Why Shoprite was fined R1m for reckless lending
What the ruling means for you and lending to shoppers in the red
Lending is reckless when a creditor can see from your circumstances that more credit will cause you to become over-indebted, but still lends you the money.
The recent High Court judgment and R1 million fine against Shoprite for reckless lending serves as a warning to credit providers. But for you, as a consumer, it shows that the onus is on credit providers not to lend to you recklessly.
The ruling, handed down late last year, stems from a reckless lending case against Shoprite that the National Credit Regulator took to the National Consumer Tribunal. In 2017, the regulator won the case but Shoprite appealed.
Recently the Pretoria High Court upheld the ruling by the tribunal that Shoprite had extended credit recklessly, lending to pensioners and other “financially vulnerable members of society” who were already struggling to make ends meet.
One of the objects of the National Credit Act (NCA) is to prohibit reckless lending.
Lending is reckless when a credit provider fails to assess what you can afford to borrow when you apply for credit and when a credit provider, having carried out an affordability assessment, gives you credit despite the fact that creditor can see from your circumstances that more credit will cause you to become over-indebted.
To prevent reckless lending, a credit provider “must” take reasonable steps to assess your debt repayment history – in other words, check your credit report to see how you have managed your existing accounts – and assess your income (existing means) and expenses (obligations) before extending credit to you.
Although you may be in financial difficulty and desperately want to access more credit, it is not in your best interests to borrow more than you can afford to repay. Eventually you will default and one or more of your creditors will take legal action against you.
The Shoprite case shows that consumers with virtually no disposable income were given credit by the retailer. In some cases Shoprite justified doing so on the basis that the consumer was married and that the spouse could help with repayments.
But the tribunal found that Shoprite had no insights into the income and expenses of these consumers’ spouses and for it to assume that their spouses would pay if the consumers failed to make their repayments was “speculative”.
The tribunal found that the affordability model used by Shoprite didn’t result in a “fair and objective” assessment of the consumer’s financial situation.
Shoprite disregarded pre-existing debt obligations, which a credit provider is not permitted to do, the ruling says. And information from the consumers’ credit reports was “adjusted” by Shoprite to enable it to grant credit. For example, in a number of cases Shoprite said it ignored the consumers’ credit reports claiming the information on it was “out of date” or not correct.
The judgment says that “the most astonishing aspect” of Shoprite’s approach is the fact that many consumers were still unable to afford the loans after the retailer adjusted their credit information.
The case of a consumer known only as “Price” is cited in the judgment. Price had a garnishee order on his salary and his monthly disposable income if he met all his obligations was minus R9,888. After the granting of the loan, he had a net disposable income of minus R10,113. Shoprite argued that it had taken into account the fact that Price was married and his wife could assist him.
If you’re married in community of property, you can’t enter into a credit agreement without the consent of your spouse. Credit providers must obtain a signed declaration from your spouse before granting credit to you.
If you are married out of community of property, you do not need your spouse’s consent to get credit, but credit providers can’t take your spouse’s income into account unless you take out credit jointly.
If a provider gives you credit when you have an adverse listing or a judgment against you, including a garnishee order, this indicates reckless lending.
If a credit provider is found to have lent to you recklessly, a magistrate can set aside the debt or order the credit provider to suspend your repayments for a period.