In March 2018, major clothing retailers Foschini and Mr Price took the Minister of Trade and Industry and the National Credit Regulator, to the High Court. Arguing that regulation 23A(4) made by the Minister of Trade and Industry are unreasonable and discriminates against lower-income or less privileged members of society.
The High Court ruled in favour of the retailers, ordering that regulation 23A(4), as well as s171(1) of the National Credit Act of 2005 be set aside. Effectively, this means that there is no longer a need to collect documentation that proves income when applying for credit. The credit applicant is still required to provide authentic documentation to the credit provider.
On Friday, the Department of Trade and Industry published new guidelines which assess the gross and discretionary incomes when applying for credit in South Africa.
A number of regulations have remained unchanged by the judgement, and credit providers are still required to:
– Conduct an affordability assessment in order to calculate the consumer’s discretionary income.
– Take steps in order to ensure that the customer can, in fact, pay the monthly installments.
– Use the minimum expense norms table to break down the customer’s monthly gross income when calculating the existing financial obligations of the customer.
The new guidelines expressively separate those who are formally employed from those who are self-employed or employed in the informal sector.
The gross income of a customer who is formally employed will still be ascertained from their pay slip.
If the customer has a bank account into which their monthly salary is deposited, the customer’s net income can be ascertained with reference to their bank statement. Living expenses and debt obligations are then deducted from the customer’s net income to ascertain what their discretionary income is. Three months worth of bank statements or pay slips are also used to determine the consistency of of the customer’s income.
If the customer has been employed for less than three months, the credit provider should obtain his or her latest pay slip at the time of the credit application. A letter of employment confirmation may also be used to detail the customer’s salary and the frequency of payment.
Customers who are self-employed or informally employed will still need to provide other verification of income that proves that their income is sufficient to meet the payment obligations of the proposed credit.
The credit provider will also be required to submit its affordability assessment models and procedures in relation to customers who fall into this category for the National Credit Regulator.