‘Affordability checks’ to curb consumer debt
What the Credit Amendment Act will have in store for shoppers
IF the National Credit Amendment Act (NCAA) gets the nod, credit providers will be required by law to verify consumers’ income before granting credit.
Compliance Manager for the National Credit Regulator, Louisa Hetisani said these ‘Affordability Assessment Regulations’ aim to ensure shoppers are able to repay credit and protect them from reckless lending.
‘The regulations apply to current, prospective, joint consumers, credit providers and all credit agreements to which the National Credit Act applies with exceptions to developmental credit, school or student loans, public interest credit agreements, pawn transactions, incidental credit agreements, emergency loans, temporary increases of a credit limit under a credit facility, unilateral credit limit increases under a credit facility and the FLISP (Finance Linked Individual Subsidy Programme) mortgages.
‘Credit providers must take practical steps to assess the prospective consumer’s discretionary income,’ said Hetisani.
For those consumers who receive salaries, it simply means the credit provider will request the latest three pay slips or bank statements showing the latest three salary deposits, and for those consumers who do not receive salaries, the credit provider should request the latest three documented proof of income or latest three months bank statements.
Hetisani explained for self-employed, informally employed consumers or consumers who do not receive a payslip, the credit provider should request for three months bank statements or the latest financial statements.
Where there are material variances on a consumer’s income, the credit provider would have to use an average gross income for at least three pay periods.
Proof pays
‘It is imperative for consumers to disclose accurately to the credit provider all their financial obligations and to also provide the credit provider with authentic documentation,’ said Hetisani.
‘If consumers fail to truthfully disclose any information to credit providers, they may lose protection offered by the NCA.’
The credit provider will confirm a buyer’s debt repayment obligations with the registered credit bureau and affordability regulations will introduce a minimum living expense norms table, which serves as a guide for calculating consumers’ living expenses.
‘In practice, the NCR has observed that some consumers tend to under-declare their monthly living expenses in order to improve their chances of qualifying for a loan,’ said Hetisani.
‘The minimum living expense norms table aims to address this challenge.’
