Credit regulator may appeal ruling
JUDGMENT: SETS ASIDE NEED FOR CUSTOMERS’ PAYSLIPS It puts onus back on retailers to determine if customer qualifies for credit – analyst.
The National Credit Regulator (NCR) is seeking legal advice to appeal a recent court judgment that sets aside a major aspect of its affordability assessment regulations, which riled clothing retailers Mr Price, The Foschini Group (TFG) and Truworths.
The judgment was a major win for the three retailers, that hauled the NCR and Department of Trade and Industry to court to fight the amendments to the regulations in 2015.
The amendments to section 23 of the National Credit Act require retailers to take additional steps in vetting the existing financial means of consumers, who are either self-, formally- or informally employed.
These steps include consumers presenting three months’ bank statements and payslips in stores; latest financial statements (if self-employed) and being subjected to additional checks with credit bureaus to prove they’re worthy of large amounts of credit.
The NCR deemed the amendments necessary to avoid reckless lending, while Mr Price, TFG, and Truworths deemed them cumbersome.
However, the Cape Town High Court on March 16 set aside section 23A (4) – dealing with the presentation of bank statements, pay slips and financial statements – on the basis that it discriminates against consumers who are informally or self-employed and without bank accounts, thus disqualifying them from applying from credit.
In other words, retailers need no longer collect any particular form of documentation when consumers apply for credit.
In his judgment, Judge AJ Engers said section 23A (4) frustrates the development of a credit market that’s accessible to all South Africans – in particular, consumers who have historically been unable to access credit under sustainable market conditions. These consumers are typically the poor and less privileged.
The NCR’s Lesiba Mashaba said it’s not happy with the judgment, as it extends to consumers who are formally employed and have the means to produce payslips and bank statements.
“The judgment removes the income verification requirements entirely from the regulations, even for consumers who can produce payslips and bank statements,” he said, adding that the NCR is taking legal advice with a view to appealing the judgment.
In the meantime, retailers will have to rely on their own affordability checks, including income verification standards, checks with credit bureaus for historical defaults and determining consumers’ discretionary income after deducting personal expenses.
The judgment also reminded Mr Price, TFG and Truworths to be responsible in their opening of credit taps to consumers, by rigorously testing their financial means.
Truworths CFO David Pfaff said: “This judgment is actually in favour of the consumer as it now allows creditworthy applicants to access credit who were unable to because of the documentation requirement.”
Truworths, Mr Price, and TFG took a hit to their credit sales and new store account (credit) acceptance rates as they had to comply with the NCR’s affordability assessment regulations.
Independent analyst Chris Gilmour said the judgment is a good thing, as it puts the onus back on the retailers to determine if the customer qualifies for credit.