Credit regulator pushes for proof
• Draft guidelines recommend the pay-slip system
Credit providers will still be urged to ask for payslips or bank statements of formally employed consumers in order to finalise affordability assessments, according to draft guidelines published by the National Credit Regulator in the Government Gazette on Friday.
Credit providers will still be urged to ask for pay slips or bank statements of formally employed consumers to finalise affordability assessments, according to draft guidelines published by the National Credit Regulator (NCR) in the Government Gazette on Friday for public comment.
The guidelines for determining consumers’ gross incomes and discretionary incomes are in response to a court finding in March that consumers did not have to produce proof of income to access credit.
The High Court in Johannesburg ruled against the trade and industry minister and the NCR in removing income-verification requirements entirely from National Credit Act regulations, even for consumers who can produce pay slips and bank statements.
Regulation 23A (4) was set aside while the rest of the act was left unchanged.
The case was brought by JSE-listed retailers Truworths, TFG and Mr Price, which said the regulation was unreasonable and unfairly discriminated against people working in the informal sectors who do not have pay slips.
It was feared that the judgment would open the floodgates of reckless lending by retailers to those who could not afford it.
However, the Department of Trade and Industry decided not to appeal against the finding and recommended that the NCR address the situation.
The department’s deputy director-general for consumer and corporate regulation, Evelyn Masotya, said on Sunday the department was concerned about reckless lending and overindebtedness and supported measures by the industry and the regulator to curb it.
She said that the guidelines were voluntary but were meant to provide protection to credit providers in their implementation of the act. NCR company secretary Lesiba Mashaba said that the draft guidelines were issued so that credit providers correctly applied the remaining regulations, which were left untouched by the judgment.
He said that by removing the requirement of pay slips or bank statements for those in formal employment, the judgment inadvertently invalidated entire sections of the regulations dealing with the calculation of discretionary income, as required by the regulations, and rendered them “impracticable”.
One of the founding principles of affordability-assessment regulations is that credit should be extended only to consumers on the basis of income that has been verified.
The calculation of discretionary income is essential to determine whether a person can afford to take out credit, but requires a statement of gross income to undertake it.
The credit provider would use a table of estimated living expenses for a person within a certain bracket of gross income to determine the extent of their discretionary income and the ability of the consumer to pay the credit instalments.
“The judge did not address all
CREDIT PROVIDERS ARE STILL REQUIRED TO CALCULATE CONSUMERS’ DISCRETIONARY INCOME AND EXPENSES
the regulations in their entirety,” Mashaba said. “Credit providers are still required to calculate consumers’ discretionary income and ascertain consumers’ gross income to determine living expenses by parts of the regulations that remain in force,” he said.
For consumers who are formally employed, this should be done through pay slips or bank statements. For consumers in the informal sector, credit providers must use their own assessment models and submit such models to the NCR.” Mashaba said that the NCR understood the need for flexibility in relation to those in informal employment.
The deadline for public comment is May 31.