Codes of Conduct and Assessment
The National Credit Regulator (NCR) has for some time expressed its
concerns regarding the method used by credit providers to assess
consumers' ability to afford credit (affordability
assessments). In line with these concerns, in May, the NCR issued
the Credit Industry Code of Conduct to Combat Over-Indebtedness
in terms of section 48(1)(b) of the National Credit Act (Code
One of the more salient points of the Code of Conduct is the
requirement to "collaborate with registered credit bureaux to
ensure additional datasets are made available to credit bureaux for
use by credit providers in affordability assessments". Briefly
stated, the revised Code of Conduct will impose upon credit
providers increased responsibility and will augment the information
collected by the credit bureaux.
In addition, the Code of Conduct authorises the NCR to issue
guidelines in respect of the conduct of affordability
In June 2013, these Guidelines were published for public comment
and proposed that:
Applicants for credit must prove their claimed discretionary
income when it is above the norm for a person with their gross
income (where such norms must be determined as a percentage of
gross income hand).
Credit providers must consider all of the applicant's
income, expenses and debt repayments when doing an affordability
Credit providers must refrain from lending to the maximum of
consumers' discretionary income and must leave a margin of at
least 25% for adverse changes in the economy or in the
circumstances of the consumer.
Credit providers are required to use the applicants'
current credit information as stored with one or more credit
Credit providers must process applications for credit within
seven days of accessing an applicant's credit information from
the various credit bureaux.
Credit providers must share credit application information from
the various credit bureaux to allow for better affordability
assessments to be made by other credit providers and to reduce
credit application fraud.
This is a departure from the current legislative regime in terms
of s82 of the NCA, which provides that the mechanisms in respect of
the affordability assessments are at the discretion of the credit
provider with an option for the NCR to contest a particular credit
provider's affordability assessment before the National Credit
National Credit Amendment Bill The National Credit Act Amendment Bill was gazetted on
29 May and, among other things, appears to seek to make the
Code of Conduct mandatory rather than optional. It does this by
including (in the amendment to s48) compliance with the Guidelines
as one of the criteria to establish whether a credit provider's
registration will be approved. This is in contradistinction to the
initial view that the provisions of the NCA will take precedence
over the Code of Conduct.
Implementation of the proposed amendments will have a material
effect, both on the costs involved and the processes used by credit
providers in assessing potential borrowers, as well as the use and
accuracy of credit data in the credit bureaux space.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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