CCR Magazine

CCRi banner ad
You are here  :Home arrow News arrow Affordability Assessment Regulations – what they mean to the consumer!
Contact Us Newsletter Signup RSS Feeds

Latest News Headlines

Headlines

 
Commercial Credit News

Headlines

 
Affordability Assessment Regulations – what they mean to the consumer! PDF Print E-mail
Thursday, 28 April 2016
The National Credit Amendment Act (NCAA) introduced affordability assessment regulations with an aim of assisting credit providers to effectively assess the consumer’s ability to repay credit and to also protect consumers from reckless lending. 

These regulations require credit providers to verify consumers’ income before granting credit, says Louisa Hetisani, Manager: Compliance at the National Credit Regulator (NCR).

Prior to these regulations, the National Credit Act (NCA) was not prescriptive on how affordability assessments should be conducted. “The regulations apply to current, prospective, joint consumers, credit providers and all credit agreements to which the National Credit Act applies with exceptions to developmental credit, school /student loans, public interest credit agreements, pawn transactions, incidental credit agreements, emergency loans, temporary increases of a credit limit under a credit facility, unilateral credit limit increases under a credit facility and the FLISP subsidy linked mortgages”, explains Hetisani.

Credit providers must take practical steps to assess the prospective consumer’s discretionary income. For those consumers who receive salaries, it simply means that the credit provider should request the latest three (3) payslips or bank statements showing the latest three salary deposits and for those consumers who don’t receive salaries, the credit provider should request the latest three (3) documented proof of income or latest three (3) months bank statements.

However, for self-employed, informally employed consumers or consumers who don’t receive a payslip, the credit provider should request for three (3) months bank statements or the latest financial statements.

Where there are material variances on a consumer’s income, the credit provider should use an average gross income for at least three (3) pay periods.

“It is imperative for consumers to disclose accurately to the credit provider all their financial obligations and to also provide the credit provider with authentic documentation”. “If consumers fail to truthfully disclose any information to credit providers, they may lose protection offered by the NCA”, stresses Hetisani.

The credit provider must take practical steps to assess whether the consumer has the financial means and prospects to pay the proposed new credit instalment. A consumer’s discretionary income is calculated by taking the gross income and subtracting tax, unemployment insurance fund, maintenance payments and all other payment obligations. The credit provider is required to consider all debt repayment obligations that the consumer has as reflected by a registered credit bureau.

The affordability regulations introduce the minimum living expense norms table which serves as a guide for calculating consumers living expenses. This table is based on the gross monthly income of the consumer. “In practice, the NCR has observed that some consumers tend to under declare their monthly living expenses in order to improve their chances of qualifying for a loan” says Hetisani. The minimum living expense norms table aims to address this challenge. In instances where the consumer’s declared minimum expenses are lower than those in the NCAA, the credit provider should make the consumer complete a questionnaire provided in the National Credit Amendment Act.

In instances where the consumer is substituting one credit agreement for another such as for consolidation loans, the credit provider is required to take practical steps to ensure that the new loan is used for its intended purpose.

These regulations have allowed for the disclosure of the credit cost multiple which should be disclosed in the pre-agreement statement and quotation. Credit insurance should also be shown in the total cost of credit, concludes Hetisani.
 
CCRI
3 October - Guoman Tower Hotel, Central London 

CCRInteractive, in association with Marston Holdings , is the largest and leading one-day conference from the publishers of CCRMagazine – a truly national and international event for the credit industry.

This landmark event allows delegates to: Learn best practice of how to increase profitable sales in today’s economy. Understand the key compliance issues and how they will impact upon you. Discuss the legislative and regulatory framework and how it will effect you. Consider the potential effects of Brexit on your business. Discover the latest innovations in the market to improve your collections. Motivate your staff to achieve ever improved results.

To book to attend in 2017, contact Stephen Kiely  or Alison Lucas. To find out more about being part of this landmark event, please contact Gary Lucas
CCRI 

 Forums International Ltd

Forums International Ltd

 Attendance at your first meeting is free of charge, and please quote reference 'CCR2016' to receive the special 10% discount off of your first annual subscription.

Find out more here.

latest issue

CCR Cover

The latest edition of CCR Magazine, the leading editorial publication in the UK credit industry, is out.

Read the latest issue online

The Credit Excellence Awards

Awards 

Tuesday 3 October - Guoman Tower Hotel, Central London


Do not miss your chance to meet and network with the Winners and Finalists at the Credit Excellence Awards, in association with Hoist Finance.


To book your place to attend, please contact Alison Lucas.


subscriptions

CCR is the premier magazine for consumer and credit professionals. It provides an independent voice to the industry, breaking major news stories and running in-depth features.

As a magazine, it works with and campaigns on behalf of the credit industry to promote its importance as a centre of potential profit and business development to the wider business world.

Subscribe to CCR Magazine

CCR World Magazine


 

Providing information and analysis for thousands of senior credit professionals worldwide, every quarter.

Find out more

GTS Media Ltd
81 Cambridge Road
Southend-on-Sea
Essex
SS1 1EP

Registered in England No: 05483197