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Over Indebtedness and Reckless Credit

Back to National Credit Act

In order to prevent over-indebtedness and reckless credit :

  • Credit Providers must conduct an extensive financial means test before entering into a credit agreement with a consumer
  • Ascertain if the prospective consumer has the financial capacity for additional credit
  • Severe penalties (including setting aside the initial agreement) can result if the Credit Provider fails to do this
  • Credit Providers can determine their own scoring models, provided the results are fair and objective

Consumers must fully and truthfully answer requests for information when they are being assessed:

  • The Credit Provider is protected against allegations of reckless credit where there was:
    • Dishonesty and/or part-disclosure by a consumer at the application stage

The concepts of over-indebtedness and reckless credit* do not apply to the following agreements and persons:

Juristic personsPawn transactions*
Incidental credit agreements*School loans*
Public interest agreements*Emergency loans**
Temporary increases in credit limit*

What is over-indebtedness and reckless credit?

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  • A consumer is over-indebted if it's assessed that they will be unable to meet all their financial obligations in a timely manner
    • Based on the majority of information available at the time of the assessment including their:
      • Financial means
      • History of debt repayment
    • Credit is reckless if:
      • The credit provider failed to conduct a proper assessment
      • The credit provider entered into an agreement that put the client in an over-indebted position
      • The consumer did not understand the risks, costs or obligations under the agreement
        • Client education plays a vital role in safe guarding against reckless credit by taking steps to ensure a client understands the contract and the consequences

Reckless credit agreements can:

  • Be set aside
  • Be restructured
  • Be suspended
    • Client need not make further payments
    • No interest, fee or charge may be levied against the account
    • Credit providers rights are unforeseeable
      • When suspension ends, the rights and obligations are revived and become fully enforceable

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