Call for comment on draft rules to stop reckless lending

The public has been asked to comment on new draft regulations that aim to help South Africans getting deeper into debt by regulating affordability assessments by credit providers.

The Department of Trade and Industry released a statement, saying that the draft regulations aim to curb “reckless lending and over-indebtedness of consumers”. Previously, credit providers took advantage of the laws and determined their own models for affordability assessments. The result was that “credit in excess of billions of Rands was granted to consumers exacerbating the level of household indebtedness”.

If the regulations are passed, credit providers will be required to determine consumers financial information – existing financial obligations, existing debt, their debt repayment history – before credit is issued. However, the onus is also on consumers to disclose their financial history.

DTI Deputy Director-General, Zodwa Ntuli, says the “regulations create a ‘buffer’ which will ensure that households remain with money to put essentials on the table on a month to month basis after repaying their debts. The ‘buffer’ means that no credit should be extended if repayment of such credit will be from the income in the buffer. The responsibility on the consumer to disclose fully their financial obligations to the credit provider is very important to affordability assessments. The success of the affordability assessments hinges on both consumers and the credit providers to be honest and responsible.”

See here to view the Draft Affordability Assessment Regulations and to comment.