Loopholes in the National Credit Act (“NCA”) have to date made it possible for credit providers to avoid certain provisions which were intended to be mandatory. The National Credit Regulator conducted a policy review of the NCA in order to identify remedial actions for problems that have hampered the effectiveness of the NCA. As a result, the National Credit Amendment Bill has been drafted to seek, amongst other things, to curb reckless lending by creating a uniform affordability test for prospective lenders.
The NCA previously allowed credit providers to develop their own affordability assessment models. The policy review revealed serious discrepancies in how credit providers went about this and in most cases it appeared that such assessments were not done at all. The Bill provides that all credit providers will have to be registered in terms of the NCA and follow statutory affordability assessment guidelines when granting loans.
The affordability assessment regulations will include elements relating to discretionary income as well as determine the buffer in respect of income that should not be taken into account when conducting affordability assessments.
Debt counsellors have welcomed these provisions. Many consumers have committed the bulk of their salaries to the repayment of debt resulting in very little of their salary remaining at the end of the month to service other living expenses, often leaving the consumer with no other choice but to procure more debt to survive. Registration alone would mean that micro-lenders will have to comply with legislation in issuing loans and assessing affordability, which will in turn prevent reckless lending.
However, financial institutions are not as positive about the Bill. Banks have warned that if Parliament goes ahead and approve the amendments prescribing an affordability test for all credit providers, low-income earners would be deprived of credit, even if they were able to afford it.
Credit providers want to be able to design their own affordability tests because they are tailored to their client bases. According to some, their businesses have been reaching out to consumers who have historically been unable to access credit in a fair and equal manner. Low-income earners and informally employed persons do not have access to sophisticated record keeping, especially when paid in cash or goods. The statutory affordability test would mean that consumers who are unable to provide bank statements, pay-slips or even written confirmation of income would not be able to get credit, even if they were able to afford it.
A further criticism is that the proposed affordability test does not take telephonic origination or internet credit sales into account, which are arguably the fastest growing areas in retail sales and credit granting internationally. Expecting a consumer transacting by phone to submit proof of income and expenditures on paper would undermine the convenience of these options.
It is unknown to what extent Parliament will allow flexibility in the proposed affordability test. What is important is that whatever mechanisms are implemented, these should alleviate the pressure on the poor and not increase their financial burdens. Time will tell which way these new proposed measures will go.