In an effort to stop reckless credit granting, the National Credit Amendment Act (NCAA) has proposed affordability assessment requirements. Consumers will find it more difficult to get credit. But at the same time, the new amendment will protect consumers who can’t afford more debt.
On 13 March this year, the DTI published the regulations. But Dr. Rob Davies, the South African Minister of Trade and Industry, issued a notice stating that credit providers have time until 13 September to comply with the affordability assessment regulations.
This notice has given the industry plenty of time to adjust to the affordability assessment requirement amendment, which will now have to be applied.
In terms of the affordability regulations a credit provider has to do the following:
- Take reasonable steps to assess the consumer’s discretionary income to decide if the consumer can afford the credit. This point is important because credit providers must take a consumer’s other expenses into account.
Validate gross income by assessing a person’s (three-month period) bank statements and payslips or any proof of income. - Calculate the consumer’s financial means, projections, and commitments.
- Take into account maintenance obligations and other debt repayments as reflected on the consumer’s credit profile.
- Investigate the consumer’s debt repayment history seven days prior to the approval of a new credit application or credit facility increase.
- Reveal the whole cost of the credit being applied for upfront. Plus, confirm that the consumer understands the cost involved. These costs include the original debt amount, interest, initiation fees, service fee and credit insurance accumulated to the life of the loan.
- Issue a quotation for the credit being applied for. This will give a consumer the opportunity to shop around for the best deal on credit.
Consumers must now accurately declare all financial obligations to a credit provider.
If a person lies on a credit application form, the consequences will be detrimental. In a few months’ time, the consumer will be unable to pay the credit provider and will eventually find themselves to be overextended and over-indebted. Then the vicious cycle of debt begins.
Another consequence might be that when the credit provider litigates and the consumer wants to claim the defense of reckless credit, he/she will not be able to do so because he/she has not been truthful in their credit application with regards to discretionary income and living expenses.
The affordability regulation has a huge impact. In today’s economic circumstances, consumers are already over-indebted; the regulations will hopefully force them to take better care of their finances.