The National Credit Act 34 of 2005 (the Credit Act) is the first credit enactment in South Africa that made an assessment of affordability compulsory before credit is extended to the consumer. Until recently the Credit Act did not contain direct prescriptions on how this section 81(2) assessment should be conducted. A credit provider was therefore allowed to determine its own evaluative mechanisms or models and procedures to be used in meeting its section 81 assessment obligations. The only requirement was that the credit provider conducts a fair and objective assessment. The position changed when the National Credit Amendment Act 19 of 2014 became effective on 13 March 2015. Credit providers are still free to use their own evaluative mechanisms etcetera, subject thereto that a fair and objective assessment is conducted. However, there is now the additional requirement that such mechanisms etcetera must not be inconsistent with the affordability assessment regulations made by the minister. On the same date regulation 23A and the definitions to give effect to regulation 23A became effective as part of amendments to the regulations promulgated in terms of the Credit Act.
The purpose of this discussion is to consider regulation 23A and the new definitions aimed at giving effect to the regulation and to reflect on its consequences. A brief discussion of the developments that preceded the insertion of regulation 23A in the National Credit Regulations is also provided.
The most important definitions inserted in section 1 of the National Credit Regulations for purposes of regulation 23A are the definitions of “gross income”, “discretionary income” and “necessary expenses”. These concepts are explained below. Regulation 23A, entitled “Criteria to conduct affordability assessment,” is divided into subdivisions. The first part sets out the field of application of regulation 23A. The regulation applies to current, prospective and joint consumers, all credit providers and all credit agreements subject to the Credit Act. The latter is subject to regulation 23A(2), which determines which credit agreements are not subject to regulation 23A. The same credit agreements that are exempted from the reckless provisions in the act are inter alia, and for reasons that are self-explanatory, not subject to regulation 23A. The next three subdivisions of regulation 23A have as aim to regulate the second leg of the credit provider’s assessment obligation in terms of section 81(2)more extensively, namely to assess whether the prospective consumer can afford the credit he/she applies for. The manner in which a prospective consumer’s existing financial means and prospects must be assessed is addressed first. This is followed by the assessment of the consumer’s financial obligations and debt repayment history under credit agreements. It is submitted that regulation 23(8), in terms of which a credit provider must make a calculation of the consumer’s existing financial means, prospects and obligations, as envisaged in sections 78(3) and 81(2)(a)(iii) of the Credit Act, should serve as the point of departure. Regulation 23A(3) forms the crux of the provisions in respect of the consumer’s existing financial means and prospects. It provides that the credit provider must take practical steps to assess the consumer’s (or joint consumers’) discretionary income to determine whether the consumer has the financial means and prospects to pay the proposed credit instalments. The discretionary income is the consumer’s gross income less statutory deductions less necessary expenses less all other committed payment obligations as disclosed by the consumer, including obligations disclosed by the consumer’s credit record as held by credit bureaux. “Gross income” means all income earned from whatever source, without deductions. The regulation imposes an obligation on the credit provider to take practical steps to verify the consumer’s gross income. The obligations are imposed on the consumer to accurately disclose to the credit provider all financial obligations and to provide authentic documentation to the credit provider to enable the latter to conduct the affordability assessment. The definition of “necessary expenses” is of importance in respect of the assessment of the consumer’s existing financial obligations. The concept means the consumer’s minimum living expenses including maintenance payments but excluding monthly debt repayment obligations in terms of credit agreements. Of importance is that credit providers are obliged to take fixed minimum amounts into consideration as minimum living expenses. For purposes of the latter a table with “minimum expense orms” is provided. According to the table, if a consumer, for instance, earns a monthly gross income of R2 000, the credit provider must deduct at least an amount of R881 as minimum living or necessary expenses. The only exception is where the consumer, by completing a so-called “declaration of consumer’s necessary expense questionnaire”, can show that his/her living expenses per month are less than the prescribed amount. In summary, as far as the assessment of the prospective consumer’s existing financial means, prospects and obligations are concerned, a credit provider must determine a prospective consumer’s discretionary income to ascertain whether the consumer can afford the proposed credit. Regulation 23A is concluded with measures to regulate the credit provider’s obligation to take the consumer’s debt repayment history in terms of credit agreements into consideration and with measures to regulate a number of miscellaneous aspects. Included under the latter are measures aimed at avoiding double counting in calculating the discretionary income and to provide a consumer, who feels aggrieved by the outcome of the affordability assessment, with a grievance procedure.
As a result of the abovementioned regulation amendments, credit providers will no longer have carta blanche when conducting the affordability assessment. On the positive side, a greater measure of consistency amongst credit providers when conducting these assessments ought to be ensured by the insertion of regulation 23A. A basis model is provided by the legislature that will serve as a basis or bottom line model for all credit providers when conducting the assessment. However, there are aspects in the regulation and definitions deserving of further attention. For example, some of the definitions are poorly drafted and the grievance procedure afforded to the consumer seems not to be aligned with the provisions of the Credit Act. In conclusion, one will have to wait and see what the impact of the new affordability assessment regulations will be in practice.
Key words: affordability assessment regulations; avoidance of double counting; credit assessment; debt repayment history; definitions; discretionary income; existing financial means and prospects; minimum expense-norms; outcome of credit assessment; regulation 23A; remedies; section 81(2) National Credit Act; section 78(3) National Credit Act