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 persons | Pawn 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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Find out more- 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
- Based on the majority of information available at the time of the assessment including their:
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