The prohibition of reckless credit granting as a measure to achieve a responsible lending regime : focus on pre-agreement assessment

Abstract

The National Credit Act 34 of 2005 has reinvented the South African credit landscape in many respects, most notably in the context of prevention and alleviation of debt relief. In this regard the Act introduced the novel concepts of over-indebtedness and reckless credit and contains provisions that are aimed at preventing reckless credit granting as one of the major causes of consumer over-indebtedness in South Africa. In its aim to eradicate reckless credit granting the NCA not only prohibits reckless credit granting but also mandates credit providers to conduct a pre-agreement assessment prior to entering into a credit agreement with a prospective consumer. Failure to comply with the pre-agreement assessment set out in section 81 of the Act results in dire consequences for the credit provider as credit that was extended without pre-agreement assessment (or proper pre-agreement assessment) constitutes reckless credit which attracts various sever consequences for the credit provider. This dissertation aims to investigate and analyse the aspect of pre-agreement assessment in terms of the NCA and spesifically tracks the evolution of the assessment process to gauge what exactly it is that the legislature requires from credit providers in complying with the mandatory pre-agreement assessment obligation and how proper compliance can serve to prevent and alleviate consumer overindebtedness.