Reckless Lending

The National Credit Act requires that a credit provider must carry out a financial assessment to determine the extent or amount of credit that a credit applicant can afford before entering into a credit agreement with the applicant.  In performing an affordability assessment, a credit provider must determine and take into account the following:

• whether the applicant has a general understanding and appreciation of the risks and costs of the proposed credit, and of the rights and obligations of a consumer under a credit agreement;
• the applicant’s debt repayment history;
• the applicant’s existing financial means, prospects and obligations; and
• whether the new credit agreement will cause the customer to become over-indebted.

If a credit provider fails to do an affordability assessment before advancing credit to someone, the credit provider could be guilty of entering into a reckless credit agreement.  

If an agreement is declared reckless it may be fully or partially unenforceable, and the credit provider may lose all or part of the money advanced. The Courts may set aside all or some of the consumer’s obligations to repay the debt under the reckless agreement.