the dti PUBLISHES AFFORDABILITY ASSESSMENT REGULATIONS FOR PUBLIC COMMENT

the dti PUBLISHES AFFORDABILITY ASSESSMENT REGULATIONS FOR PUBLIC COMMENT

BY BRIAN KAJENGO

The Department of Trade and Industry (the dti) has issued a notice for public comment on the Draft National Credit Regulations for Affordability Assessment. It is envisaged that these regulations will be a game changer in the credit industry as far as curbing reckless lending and over-indebtedness of consumers are concerned.

The Deputy-Director General of the Consumer and Corporate Regulation Division of the dti, Ms Zodwa Ntuli says prior to the National Credit Amendment Act (Act No. 19 of 2014), as well as the release of these regulations, credit providers inconsistently determined the models for affordability assessments.  Consequently, credit in excess of billions of rand granted to consumers exacerbating the level of household indebtedness.

“The introduction of the affordability assessment regulations is necessary and urgent to address the prevalence of reckless lending in South Africa. Moreover these regulations are legally binding, making the application of affordability assessments compulsory,” she adds.

According to Ntuli, credit providers are required, prior to issuing credit, to determine the financial means and prospects of a consumer, the consumer’s existing financial obligations, the debt repayment history, avoid double counting in calculating the gross income less statutory deductions, and to disclose all the applicable costs of credit.

She adds that the regulations set out the criteria for conducting affordability assessments which include but are not limited to calculating the consumer’s a locatable and discretionary income, taking into account all debts, including monthly debt repayment obligations in terms of credit agreements as reflected on the consumer’s credit profile held by a registered credit bureau, and also take into account maintenance obligations arising from statutory deductions or necessary expense.

Ntuli says the regulations are particularly innovative in addressing maintenance obligations when determining affordability.

“Furthermore, the regulations create a ‘buffer’ which will ensure that households remain with money to put essentials on the table on a month to month basis after repaying their debts.

The ‘buffer’ means that no credit extended if repayment of such credit will be from the income in the buffer. The responsibility on the consumer to disclose fully their financial obligations to the credit provider is very important to affordability assessments.

The success of the affordability assessment hinges on both consumers and the credit providers to be honest and responsible,” she emphasises.

The regulations not only provides for the affordability assessment but include matters relating to the functions of, matters before and rules for the conduct of the National Consumer Tribunal, registration and functions of payment distribution agents, and training for payment distribution agents, credit providers and debt counsellors in the spheres of accounting, the National Credit Act, business management, risk management and fraud prevention and other related areas; and in addition, provides for fees of payment distribution agents as well as prescribed forms.

Ntuli says meetings with relevant stakeholders including associations in the credit industry scheduled to discuss the draft regulations as part of the consultative process.

The notice is currently available on the dti website at http://www.thedti.gov.za. 

Stakeholders and members of the public have until 31 August 2014 to submit their comments and inputs on the draft regulations.