05 Feb 2016

How Will the Elderly Borrow? -

by Andrew Donnelly, Partner, Durban,
Practice Area(s): Litigation | Banking & Finance |

In the recent case of ABSA Bank Limited vs De Beer & Others (2015), the Judge held that a loan made to a Mr de Beer, retired farmer, constituted reckless credit and did not need to be repaid.  Whilst that decision may provide relief to the De Beers', it may be a chill wind for other consumers of similar ages and positions when seeking bank finance.

The facts were that ABSA advanced monies to Mr and Mrs De Beer who had both retired and had purchased a smallholding.  The De Beers did not have a farming background or experience and if a rudimentary assessment had been done on their financial position, it would have been established that the farming venture was never going to be successful and as the Judge said in his judgment it would be "money being poured into a bottomless pit".  The further factual difficulty is that the smallholding constituted the only residence for the De Beers' and if it was to be sold to repay the debt they would be left homeless. In those circumstances, the court decided to cancel the indebtedness and the mortgage bonds on the property and release the De Beers' from any further obligations to the Bank.

The Court stressed that before entering into any credit agreement, the Bank must complete its score card and must take into account the age of the consumer and not grant credit or agree to payment terms which would continue at a time when the consumer is retired or too old to generate an income. With that principle, the question is that how does a consumer approaching retirement age persuade a bank to lend it money. The answer is with difficulty and as he Court stressed suretyships and collateral property is not in itself sufficient to justify a loan!

Therefore, it seems on the face of it, consumers, approaching retirement age, will have to look for alternative means of obtaining bank finance. One of the possibilities is that they will form companies which will hold assets above the threshold limits (presently R1m) and that would result in the loans falling outside the provisions of the National Credit Act.  However, forming companies, running, administering and keeping books for a company is an expensive process and that in itself adds and unintended burden to the consumers.