Pre-contractual assessments in mortgage loans: Promoting responsible lending or exacerbating financial exclusion? - A comparative study of the South African National Credit Act and the European Mortgage Credit Directive

Witten,Tim

Pre-contractual assessments in mortgage loans: Promoting responsible lending or exacerbating financial exclusion? - A comparative study of the South African National Credit Act and the European Mortgage Credit Directive

Master Thesis

2018

Publisher

University of Cape Town

Department

Department of Commercial Law

Faculty

Faculty of Law

Abstract

In recent years, pre-contractual assessments in consumer credit agreements, including affordability assessments, have made their way up the priority ladder for legislators. International institutions such as the World Bank promote pre-contractual (affordability) assessments as a key regulatory tool in the prevention of “reckless” or “predatory” lending and the promotion of a responsible credit regime. In particular, so it is argued, a responsible lending regime and the protection of consumers is crucial in the mortgage credit market, where overindebtedness can have severe consequences for consumers, namely eviction and the loss of their home, and for the stability of the financial system as a whole. The South African and the European legislator have kept up with the trend of implementing pre-contractual assessments as part of the responsible (mortgage) credit regime with the enactment of the South African National Credit Act and the European Mortgage Credit Directive. The study will duly compare the National Credit Act and the Mortgage Credit Directive in general and the provisions pertaining to pre-contractual assessments in mortgage loans in particular. It seeks to identify potential shortcomings of the statutory provisions in the context of the different historical, economic and social backgrounds of South African and the European Union. Lastly, the study will look at certain concerns that have been raised in relation to precontractual assessments, notably the concern that pre-contractual assessments lead to restrictive lending practices which exacerbate financial exclusion. The study comes to the conclusion that pre-contractual assessments in South Africa and the European Union are an effective tool in preventing over-indebtedness and thus contribute in achieving a responsible credit regime. However, they will not be able to facilitate access to credit at the same time. While access to credit might not be at the centre of importance in the European Union, the situation is different in the South African jurisdiction. In the light of the developments in the mortgage credit market, the constitutional right of access to housing, and the explicit objective of the National Credit Act to facilitate access to credit, it is of significant importance to improve the access to mortgage credit, especially for the low-income and historically disadvantages population in South Africa. In this context, the South African jurisdiction needs an approach that is different from the legal framework in the European Union. Further governmental and/or legislative action will therefore be required in order to facilitate access to mortgage credits in South Africa.

Keywords

Law

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