Banking Code and Credit Extension in South Africa
Apart from banking legislation in South Africa, banks also adhere to the Code of Banking Practice. Although the code isn’t part of banking legislation, it does provide the guidelines for reasonable conduct, also when it comes to credit agreements.
Banks in South Africa extend credit according to the National Credit Act regulations and in line with current banking legislation. This means that credit is only provided to individuals and companies according to their financial abilities. As such, the credit worthiness of the applicant must first be assessed as their financial ability must be sufficient enough to match their borrowing needs. If the bank extends more credit to the client than the client is able to pay back according to terms and conditions, then the bank can be held responsible for reckless lending.
The above being said, the bank depends upon the client’s cooperation and level of disclosure regarding their debt exposure and monthly expenses. Although the client is by law required to provide accurate and comprehensive information about their income and expenses when applying for credit, many clients don’t fully disclose their expenses.
It is the responsibility of the consultant to assess the client’s understanding of the risks and the expenses involved regarding the credit requested, in addition to their rights. They need to understand their obligations regarding repayment of the debt and the consequences of non-payment. As such, the bank must provide adequate information on the management of debt and furthermore has the responsibility of not solely relying on the information provided by the client.
The credit application assessment process should entail credit checks and reviewing of the client’s history in terms of account management in the past, including their bank accounts at the particular banking institution. The bank also has to assess the security provided regarding the particular credit.
Where the bank has to decline the credit application, they need to provide the client with the reasons for such in writing, based on the client’s account history, their credit score, credit history recorded at credit bureaus, their debt exposure and the bank’s policy regarding credit provision. If the application is rejected based on automated credit scoring, then the bank should at least provide the general reason for declining the application.
If a client applies for a home loan, then the bank should furnish them with information regarding the charges, interest and costs associated with the loan, in addition to information about costs related to late payment. The bank should provide information about the risk of property loss if the client doesn’t pay their loan debt.
We provide legal guidance to our client companies to help them extend credit and conduct their business according to the requirements of relevant legislation.