This means amendments to the National Credit Act (NCA) that significantly increase requirements for borrowers’ affordability assessments have finally come into operation. The assessments will have to be processed and met by lenders before they can issue loans.
As a means to tackle national and personal over-indebtedness, lenders must, for instance, request three months of pay slips and three months bank statements (or similar credible income and expense verification) before granting a loan.
They are also required to calculate discretionary income, as well as all existing debts and maintenance obligations, in order to make a call on whether the consumer can afford a loan.
First announced by the National Credit Regulator (NCR) on August 5 2014, amendments to the NCA have been a long time coming and it’s not quite clear what has taken so long to get to this point.
When the proposed amendments were first announced last year, Ian Wason – CEO of the Intelligent Debt Management (IDM) Group, which owns one of South Africa’s largest debt counselling companies, DebtBusters – said the Department of Trade and Industry (dti) had waited so long to introduce these amendments that the consumer debt crisis in South Africa was far worse than it should have been.
DebtBusters said the NCR has reported growth in unsecured lending from R40 billion in 2008 to R172 billion in 2014.
The dti said on its website: “Government is concerned about the high level of over-indebtedness which results from failure to do proper affordability tests on consumers, hidden costs of credit, as well as continued unfair lending practices by some credit providers.” It said the amendments also require “open and honest disclosure by consumers when applying for credit so that they don’t find themselves over-extended”.
DebtBusters, meanwhile, has warned of an “unsecured lending drought for South African consumers”.
“As credit providers start tightening their lending criteria in response to the new affordability guidelines, it will become more difficult for cash strapped consumers to take out debt,” comments DebtBusters marketing manager, Kelli Knutsen.
“Many South Africans that are already at the end of their credit line won’t meet the new affordability requirements and their loan applications will be declined. Consumers who have a habit of borrowing from ‘Peter to pay Paul’ and (using) revolving credit will no longer be able to do so,” she said.
The dti and the NCR are hosting a conference on Thursday to discuss the amendments as well as the abuse of emolument attachment orders.