The amendments to the National Credit Act (NCA) will now see that lenders have to conduct stricter affordability assessments.
Even though this will help the consumer debt crisis South Africa faces, Kirsten Reynolds, Marketing Executive at GetBucks, believes that the onus is still with the consumer to borrow responsibly.
“In terms of the stricter affordability assessments, this means consumers need to be honest and upfront when declaring current debt and earnings,” said Reynolds.
She went on to explain that if customers do not make responsible repayments then credit will become increasingly unaffordable.
Changes to affordability assessments
The stricter affordability assessments now require that lenders request three months bank statements, or similar credible income and expense verification, before approving a credit application.
Adding to this, lenders are also now required to calculate disposable income, as well as all existing debts and maintenance obligations before they can make a decision as to whether the consumer can afford the loan that they have applied for.
Reynolds also said that with the new regulations, lenders are already trying to ensure compliancy with immediate effect. This, she said, is something that consumers need to be aware of.
Consumer education
Reynolds believes that regulating the sector is not the only changes that need to be made. She believes that another key focus should be on educating consumers about responsible lending habits.
“Consumer education remains a critical component to ensuring disadvantaged and financially vulnerable consumers are empowered to make financially responsible borrowing decisions. It is essential that government and industry work together to ensure consumers understand the importance of managing their credit commitments and borrowing within their limits,” said Reynolds.
This is more prevalent with the information from Compuscan, a credit bureau, which suggest that consumers are not managing their money wisely.
Credit Amnesty
Despite the Credit Amnesty which saw the removal of adverse consumer credit information take place at the beginning of last year, by the end of 2014 there were roughly two million consumers who had adverse-enforcement status against their name.
Compuscan analysts believe it is highly likely that a large number of individuals who had benefitted from the removal regulations form part of this group of consumers with new adverse listings.
“Ultimately consumers need to be well informed regarding the implications of taking out unsecured credit and understanding the implications of changes to their financial position, as well as the consequences of defaulting. However, that being said, education initiatives will only prove successful when backed by a consumer culture committed to borrowing honestly and responsibly,” said Reynolds.
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