The Department of Trade and Industry (DTI) has published the Draft National Credit Regulations for Affordability Assessment regulations, which are aimed at curbing reckless lending.
Zodwa Ntuli, the Deputy Director-General of the Consumer and Corporate Regulation Division of the dti, said prior to the National Credit Amendment Act (Act No. 19 of 2014,) as well as the release of these regulations, credit providers inconsistently determined the models for affordability assessments. This resulted in credit in excess of billions being granted to consumers, increasing the level of household indebtedness.
“The introduction of the affordability assessment regulations is necessary and urgent to address the prevalence of reckless lending in South Africa. Moreover, these regulations are legally binding, making the application of affordability assessments compulsory,” said Ntuli on Tuesday.
Credit providers are required, prior to issuing credit, to determine the financial means and prospects of a consumer, the consumer’s existing financial obligations and their debt repayment history.
Ntuli said the regulations set out the criteria for conducting affordability assessments. This includes calculating the consumer’s allocable and discretionary income and taking into account all debts, including monthly debt repayment obligations, as reflected on the consumer’s credit profile held by a registered credit bureau. This also takes into account maintenance obligations arising from statutory deductions or necessary expenses.
“Furthermore, the regulations create a ‘buffer’, which will ensure that households remain with money to put essentials on the table on a month to month basis after repaying their debts. The ‘buffer’ means that no credit should be extended if repayment of such credit will be from the income in the buffer. The responsibility on the consumer to disclose fully their financial obligations to the credit provider is very important to affordability assessments,” said Ntuli.
Ntuli said the success of the affordability assessment hinges on both consumers and the credit providers to be honest and responsible. The department will hold meetings with relevant stakeholders in the credit industry to discuss the draft regulations as part of the consultative process. In July, the dti said it would publish the regulations in the wake of the country’s worrying increase in indebtedness.
“South Africa has seen a worrying increase in levels of over-indebtedness. Factors leading to over-indebtedness include the prevalence of reckless lending caused by marketing of unsolicited loans, provision of pre-approved credit facilities, including credit cards and failure on the part of some credit providers to conduct affordability assessments."