Banks still issue reckless loans despite credit Act

Complaints of reckless lending by accredited financial institutions in South Africa are averaging up to 600 cases annually, according to banking services ombudsman Clive Pillay.

The majority of these cases come from the country’s big four banks. Reckless lending has come under the spotlight after a Port Elizabeth pensioner won a landmark court case against Absa last week.

The court found that the bank granted the pensioner a bond for R350 000, despite knowing his instalments were more than his entire monthly income.

The court ruled that Absa was guilty of reckless lending and that the loan be scrapped. The ruling, believed to the first of its kind in the country, prompted Pillay to warn banks that they were not above the law.

“In the past year, my office has, on average, received 50 reckless lending complaints a month,” he said. Pillay said only a court of law could make a ruling like the one in which the Absa loan was scrapped.

The decision as to whether the advancing of credit was reckless or not, however, resides within the jurisdiction of the National Credit Act.

“We often get complaints that banks have advanced credit recklessly. Most of these come from our big four banking institutions,” he said. Pillay said Absa had either done a “superficial assessment” of the pensioner’s credit status or none at all.

Happy Ntshingila, Absa’s communications chief, said in this instance the pensioner’s affordability was assessed in conjunction with the business income from a family member.

“This member of the family was an official guarantor – the National Credit Act allows for other income to be added to the basic income of the account holder. In the absence of sufficient case law, Absa will consider further action once we have studied the judgment,” Ntshingila said.

Pillay said section 28 of the National Credit Act stipulated that banks had to do credit assessments on all applications.

“And section 81 of the act places the onus on the credit provider not to enter into a reckless credit agreement,” he said.

Source:  Business Report online

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