Affordability of new credit
By Sanette Viljoen
Very few people in South Africa live without credit. Most of us have some or other form of credit, whether it be a credit card, vehicle financing, a house loan etc. What does the law stipulate about the awarding of credit? Is there a responsibility on credit providers to ensure that they do not provide credit to a person who cannot afford it?
The National Credit Act 35 of 2005 stipulates that my finances have to be investigated thoroughly before I am provided with credit. Otherwise it boils down to the provision of reckless credit.
What are the rules applicable to the steps that need to be taken to determine the affordability of a loan to an applicant?
In the National Credit Act 35 of 2005 the National Credit Regulator tried its best to set rules to ensure that we as consumers would be protected against ourselves with regard to our expenditure, that we would spend only what we could afford.
At the same time the legislator also wanted to ensure that ruthless traders be exposed and that in certain circumstances they would not be able to collect moneys from a consumer. However, the problem was that that the initial Credit Act was very vague. Among others, there was no definition of the reasonable steps that the provider had to take to determine the financial position of the applicant. There was also a vagueness about the penalties for non-compliance. Fortunately, the new National Credit Amendment Act was promulgated in 2014 (Act 19 of 2014), which came into effect as from March 2015.
The new act now explains clearly the burden of proof placed on the credit providers, namely that the provider has to obtain:
– three recent payslips,
– three recent bank statements,
– alternatively, instead of three payslips, recent proof of income or financial statements may also be accepted.
Should these requirements not be met, aggrieved consumers may refer the credit provider to among others the National Consumers’ Tribunal for reckless credit provision.