Credit Providers use alluring tactics to convince consumers to obtain credit. In some instance the sales person is more focused on their sales target than your actual financial circumstances.

This becomes a dangerous position for both the consumer and the credit provider.

The situation is dangerous for the Consumer because you find yourself in a position wherein you may be unable to satisfy your financial obligations.

The situation is also dangerous for the Credit Provider because if it can be proven that the Credit Provider did not take reasonable steps to establish the credit worthiness of the Consumer, “an application may be made to Court and the Court may declare the credit agreement reckless and set aside all or part of the Consumers obligations under the agreement or alternatively suspend the force and effect of the agreement in terms of the National Credit Act.” says Natasha La Vita of Berndt and La Vita Incorporated.

What does this really mean to Consumers?

Audrey Berndt of Berndt and La Vita Inc. has indicated that when assessing your credit worthiness, a Credit provider should have the following considerations top of mind:

1. Did the Consumer have a general understanding and appreciation of the risks and costs of the proposed credit, as well as an understanding of their rights and obligations;
2. Was an assessment of the Consumer’s payment history undertaken;
3. Was there an assessment on the Consumer’s existing financial means, prospects and obligations;
4. Would entering into the agreement leave the Consumer over indebted.
5. If the Consumer has a commercial purpose for obtaining credit then the Credit Provider must have a reasonable basis to believe that the purpose will prove successful.

If a credit provider did not take the necessary steps and efforts to correctly assess the above, then the Consumer may approach a Court to have the agreement declared reckless and void, in other words, no longer enforceable.

Some tips: Berndt and La Vita Inc. have indicated that Consumers should consider the following when establishing if their credit agreements are reckless:

• Did the Creditor conduct a financial assessment of your obligations;
• Did the Creditor obtain a copy of your credit report;
• How was the credit sold to you? Special investigation should be placed on telephonic sales;
• Could you at the time of obtaining credit afford the Credit:
• Where you under administration or debt review?

In conclusion, if a bank or other credit provider does not check on a Consumer’s credit history and carry out a proper financial assessment to determine how much credit a consumer can afford prior to granting credit, and in the event that the Consumer later defaults, the agreement can be declared reckless and the credit provider forced to write off part of or all of the amount advanced.

For any queries on the topic or any other legal matters, please feel free to contact Berndt and La Vita Attorneys at info@blvlaw.co.za for expert advice.