This blog is co-authored by Hannah Howell, candidate attorney.

In October 2024 the high court dismissed the defence of reckless lending contemplated in Section 81(2) of the National Credit Act, 2005 (the NCA) because the creditor under the indemnity was not a credit provider under the Act.

The applicant and the bank concluded a home loan agreement. As security for the loan, the applicant obtained a guarantee from the respondent (the guarantor company), and provided an indemnity to the guarantor company indemnifying the guarantee company against any claim made by the bank against the guarantor company.

The applicant breached the home loan agreement. The bank cancelled the loan and called on the guarantee company to pay the bank the amount owing in terms of the loan agreement. The guarantor company claimed against the applicant under the indemnity. The applicant opposed the indemnity claim based on the allegation that he had been granted ‘reckless credit’.

Material to the defence based on reckless credit, is whether an indemnity agreement constitutes a credit agreement under the NCA. The court held that the indemnity agreement is not a credit guarantee nor any other credit agreement under the NCA. An indemnity involves no such relationship to a credit agreement; it is a distinct and separate undertaking to cover specific liabilities to the guarantor which paid her debt to the bank.

The second ground of appeal centred around the defence of reckless lending which is available to a consumer against a credit provider in terms of the NCA. A key takeaway from Section 81(2) of the NCA is that it stipulates that the credit provider must conduct an affordability assessment on the consumer. The credit provider in this matter was the bank, not the guarantee company. The indemnity agreement was not a credit agreement and, therefore, the guarantor company was not a credit provider. The applicant could not claim the defence of reckless lending and hold the guarantor company to the standards under the NCA as it would for a credit provider under a credit agreement. The applicant’s defence was dismissed.

The consumer was under no greater obligation than she was under the home loan.

The full judgment can be accessed here: https://www.saflii.org/za/cases/ZAGPJHC/2024/1030.html

Leshika v SB Guarantee Company (RF) Proprietary Limited [2024]