The affordability assessments undertaken by credit providers were set to be standardised, with the Department of Trade and Industry (DTI) planning to publish draft regulations for public comment at the end of July.

As the over-indebtedness levels of South Africa’s consumers continued to rise, a review of the application of the National Credit Act highlighted “serious gaps” in the credit market, particularly around reckless lending.

Credit providers currently determined the models for affordability assessments. Investigations by the National Credit Regulator (NCR) revealed that these were often inconsistently applied.

The marketing of unsolicited loans, the provision of preapproved credit facilities and the failure of some credit providers to undertake affordability assessments, as well as consumers omitting or misrepresenting the affordability test information required, were among the top challenges in mitigating the “worrying” trend.

“While bypassing affordability tests may provide immediate gratification to a person that applies for such credit and the credit provider granting it, the effects are severe, leading to [the] repossession of property and blacklisting, which are costly to both parties to such reckless credit agreements,” explained DTI consumer and corporate regulation division deputy director-general Zodwa Ntuli.

The responsibility was on the consumer to disclose fully their financial obligations to the credit provider for accurate affordability assessments.

The National Credit Amendment Act, promulgated in May, contained amendments that would give the Trade and Industry Minister the power to draw up affordability assessment regulations that would make consistency and monitoring easier.

The DTI had also raised a red flag over the marketing practices employed by credit providers, which targeted low-income earners offering unsecured, expensive, short-term loans with hidden costs, as well as pre-approved loans and other unsolicited credit facilities.

Ntuli commented that the NCR was implementing a strategy to monitor and deal decisively with marketing practices that were “deceptive” and “inciting” consumers to take up credit.

“It is envisaged that these measures will be a game changer in the credit market and will certainly produce the desired impact,” Ntuli stated.