In March 2018, the Western Cape High Court, granted an application sort by retailers Truworths, Foschini and Mr Price reviewing and setting aside Regulation 23A (4) of the affordability assessment regulations.
The affordability assessment regulations were introduced in 2015 in an attempt to try improve the weaknesses in the reckless credit granting provisions of Sections 80 to 83 of the National Credit Act, which introduced the paternalistic concept of protecting consumers against credit grantors granting credit to those who could not afford such credit.
The grounds for the successful review were essentially the goal of extending credit to previously disadvantaged and poor communities in terms of Chapter 2 , Section 13, being applied ahead of the reckless lending provisions of the Act – particularly with regard to those that do not have payslips or bank accounts.
Regulation 23A(4) had read:
“A credit provider must take practicable steps to validate gross income, in relation to-
- consumers that receive a salary from an employer:
- latest three (3) payslips; or
- latest bank statements showing latest three (3) salary deposits;
- consumers that do not receive a salary as contemplated in (a) above by requiring:
- latest three (3) documented proof of income; or
- latest three (3) months bank statements;
- consumers that are self-employed, informally employed or employed in a way through which they do not receive a payslip or proof of income as contemplated in (a) or (b) above by requiring:
- latest three (3) months bank statements; or
- latest financial statements.”
Some had misinterpreted this judgment as completely abolishing or even prohibiting credit providers from requesting payslips and bank statements but in fact, this is not the case as the reckless credit granting protection of the Act remains as does the balance of affordability regulations.
The Department of Trade and Industry (DTI) has now announced a draft “Guidelines for Ascertaining Consumers’ Gross Incomes And Discretionary Incomes For The Purposes of Regulation 23a of The National Credit Regulations Including The Affordability Assessment Regulations”. The DTI is trying to keep the salary slip and bank account provisions alive for employed credit applicants and comment on these guidelines is open until the 31 May 2018.
These guidelines confirm the position that the credit provider has to still ascertain the income of the credit applicant and seems to suggest where the debtor :
“who is employed in the formal sector of the economy should be ascertained with reference to such consumer’s payslip. If the consumer has a bank account into which the consumer’s salary is deposited, the consumer’s net income can be ascertained with reference to the consumer’s bank statement. Living expenses and debt obligations will then be deducted from the consumer’s net income to ascertain the discretionary income. In order to establish the consistency of the consumer’s income, three (3) months’ bank statements or payslips should be obtained by credit providers. For this category of consumers, credit providers can use either payslips or bank statements to calculate the consumers’ discretionary incomes.”
However aside from the content of these guidelines, one has to question why the regulations themselves where not amended and why the DTI is choosing to follow the path of a new set of guidelines. Originally the affordability assessment regulations were proposed as guidelines but the DTI chose to elevate their status of regulations over guidelines, which by their very nature are not binding. This choice may lead to further uncertainty and ultimately litigation on this issue.