Monday, 16 March 2015

Amendments to the National Credit Act now effective Unsecured lending will dry up, says debt-counselling firm.

Source: Hanna Barry | 16 March 2015 12:20

JOHANNESBURG – Amendments to the National Credit Act (NCA) have finally come into operation, according to the government’s Green Gazette, significantly increasing requirements for the affordability assessments done by unsecured lenders before granting loans to consumers. 
Signed into law by President Jacob Zuma in May 2014 – a few months before the collapse of unsecured lender African Bank – the National Credit Amendment Act has been a long time coming and it’s not quite clear what has taken so long to get to this point.
When the proposed amendments were first announced last year, Ian Wason – CEO of the Intelligent Debt Management (IDM) Group, which owns one of South Africa’s largest debt counselling companies, DebtBusters – said at the time that the Department of Trade and Industry (dti) had waited so long to introduce these amendments that the consumer debt crisis in South Africa was far worse than it could have been.
According to DebtBusters, the NCR has reported growth in unsecured lending from R40 billion in 2008 to R172 billion in 2014. 
As a means to tackle over-indebtedness, amendments made to the National Credit Act and effective on March 13 include stricter affordability assessments. For instance, lenders must request three months of pay slips and three months bank statements (or similar credible income and expense verification) before granting a loan. 
Credit providers are also required to calculate discretionary income, as well as all existing debts and maintenance obligations, in order to make a call on whether the consumer can afford a loan.
“Government is concerned about the high level of over-indebtedness which results from failure to do proper affordability tests on consumers, hidden costs of credit, as well as continued unfair lending practices by some credit providers,” comments the dti in a recent statement on its website.
According to the dti, the amendments also require “open and honest disclosure by consumers when applying for credit so that they don’t find themselves over-extended”.
Unsecured lending drought
DebtBusters, meanwhile, has warned of an “unsecured lending drought for South African consumers”. 
“As credit providers start tightening their lending criteria in response to the new affordability guidelines, it will become more difficult for cash strapped consumers to take out debt,” comments DebtBusters marketing manager, Kelli Knutsen.
“Many South Africans that are already at the end of their credit line won’t meet the new affordability requirements and their loan applications will be declined. Consumers who have a habit of borrowing from ‘Peter to pay Paul’ and [using] revolving credit will no longer be able to do so,” she says.
Together with the NCR, the dti is hosting a conference on Thursday to discuss these amendments, aimed at preventing over-indebtedness. “The conference will also talk to the rising concerns regarding the abuse of emolument attachment orders (EAO), which hold many consumers hostage as they find themselves trapped in debt situations that seem impossible to escape,” the dti says.