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New ruling will have massive implications when applying for credit in South Africa

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The High Court has issued a major ruling in favour of retailers, Foschini and Mr Price, against the Minister of Trade and Industry and the National Credit Regulator.

In the judgement, the court ordered that regulation 23A(4) of the regulations made by the Minister of Trade and Industry under s82(2) read together with s171(1) of the National Credit Act 34 of 2005 be set aside.

Effectively what this means is that there is no longer any need to collect any particular form of documentation proving income when applying for credit, explained director at Norton Rose Fulbright, Lauren Fine, who represented the retailers in the matter.

The retailers argued that the regulation was unreasonable and unfairly discriminates against the section of the population that largely consists of the poorer and less privileged members of society.

“The court found the retailers’ attack was well founded and illustrated the need for the review by way of an example of a flower seller in Adderley Street who did not have a bank account,” said Fine.

“It found that it was most unlikely that the flower seller would have financial statements, in which circumstances there would be an insurmountable obstacle in obtaining credit in a relatively small amount, even if the flower seller was earning a reasonable amount each month.

“This flower seller would then be excluded from obtaining credit. This would then prejudice a flower seller parent who needed to purchase school uniforms for his or her child in January, who could not pay the full amount in one go but would easily be able to pay the price over the next few months,” she said.

Accordingly the court was therefore of the opinion that the section frustrates the aim of the National Credit Act, which is to ‘promote the development of a credit market that is accessible to all South Africans, and in particular to those which have historically been unable to access credit under sustainable market conditions’.

Fine highlighted that the obligation to conduct a fair and objective assessment to ascertain gross income as a step towards calculating discretionary income (which includes affordability) has not been affected by the judgment.

Instead the only thing that has been set aside is the ‘impractical requirement of proof’ (specifically documentary evidence) as part of the assessment process.

The credit applicant is also still required to provide “authentic documentation” (such as ID books) when it is required by the credit provider.

 


 

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