Without a proper record of credit, can a provider be responsible for reckless lending asks Maya Fisher-French

How does someone get into the position where their debt levels reach 217% of their income and who is responsible? While a desperate consumer may take whatever loans are available, what incentive does a credit provider have to lend to someone who cannot pay them back?

The table below is based on a real consumer whose case will be going before the magistrate’s court. The debt counselor who provided City Press with the information will be arguing that credit providers who were allowing loans when the individual’s total debt repayments were exceeding 80% of their income were in contravention of the reckless lending rule.

By April 2010 this individual was clearly starting to struggle financially as she escalated her borrowing, taking out a new loan almost every month. What is remarkable is that any credit provider would consider lending money to someone whose entire salary could not repay their monthly debt obligations, yet she obtained 12 additional loans valued at R150 000 once her repayment levels had exceeded 100% of her income.

Hannalie Crous, Head of Retail Credit at FNB, which issued the customer several loans, says the main issue is that much of the debt taken by the customer was not reflected on the credit bureaus and she did not declare them in her application.

“A large number of the amounts listed in the calculation, especially much of the micro-lender debt and municipal amounts, are not reflected in the bureau profile from Trans Union.  These include what also looks like duplications of potentially the same loans,” says Crous who explains that the non-reporting of so many micro-loans is a problem as this would not allow subsequent lenders to adequately assess the credit profile

Crous says when assessing the affordability criteria FNB took into account the fact that the customer’s mortgage as well as the emolument attachment order by African Bank was paid via payroll deduction. These deductions therefore do not affect the take home pay calculation.

“Based on these facts the two FNB personal loans come out at cumulative debt repayment of 48% and 72% of take-home pay,” says Crous who points a finger at the number of insurance policies sold to the customer. As City Press highlighted several weeks ago, insurance policies are oversold, resulting in people unable to pay their loans. “The customer’s take-home-pay is less than half of her gross salary, exacerbated by the 11 insurance policies deducted from her salary, as well as the garnishee order.  Without these her take-home pay would be higher and ability to repay debt better,” says Crous.

Kevin Hurwitz, head of short-term lending company Wonga.com says there is a central database of information that all credit providers have to contribute to in order to be able to utilise the credit information. This is essentially managed by the four major bureaus in conjunction with credit providers and the credit bureaus share their information. “Theoretically all credit providers should have access to the same information,” Hurwitz says who adds however that there can be delays in one credit bureaus sharing information with the other three bureaus which means that a credit provider using a different credit bureau may not have the necessary information when an applicant applies. In this case with so many loans being taken out in quick succession it is possible the bureau information was not current.

“In addition with over 200 registered credit providers, I cannot imagine that all are contributing to the database as is expected,” says Hurwitz who explains that as a credit provider providing information can be quite rigorous to get right.

Despite these difficulties, Hurwitz says the fact that people who go under debt review have on average 14 credit agreements cannot be blamed simply on disjoined synchronisation process at bureaus and that reckless lending is a real problem with many credit providers.

Ultimately desperate consumers will do whatever it takes to get a loan while there are many smaller credit providers who are prepared to provide them with the loans at exorbitant rates in the hope of getting to their pay cheque first through the issuing of emolument orders.