[Question] Employee under Debt Review

[cindyreuben]

Hi all

Is there any legal implication around giving an employee who is currently under debt review a staff loan. We were approached by an employee for a staff loan - which we gave in accordance with our policy. We subsequently found out that the employee is under debt review/counselling and are concerned we may unknowingly have broken the law. The employee seems to pay off the staff loans and then ask again etc. We want to ensure our facts and figures are correct going forward.

Thanks for all the useful information on the site!

Cindy

[Greig Whitton]

Yes, there may be legal implications. The moment someone applies for debt review, they may not enter into any further credit agreements (per Section 88 of the National Credit Act). Credit agreements extended to someone who has applied for debt review (and/or who is deemed to be over-indebted) may be considered reckless lending and potentially unenforceable.

Employers who issue staff loans need to register as credit providers and comply with the National Credit Act. However, there is a lot of debate over whether employee loans are credit agreements or not. A lot will depend on the terms and conditions of the loan as well as the circumstances surrounding it. For example, an employee loan that includes any interest (or other charge) will very likely be considered a credit agreement. However, an interest-free loan without any charges or fees may not.