Understanding the Obligations of Credit Providers in South Africa
As a consumer, it's important to be aware of your rights and the responsibilities of credit providers when entering into a credit agreement. The National Credit Act (NCA) regulates credit agreements in South Africa and sets out obligations for both consumers and credit providers.
A recent case, Capitec Bank Limited v Mahlangu, provides guidance on a credit provider's obligation pursuant to section 81 of the NCA to assess a consumer's ability to afford credit, as well as clarification on the application of a credit provider's defence in section 81(4).
In this case, the magistrate found that the credit agreement between Capitec and Mr Mahlangu was reckless in terms of section 81 of the NCA. Capitec applied to the Mpumalanga Division of the High Court for an order setting aside the decision of the magistrate.
The court held that where a consumer discloses a source of household income as part of its affordability assessment, a credit provider should include in its calculation an assessment of the household income. In particular, there should be an inquiry into proof of the household income, the relation between the consumer and the contributor of the household income, and the household’s living expenses which would be impacted by the household income.
It is not enough for a credit provider to rely on a consumer's individual stated income if a consumer has indicated that there is household income. This means that credit providers need to take into account the financial means of the entire household, not just the individual applying for credit.
Regarding the application of section 81(4) of the NCA, the court held that, for a credit provider to be able to rely on this defence, there has to be a finding that the consumer failed to answer questions fully or truthfully. Without that, the defence does not arise. The section 81(4) defence does not extinguish a credit provider's obligation to assess a consumer's financial means.
In the case of Capitec Bank Limited v Mahlangu, Capitec argued that it had used the client-level calculation rather than the house-level calculation when deciding to grant credit to Mr Mahlangu. In light of this, it contended that it was not necessary to obtain any proof of household income because the credit was approved based on the individual-level and not the household-level.
However, the court found that Capitec was obliged to do a household income assessment in calculating Mr. Mahlangu's ability to afford the loan, as Mr. Mahlangu had qualified for the loan based on an assessment of his own individual income.
This case highlights the importance of credit providers properly assessing a consumer's ability to afford credit and taking into account the financial means of the entire household. It also clarifies that credit providers cannot rely on a consumer's failure to fully or truthfully answer questions as a defence for reckless lending.
As a consumer, it's important to provide accurate and truthful information when applying for credit, and to ensure that credit providers are also adhering to their obligations under the NCA.
If you have any questions about debt you currently have, please feel free to reach out to a member of the Libertine Consultants team. We are here to provide you with judgement-free support and advice.
