RECKLESS CREDIT AND DEBT REVIEW

One of the purposes of the National Credit Act is to prevent predatory lending practices and reckless credit. A credit agreement is reckless if : i) The credit provider failed to conduct an assessment of the consumer’s credit worthiness ii) a credit assessment reveals that the consumer did not understand the agreement iii) a credit assessment revealed that the consumer is over-indebted or would become over indebted if further credit is granted. In determining whether credit is reckless a court can only consider the circumstances at the time that the credit was granted. Furthermore, where a consumer has failed to fully and truthfully supply any information requested by the credit provider when applying for credit, the credit agreement cannot be reckless for any reason.

According to Section 83 of the National Credit Act (“NCA”), if a credit agreement is reckless , A court is entitled to either i) suspend or freeze that credit agreement, ii) set the credit agreement aside, iii) declare the consumer over-indebted and restructure that consumer’s debt. A court will only set aside a credit agreement if the reason for recklessness is that the credit provider failed to conduct an assessment or the consumer did not understand the credit agreement.

However, one does not simply bring an application to Court to have a credit agreement declared reckless. The granting of reckless credit does not by itself entitle a consumer to approach a court to obtain a declaration that the credit agreement is reckless. Reckless credit is an ancillary consideration. A court is only entitled to consider whether a credit agreement is reckless when that credit agreement is already before court for some other reason, such as a credit provider attempting to enforce that credit agreement or a consumer attempting to obtain a Debt Restructuring Order.

If a Debt Counsellor is of the opinion that a credit agreement constitutes reckless credit and wishes to have that credit agreement suspended or set aside, the Debt Counsellor must make a second application to the magistrate’s court under the same case number as the actual debt review application. In that second Application, the Debt Counsellor must set out the basis on which he or she is of the opinion that the credit agreement is reckless and ask for the desired relief. If the Court makes an order of suspension or sets aside the credit agreement the Debt Counsellor must then issue a new proposal reflecting the court’s ruling.