Regulation 23A(4) of the National Credit Regulations was enacted to give effect to section 81 and 82 of the National Credit Act, 2005 (the "NCA"). These sections require credit providers to prevent reckless credit and to conduct credit affordability assessments.
To this end, Regulation 23A(4) required consumers to produce their latest three payslips, bank statements or income statements in order for the credit provider to assess their gross income.
While this may seem uncontentious, in practice, it has had the effect of unfairly discriminating against those employed in the informal sector, those who are self-employed, those who receive income through other means, as well as those who are members of the "unbanked" population. This is because such persons would automatically be denied access to credit, which contradicts the very purpose of the National Credit Act: to promote a fair and non-discriminatory marketplace for access to consumer credit.
Consequently, the Western Cape High Court in Truworths Limited and Others v Minister of Trade and Industry and Others set aside Regulation 23A(4) on the basis that it is discriminatory, unreasonable, and is not rationally connected to the purpose that it is intended to serve. As an example, the court referred to an Adderley Street flower seller in Cape Town, who although receiving a steady income, would be denied access to credit to purchase her child's school uniform.
In this sense, the judgment is a welcome one as it removes unreasonable barriers to the granting of credit in the informal sector. The reality is that South Africa has a large informal sector, and its laws and regulations need to be adjusted to speak to this.
Note however, that the judgment is not to be misunderstood as eliminating the duties and restrictions surrounding reckless credit, and to avoid this situation, the National Credit Regulator released, for comment, the Guidelines for Credit Providers on 4 May 2018.
These guidelines reassert the duties imposed on credit providers with the result that most credit affordability practices remain extant. However, when a consumer is unable to produce income statements and the like, the credit provider will need to make use of its assessment methods and models.
The proposed guidelines set out the following:
- where a consumer is employed in the formal sector, they will still be required to produce income statements or bank statements (if applicable) for the preceding three months;
- if the consumer has not been employed for more than three months, they may produce their most recent income statement, a letter of employment from their employer, or a recent bank statement displaying the salary deposit; or
- where a consumer is self-employed, employed in the informal sector, or receives income other than from formal employment, the credit provider will then be required to conduct its own credit affordability assessment according to its own methods. The credit provider must ascertain whether the consumer has a bank account through which their income flows, and must also submit its affordability assessment models to the National Credit Regulator.
To view the proposed Guidelines for Credit Providers, please click here.
Lara Lindeque is a candidate attorney in ENSafrica's banking and finance department.
Reviewed by Deborah Carmichael, a director in ENSafrica's banking and finance department.
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