Perspectives on the South African responsible lending regime and the duty to conduct pre-agreement assessment as a responsible lending practice

Abstract

In the 2001 INSOL International Consumer Debt Report: Report of Findings and Recommendations, the view was held that the solution to overspending and over-indebtedness is inter alia to be found in the idea that prevention is better than cure. Ex ante responsible lending practices as preventative measures to avoid reckless credit granting and over-indebtedness are arguably more important tools in establishing a healthy credit market than ex post measures. The focus of this contribution, is therefore, to provide a detailed overview of the South African reckless credit regime as a debt- prevention measure aimed at promoting responsible lending, with specific focus on the aspect of pre-agreement assessment as a core mechanism to avoid reckless credit granting and over-indebtedness. The main features of the reckless credit regime are highlighted, and afterwards, a detailed exposition of the evolution and extensive recent development of the pre-agreement assessment component in South Africa is undertaken. Finally, observations are made regarding the South African reckless regime in general and with regard to affordability assessment specifically and its ability, benchmarked against the essential features of a responsible lending regime as advocated by Wilson in the book ‘International responses to issues of credit and over-indebtedness in the wake of crisis’, to promote responsible lending. The conclusion is reached that benchmarked against the four characteristics of an effective responsible lending regime as identified by Wilson, it is apparent that the South African reckless lending regime is no ‘toothless tiger’, and that it attaches the necessary amount of significance to the credit provider’s duty to take reasonable steps to do a proper pre-agreement assessment in order to avoid reckless credit granting.