The granting of credit: Not the 1, 2, 3 it used to be

Today’s consumer is not afraid of credit and consumer practices of borrowing more to pay off credit debt are quite common. To address this, the National Credit Regulator (“NCR”) has proceeded to amend the National Credit Act 34 of 2005 (“NCA”) to address the habits of consumers to lend-and-spend more than they can afford, and the eagerness of credit providers to take advantage of these consumers by providing them with reckless credit.

The NCA previously required a credit provider to take reasonable steps to ascertain the affordability of a loan to an applicant. The NCA however omitted to clarify exactly what steps shall be deemed sufficient in order to qualify as reasonable. The NCA was also vague as to what the punishment for non-adherence by a credit provider would be – leaving the door open for reckless credit providers to continue providing unjustified credit using vague justifications of how reasonableness was determined in assessing affordability to support such practices.

Of the new requirements imposed on credit providers by the National Credit Amendment Act 19 of 2014 (“NCAA”) as of 13 March 2015 in applying the affordability assessment of a consumer’s credit application, are:

A credit provider must take practical steps to validate the gross income of a consumer, and same must be done by obtaining:
(1) The latest three payslips 
(2) The latest banking statements showing at least the latest three salary deposits. 
(3) In certain specified instances requirement (1) may be substituted for any three latest proof of income or financial statements, but requirement (2) shall always be a pre-requisite. 

According to the NCAA these provisions shall apply, with the exception of a few specifically stated exclusions, to all consumers, credit providers and credit agreements falling under the NCA.

But what happens to credit providers that don’t comply with these requirements? The NCAA now provides direct methods for aggrieved consumers to resolve queries and irregularities by credit providers. Despite all previous remedies available under the NCA, it is now also possible that credit providers that do not adhere to the requirements of the NCAA can be referred directly to the National Consumer Tribunal for reckless lending. 

The NCAA has thus gone a long way in abolishing the vague affordability questionnaire applied by many credit providers to assess a consumer’s affordability. These new requirements make it abundantly clear that the documentation to be provided must enable a credit provider to thoroughly investigate the financial position of a consumer before providing credit to him, with severe consequences following on non-compliance or non-consideration of the information provided ie. continuing with reckless lending behaviour. This means that consumers can expect more paperwork and the submission of more information when applying for credit, but in the long-run this will be beneficial to the individual consumer as well as general consumer and credit provider practices.

May 7, 2015
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