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Credit Access

 

Credit Access and Affordability

Amendments made to the National Credit Act (NCA) in March this year will come into force on Sunday, 13th September 2015 – the end of the week. These amendments will make credit access trickier for consumers.

However, they will also ensure that credit providers assess affordability properly, by comparing your minimum monthly living expenses to your monthly income and bank statements.

More Paperwork Required

For consumers, it will mean you have to produce more documents in order to apply for credit, whether it be for a store account, smart phone contract or credit card. These are the new requirements:

  • Current 3 months’ proof of income i.e. payslips
  • Current 3 months’ bank statements

Of course, these new requirements are additional to a copy of your ID and proof of residence.

For instance, if you earn a monthly salary of R4 000, for your credit provider to conduct a proper affordability assessment, they must work out the maximum amount you can afford to pay back on a monthly basis, in terms of instalments and interest rates.

Taking your payslips and statements into account, the bank must then set aside R1 016 for your living expenses. In which case, you may not get approval for the amount of credit you applied for. Then again, you may get approved for a lower amount of credit, which you can more realistically afford to repay.

In this way, you’re less likely to default on your monthly payments or to get caught in a debt spiral.

Amendments Activated

Although these NCA amendments were signed into law in March this year, Department of Trade and Industry (DTI) Minister Rob Davies agreed to credit providers’ pleas for a 6-month postponement to reprogram their systems and retrain their staff, before implementation.

Recently, the Credit Ombudsman’s office stressed that “One of the reasons for the high default rate, and the alarming consequences, was that reckless credit agreements were part of normal business practice for many credit providers”.

Clearly, the enforcement of these amendments is long overdue. Glancing back at topics that have consistently dominated the headlines over the past few years reveals how rampant reckless and predatory lending, unscrupulous debt collection, and dubious credit insurance have become.

Particularly, when it comes to banks, credit providers, micro-lenders and debt collectors exploiting the poor, uneducated and vulnerable.

Credit Access Challenged

On the other hand, these new requirements may make credit access more problematic for consumers. Even so, the DTI and the NCR have made no effort to educate consumers on the new challenges to credit access they’ll be facing, as of the end of the week.

Many consumers may find themselves waiting in long queues to obtain three months’ current bank statements, which they’ll then have to pay for.

Naturally, it will be interesting to see whether or not these new amendments actually alleviate consumer over-indebtedness and curtail reckless lending in practice.