the dti TO PUBLISH REGULATIONS TO STANDARDISE AFFORDABILITY TESTS TO CURB RECKLESS LENDING

the dti TO PUBLISH REGULATIONS TO STANDARDIZE AFFORDABILITY TESTS TO CURB RECKLESS LENDING

The Department of Trade and Industry (the dti) will soon publish regulations to standardize affordability assessments conducted by credit providers.

According to the Deputy Director-General of Consumer and Corporate Regulation Division at the dti, Ms Zodwa Ntuli, the regulations published for public comments before the end of July for a period of 30 days.

“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, inter alia, 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.  In addition to this, consumers seem not to be entirely honest in providing information that is required by credit providers to conduct proper affordability tests.

 “While bypassing affordability tests may provide immediate gratification to a person that applies for such credit and the credit provider granting it, the effects are severe leading to repossession of property and blacklisting which are costly to both parties to such reckless credit agreement,” says Ntuli.

Ntuli further explains that the review of the application of the National Credit Act No. 34 of 2005 (NCA) highlighted serious gaps in the credit market. It is for this reason that on 20 May 2014, President Jacob Zuma signed into law the National Credit Amendment Act No. 19 of 2014 (NCAA) to deal more effectively with reckless lending.

“Section 82 of the NCA has been amended to give the Minister of Trade and Industry the power to make affordability assessment regulations with a view to standardise affordability tests in the industry,” Ntuli elaborates

Currently, credit providers determine the models for affordability assessments and investigations by the National Credit Regulator (NCR) have revealed that these are often inconsistently applied.  With affordability assessments regulations becoming binding, there will be more consistency and monitoring will be easier.

“The responsibility on the consumer to disclose fully their financial obligations to the credit provider is very important to affordability assessments. In particular, a person that has the monthly child maintenance obligations must disclose this to the credit provider so that it is taken into account in determining affordability,” she says.

Ntuli also says the dti is also concerned about the marketing practices employed by credit providers with more unsecured loans targeting low income earners, expensive short-term loans with hidden costs, pre-approved loans and other credit facilities that are unsolicited.  According to Ntuli, the NCR is implementing a strategy to monitor and deal decisively with marketing practices that are deceptive and inciting consumers to take up credit

“It is envisaged that these measures will be a game changer in the credit market and will certainly produce the desired impact,” Ntuli concludes.