Retailers are set to offer borrowers less credit thanks to new laws that have been recently passed. These laws have tightened up how credit providers conduct affordability assessments and commentators are predicting that as a result lenders won’t lend as much credit as often as before.
This could be a major problem for those who apply for credit on a regular basis to make ends meet., “Regardless of the decline, we anticipate a drastic decrease in the amount of credit granted by retailers for Q1 and Q2 2015. The new affordability tests will stop consumers who do not have the means to service their credit from slipping through the credit cracks, due to poor or lack of affordability assessments,” said Kelli Knutsen marketing manager of DebtBusters.
“With this in mind, credit applications and enquiries are expected to spiral out of control, as cash strapped consumers are likely to move from one credit provider to the next to apply for credit in hope that their application will be successful.”
The National Credit Amendment Act, published late last week, outlines the new regulations on the affordability assessments that credit providers should commence before they grant consumers credit. The aim of the affordability test is to protect consumers by preventing credit providers, including retailers, from lending out credit recklessly.
Statistics on retailers and credit facilities in the Consumer Credit Market Report (CCMR) released by The National Credit Regular (NCR) for Q3 2014, reveals that over R16bn in credit facilities was granted for the quarter. (Credit facilities include revolving credit, term loans, overdrafts, and retail credit accounts.)
Furthermore, results on the gross debtors book for retailers amounted to over R35bn. Although this amount declined quarter-on-quarter, from Q2 2014 to Q3 2014, a further decrease is anticipated for Q4.
Knutsen added, “Eighty-three percent of Debtbusters’ clients have retail accounts included under debt counselling and have an average of three retail accounts when signing up for the process. Moreover, DebtBusters’ clients with retail accounts have on average, an amount of R6,400 outstanding on these accounts. Prior to debt counselling, these clients were paying in excess of R1, 000 monthly towards their retail debt repayments.”
The National Credit Amendment Act fleshes out exactly what credit providers, including retailers, need to do before they grant credit. “With assessments enforced, ‘reckless borrowing’ an act conducted by many impoverished South African consumers desperate for a loan, will come to an end too. The days of endless borrowing and rolling credit to survive are no longer. Consumers are to take responsible steps needed to sort out their finances and should consider debt counselling,” says Knutsen.