Sector Comercial en el Ecuador

It is clear from Chapter Five of this study that over-indebtedness is frequently a disastrous consequence of the high cost of credit, and is therefore a critical aspect of this study that is worthy of specific attention. Levenstein summarises succinctly this state of affairs:44

“Unfortunately, in South Africa, too many people with too little money have been given too much credit. This ultimately leads to over-indebtedness which results in a never-ending circle of frustration for the consumer who can never repay his debts.”

One of the most important objectives of the Act is to combat over-indebtedness and reckless credit granting,45 _{and the Act contains lengthy, detailed, far-reaching and}

extremely important provisions in this regard.46 _{A very brief overview is given below.}

38 _{Section 137.} 39 _{Section 134.}

40 _{Section 135 read with s 138.} 41 _{Sections 139–140.}

42 _{Section 141.}

43 _{Otto The National Credit Act Explained 12.}

44 _{Levenstein “Setting new parameters for reckless lending” (2006) 6 Without Prejudice 50.} 45 _{Section 3(c), (g) and (i).}

A consumer is over-indebted if the preponderance of available information indicates that the consumer is unable to satisfy all obligations under a credit agreement in a timely manner, having regard to the consumer’s financial means, prospects and obligations, and history of debt repayment.47 _{In any court proceedings, a court may}

declare a consumer to be over-indebted48 _{or refer a consumer to a debt counsellor}

for a recommendation in this regard.49 _{A consumer may also apply in person to a}

debt counsellor to be declared over-indebted.50 _{In either event if, after an evaluation}

the debt counsellor finds that the consumer is over-indebted, the counsellor can recommend to the Magistrate’s Court that one or more credit agreements be declared reckless,51 _{or that the consumer’s debts be re-arranged.}52 _{If the counsellor}

finds that the consumer is not over-indebted but is experiencing problems in paying debts punctually, then the counsellor can facilitate a voluntary agreement between credit provider and consumer on a “plan of debt re-arrangement”, which can be filed as a consent order with the Tribunal or a court.53

A credit provider must not enter into a reckless credit agreement with a consumer.54

Before entering into a credit agreement, a credit provider must first take reasonable steps to assess the consumer’s general understanding of the risks and costs of the proposed credit, the consumer’s debt repayment history and existing financial means, prospects and obligations.55 _{The consumer must fully and truthfully provide}

the requested information.56 _{A credit agreement is reckless if:}

• at the time it was concluded the credit provider failed to conduct the

necessary assessment, irrespective of what the outcome of such assessment might have been;57 _or

• the credit provider entered into the agreement despite the fact that

information available to the credit provider showed that the consumer did not generally understand the consumer’s risk and the costs or obligations under

48 _{Section 85(b).} 49 _{Section 85(a).} 50 _{Section 86(1).}

51 _{Section 86(7)(c)(i) read with s80.} 52 _{Section 86(7)(c)(ii).}

53 _{Section 86(7)(b).} 54 _{Section 81(3).}

55 _{Section 81(2). In general, a credit provider may adopt its own assessment mechanisms to this end,}

provided they are fair and objective [s82(1)]. It has been suggested that in due course “best practice standards” will be established in each industry for conducting necessary assessments (Levenstein 2006

Without Prejudice 50).

56 _{Section 81(1). Failure by the consumer to do so could serve as a complete defence against an}

allegation of reckless credit [s81(4)].

57 _{Section 80(1)(a). Otto The National Credit Act Explained 66 concludes that this section is penal in}

nature, designed “to prevent credit providers from taking shortcuts by simply accepting an apparently creditworthy debtor on face value”.

the proposed credit agreement, or the conclusion of the agreement would cause the consumer to become over-indebted.58

In any proceedings that concern credit agreements, a court may declare that a credit agreement is reckless.59 _{In this event, it may make an order setting aside all or part}

of the consumer’s rights and obligations under the agreement, or suspending the force and effect of the agreement for a determined period.60 _{Such a court is further}

required to find whether or not the consumer was over-indebted at the time of conclusion of the agreement.61 _{If such finding is affirmative, it may order the}

suspension of the force and effect of the agreement and restructuring of the consumer’s obligations under any other credit agreements.62 _{During the period of}

suspension, the consumer is not required to pay anything in terms of the credit agreement, no interest or fee may be debited to the consumer, and the credit

provider’s rights in terms of the agreement are unenforceable.63 _{After such}

suspension ends, all the parties’ rights and obligations are revived and become enforceable again, save that interest or fees that accrued during the period of suspension may not be charged to the consumer,64 _{which is a drastic remedy indeed.}

The negative consequences for credit providers of contracting with over-indebted consumers or concluding reckless credit agreements, some of which are penal in nature, are substantial enough to ensure that credit providers will be careful to reduce the risk of bad debt.65 _{The above provisions are therefore likely to reduce}

over-indebtedness and reckless credit granting, at least in the formal sector.66 _A

negative consequence for consumers, however, could be that credit grantors are likely to be significantly more reticent about granting credit in the future, and fewer people will be able to access credit.67

58 _{Section 80(1)(b). This definition of “reckless credit” has been criticised for applying to the credit}

provider only, and not to the consumer [Heath Executive Consultants Submissions on the National Credit Bill (undated) 9 (unpublished)].

59 _{Section 83(1).} 60 _{Section 83(2).} 61 _{Section 83(3)(a).} 62 _{Section 83(3)(b).} 63 _{Section 84(1).} 64 _{Section 84(2).}

65 _{Law Review Project Comment on the National Credit Bill (July 2005) 27 (unpublished).}

66 _{The positive results of these consumer protection measures will to a great extent unfortunately be}

negated by the excessive cost of credit on smaller loans in terms of the Act, which will be demonstrated in detail later in this chapter.

67 _{Law Review Project Comment on the National Credit Bill 28 described this as an apparent}

contradiction in the Bill: “The Portfolio Committee and the government must decide whether a substantial reduction to the access to credit for the consumers it wants to benefit is justified by a corresponding reduction in over-indebtedness and reckless credit.”

6.2 The legislative framework for the prescribed limits on