People who stand surety for others' debt will be protected against over-indebtedness and reckless credit by the new National Credit Act, the ombudsman for banking services (OBS) said on Monday.
The Act, which came into force on June 1, would give credit guarantors the same status and protection as it does credit consumers.
These were the people who stood surety for the debt or obligations of others, often through "emotionally-transmitted debt" or "sexually-transmitted debt".
The former referred to parents assisting their children with student loans while sexually-transmitted debt to one spouse acting as surety for the other.
Company directors who, sometimes unwittingly, accepted liability for debts run up on the company credit card, and small business owners who made themselves personally liable for the credit facilities of the business, would also be protected under the new Act.
The Act enables a court to set aside a consumer's obligation under a reckless credit agreement and to reconstruct the consumer's obligations.
"Suretyship-related complaints, which encompass credit guarantees, may only account for one percent of the workload of the OBS, but they give rise to a number of concerns," read a statement from his office.
Chief of these was the use by banks of universal (unlimited) suretyship agreements. Often signed by a consumer as a matter of routine, these agreements entitled the bank to hold the surety liable for any of the debts of the person for whom they stand as surety in the event of that person's default, no matter how or when the debts were incurred.
"Many a home has been repossessed and livelihood ruined because of universal suretyships."
The OBS said it was strongly against this practice and had decided against the banks in several matters involving universal suretyship agreements over the years.
Ombudsman Advocate Neville Melville said he was glad that the "inherently unfair practice" of requiring that universal suretyship agreements be entered into was drawing to a close.
"This is an unexpected and perhaps even unintended windfall from the National Credit Act. It is a pity, however, that it took legislation to bring about the change."
Another problem area of suretyships the Act would address was requiring customers to waive their common law defences and remedies. The Act would prohibit this practice.
These and certain other provisions that give consumers new rights are scheduled to come into effect in June 2007.
Melville has suggested that banks voluntarily implement the impending provisions of the Act before this date. - Sapa
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