had not understood the risks and costs involved.

A court could also find lending to have been reckless if the assessment showed the consumer would become over-indebted if the application was granted.

The consequences of reckless lending included a court setting aside all or part of the consumer’s obligations under the contract, or suspending the reckless lending agreement and restructuring the consumer’s obligation.

Renke welcomed a provision that would prevent credit-card providers unilaterally raising the credit limit without the customer’s written consent.

Therese Wilson, a lecturer at Griffith University in Brisbane, Australia, said that although credit could lead to over-indebtedness, it could also pave the way to financial independence, dignity and freedom.

“My caution is, do not forget the good that credit can do, and don’t drive people into the hands of harmful credit providers by making it too difficult for mainstream lenders to lend to people in the low-income market.”