Reckless Credit

"Reckless credit" is defined in section 80 of the National Credit Act 34 of 2005 (NCA). A credit agreement is reckless if, at the time it was concluded, the credit provider (a) failed to conduct the affordability and risk-understanding assessment required by section 81(2), (b) conducted the assessment but entered into the agreement despite the consumer not appreciating the risks, costs and obligations, or (c) entered the agreement despite the assessment showing that it would render the consumer over-indebted. The obligation is strict, documentary, and falls squarely on the credit provider; it cannot be contracted out of under section 90.

The affordability assessment regulations issued under section 82 prescribe the evidence a credit provider must obtain: three months of bank statements or payslips, verification of expenses, and a discretionary-income calculation. Failure to perform these steps is itself evidence of reckless credit under regulation 23A. Courts and the National Consumer Tribunal have increasingly enforced strict compliance (Truworths Ltd v Commission of the NCR; SA Taxi Securitisation v Mbatha). The consequences are severe. Under section 83 a court or the Tribunal that declares credit reckless may (i) set aside all or part of the consumer\'s rights and obligations, (ii) suspend the force and effect of the agreement, or (iii) restructure the consumer\'s obligations. Where the agreement is set aside, the credit provider may forfeit both capital and accrued interest.

Reckless-credit provisions interact with the in duplum rule and debt-review under section 86. A consumer under debt review is immune from reckless-credit declarations in respect of new debt, and a reckless-credit finding overrides ordinary contract-law enforcement. Credit providers must retain affordability records for the duration of the agreement plus three years to discharge the evidentiary burden which, under section 81(4), sits with them.